South African Market Set For Growth

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The South African securitization market is expected to see strong growth in 2006. After two flat years, there has been a pickup in activity this year­issuance for the first half of 2005 has been around ZAR8.2 billion ($1.4 billion), more than double the figure of ZAR3.8 billion ($650 million) for the same period in 2004.

This article appears courtesy of Institutional Investor
Source: Securitization News

The South African securitization market is expected to see strong growth in 2006. After two flat years, there has been a pickup in activity this year­issuance for the first half of 2005 has been around ZAR8.2 billion ($1.4 billion), more than double the figure of ZAR3.8 billion ($650 million) for the same period in 2004. "The securitization market has grown due to the recognition that the debt capital or fixed income markets offer attractive alternative sources of term financing," said Stephen de Stadler, managing director at Fitch Ratings in South Africa.

South African deals tend to be smaller than European and U.S. transactions and range from around ZAR575 million to ZAR1.5 billion owing to the smaller asset base. "Transactions covered the main asset classes of auto loans, store cards and RMBS, therefore issuance is moving along nicely," said Chris Such, director of ABS at Standard & Poor's. Similarly, while European securitizations tend to have a more diverse mixture of assets, this is not the case in South Africa. ABS and RMBS dominate the landscape and although the first CMBS deal was only completed in last year, this is a sector which analysts predict will see substantial growth in the near future.

The ABS market in particular remains solid. One key deal was Account on Us (Proprietary) Limited, a securitization of store card receivables originated by Woolworth's. Arranged by Standard Bank and sized at around ZAR1.9 billion, Account on Us was notable due to its size. In RMBS, the deal creating the largest waves was Thekwini 2005-5, a securitization of home loans jointly managed by Standard Bank and JP Morgan, worth ZAR 3 billion.

Nedbank launched Synthesis Funding, a multi-seller hybrid conduit, in July 2004 worth ZAR 3.8 billion that was comprised mainly of rated ABS securities, said Richard Hayne, head of securitization at Nedbank. The bank structured Synthesis and continues to run it, Hayne said. Synthesis is a multi-seller conduit that can take any kind of asset, and was the only South African conduit rated by both Fitch and Moody's Investor Service. He added that the conduit market in South Africa has climbed from zero to ZAR26 billion over the last three years. "There has been significant growth, and it keeps going from strength to strength," he said. The other major South African banks--Standard Bank, Rand Merchant Bank and ABSA Bank--have also completed conduit deals recently.

Deals are based mainly around British law and with the exception of a few small amendments, there has been no major legislation introduced that covers securitization specifically. De Stadler believes that growth is primarily fuelled by investor demand in a market that had traditionally enjoyed access to mainly government issuance. "I also think the emergence of legal amendments has helped," he added. "Moreover, I feel that bankers in South Africa now understand the process of securitization more than they did a few years ago," he said, explaining that the success of securitization in the European and U.S. markets also allows the local issuer to build from a tested base.