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The South African ABS market

The South African ABS market. June 2007. Megan McDonald Director Securitisation. Megan McDonald Director Securitisation, Standard Bank. Contents. The development of the South African ABS market Key success factors Trends Panel discussion.

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The South African ABS market

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  1. The South African ABS market June 2007 Megan McDonald Director Securitisation Megan McDonald Director Securitisation, Standard Bank

  2. Contents The development of the South African ABS market Key success factors Trends Panel discussion

  3. South African ABS constitutes a significant portion of the EEMEA region “South Africa’s securitisation market is maturing rapidly. Originators are quick to replicate structures seen in more mature markets, in particular the U.S. New transactions show similar levels of sophistication, and this degree of innovation and complexity marks South Africa apart from the other countries in EEMEA.”* EEMEA existing asset issuance 2001 - 2006 EEMEA total issuance 2001 - 2006 Source: Standard & Poor’s *Note: Standard & Poor’s rating report: Structured Finance is making a home in EEMEA, September 06

  4. Market development – term issuance Term issuance per year Term issuance by asset class US$m Sources: BESA, Standard Bank Group • Although the first securitisation took place in 1989 it was not until 2001 that the market started to develop fullywith the first RMBS transaction for SA Home Loans • The market has shown remarkable growth since its inception, with issuance for 2006 closing at US$4.4 billion • Growth in issuance volumes has been accompanied by structural innovations as well as the development of legislation governing securitisation Strong growth in issuance since the inception of the market

  5. Market development – term issuance

  6. Market development – ABCP issuance ABCP issuance per year ABCP issuance by conduit US$m US$m * Sources: BESA, Standard Bank Group Note:*to 30 May 2007 • ABCP market was established in July 2002 with the launch of Blue Titanium Conduit • Since then the market has grown rapidly to a total of 8 conduits, with all the major banks sponsoring them • The first mortgage warehousing conduit was launched in 2005 with the establishment of the Thekwini warehousing conduit for SA Home Loans. This was the first and currently the only conduit to issue extendible notes in the SA market • To date the total ABCP issued stands at over US$8 billion

  7. South Africa – key success factors Regulatory framework Macroeconomic fundamentals Rating agencies Market developments

  8. South Africa – key success factors Legal Framework • Common law jurisdiction with few legal impediments • True sale • Principal/agent • Secondary market institutions under company/common law • Few/no tax impediments Regulatory Framework First securitisationissue in the SA market by Allied Building Society. No regulations in place First securitisation by Sasfin under the Commercial Paper regulations New securitisation regulations cater for traditional and synthetic securitisation 1989 2000 2004 2008 2001 1994 Updated regulations to take into account Basel II and are to be implemented in 2008 Commercial Paper regulations used for issuance of debt capital market instruments First traditional securitisation regulations issued, not taking synthetic deals into consideration

  9. South Africa – key success factors Macroeconomic Fundamentals • Positive macroeconomic environment • GDP growth • Growing house prices Rating Agencies • Foreclosure common (6 to 18 months) • Good availability of historic performance data • Variable rate loans dominate • Rating agency presence with established national scale rating y/y House Price Index Interest rates % % Source: Standard Bank Group

  10. South Africa – key success factors Market Developments • Local bond market issuance up to 20+ years • Highly developed local pension and insurance industries (>US$150 billion under management) • Exchange control 2001 BESA composition 2006 BESA composition Sources: BESA, Standard Bank Group Significant credit market expansion

  11. Trends – spreads (2001-2005) Spreads over 3 month JIBAR 2001 - 2005 Sources: BESA, Standard Bank Group

  12. Trends – spreads (2005-2007) Spreads over 3 month JIBAR 2005 - 2007 Sources: BESA, Standard Bank Group

  13. Trends – international issuance • South African issuers are increasingly issuing into the offshore market • This is being driven by large local supply and widening spreads in the domestic market • International investors have shown significant appetite for South African originated ABS transactions Sources: BESA, Standard Bank Group

  14. Charitable Trust Standard Bank Originator/Servicer South African Investors ZAR Excess spread & servicing fee Servicing & Sub-Loan 100% Class A0, A2, B-F Note Note issue Blue Granite No 4 (RMBS Issuer) Blue Granite International ABS (Irish SPV) Investors Class A1 Note EUR ZAR Principal & Interest ZAR ZAR EUR South African Borrowers & Mortgages Royal Bank of Scotland Swap Counterparty Trends – international issuance Transaction structure

  15. Trends – international issuance

  16. Panel discussion – issues to consider • International issuance – challenges and opportunities • Origination of new assets • Regulatory/Basel II/ Exchange controls • Issuance out of other African countries

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