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Presentation to The Gordon Institute of Business Science

Presentation to The Gordon Institute of Business Science Creating and Developing The New Organisation S imon Stockley 11 March 2005. South African Mortgage Market Overview. Sophisticated mature – R300billion Dichotomous Dominated by Big 4 Banks

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Presentation to The Gordon Institute of Business Science

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  1. Presentation to The Gordon Institute of Business Science Creating and Developing The New Organisation Simon Stockley 11 March 2005

  2. South African Mortgage Market Overview • Sophisticated mature – R300billion • Dichotomous • Dominated by Big 4 Banks • Sound legal structure – title & foreclosure • Wide margins – no real competition • No non bank lending • Banks “cash rich” – no shortage of capital • Credit data good

  3. The SA Mortgage Market • The rate of growth of the SA Home Loans book has been exponential • On a monthly basis SA Home Loans now originates up to R1billion in new mortgages • This represents approximately 15% of monthly originations

  4. What is SA Home Loans? • The first South African company to discount home loans on a national basis • The first South African company to fund its loan book through the internationally recognised practice of “securitisation • The first South African company to operate with a transparent pricing policy with regards to home loans

  5. What is SA Home Loans? • It is a management organisation that links institutional investors with borrowers • The company is owned by Chase JP Morgan, Standard Bank, International Finance Corporation (the commercial arm of the World Bank) and Management

  6. Number of clients : 75 000 Monthly increase in clients : 3 000 Value of loans approved : R20billion Securitised Portfolio Thekwini Fund I : R1.25billion (December 2001) Thekwini Fund 2 : R1.1billion (December 2002) Thekwini Fund 3 : R2billion (December 2003) Thekwini Fund 4 : R2.5billion (July 2004)) Thekwini Fund 5 : RR3billion (February 2005) Single Seller Conduit Programme : R15billion (launch July 2005) SA Home Loans Activities since launch: February 1999

  7. Why No Securitisation prior to December 2001? • Big is best • Rating agencies • Exposure to international markets • Legal framework not securitisation friendly • Little incentive for banks to securitise • No ability to reinsure first loss position

  8. S A Home Loans • The product • Its positioning • Funding

  9. The Product • 20 year, variable rate, reducing term mortgage • No prepayment or redemption penalties • Discounted legal and administrative switch fees • No ongoing administrative charges • Re-advance facility/access bond • Fixed margin above cost of money • Switch re-finance proposition

  10. Thekwini 4 Summary Tranching Rating WAL In brief Size of Issue : R2,500,000,000 Originator and Servicer : SA Home Loans (Pty) Ltd Standby Servicer : Standard Bank of SA (Home Loan Division) Arranger & Bookrunner : Standard Bank of SA (Corporate & Investment Banking) Substitution Period : 2.5 years Final Legal Maturity : 21 Nov 2029 Call Date : 21 Nov 2009 Listing : BESA Class A1 R 1,585 m JIBAR + 0.39 % 4.18 to 5 yrs AAA Class A2 - R 643 m JIBAR + 0.39 % Class A3 – R 107 m 10.34% % 5 yrs Class B – R 115 m JIBAR + 1.00 % A Class C – R 50 m JIBAR + 2.10 % BBB Capital [0.6]% Not rated 5 yrs Additional Capital [0.5]%

  11. Growth in SA Securitisation Market Public Issuance Deal List • SA Home Loans launched the securitisation market in 2001 • Since then issuance volumes have grow to R 14 billion in 2003 Source: Standard Bank

  12. Investor support to date…

  13. Securitisation – Cost of Funds History

  14. What We Got Right! • Got to profitability! • Timing • Copied unashamedly! • Had a documented business plan … and stuck to it • Kept it simple • Successful launch … the power of PR! • Advertised … built a brand and a culture consistent with that proposition • Established and owned the “category” continued …

  15. What We Got Right! (continued …) • Adopted and maintained a consistent “position” … anti bank … consumers’ champion • Focus … single product offering until profitability • Invested in systems and technology • Paid well … incentivised greatly … not just financially! • Chose our location well (accidentally?) • Planned the Exit/Succession! • Finally … had fun!

  16. What We Got Wrong! • Undersold ourselves … entrepreneurs are a scarce resource! • Did not retain sufficient equity for a subsequent dilution • Did not focus on team dynamics • Under-estimated the distraction of intra-shareholder relations • Should have divisionalised • Built a second tier representative management team … sooner • Timing!

  17. Thank You Simon Stockley • +27 83 2760068 • e-mail : simonst@iafrica.com

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