A guide to asset securitisation in South Africa

Olivier, Albert (2002-12)

Thesis (MBA)--Stellenbosch University, 2002.

Some digitised pages may appear illegible due to the condition of the original hard copy

Thesis

ENGLISH ABSTRACT: Enormous growth has been experienced in the South African securitisation environment due to the lack of Government bond issues. There is little doubt that securitisation is still in its early stages in South Africa, but it is here to stay. Asset securitisation can be described as the process of pooling and repackaging non tradable assets secured by relatively uniform, small value assets into liquid securities. The original form of asset securitisation is mortgage backed securities. The success achieved in the securitisation of mortgage loans globally resulted in the securitisation of other types of asset backed securities. Auto loans, credit card receivables and synthetic securitisation have attracted substantial interest in South Africa in the recent past. Synthetic securitisation is becoming an increasingly important topic following the focus of financial institutions to manage regulatory and risk capital. Each securitisation transaction can be structured in such a way to demonstrate specific cash flow characteristics, risk profiles or average life parameters. Securitisation structures include several entities, with each playing a distinct role. The originator is the entity which creates the underlying asset pool. The asset pool is then sold to a SPV, which is a bankruptcy remote vehicle through which the securitisation transaction is facilitated. The SPV will sell securities backed by the asset pool to investors. The proceeds of the issue are used to finance the purchase of the asset pool from the originator. The SPV appoints a servicer that administers the asset pool on behalf of the issuer in return for a fee. The South African legal and tax environment is currently undergoing a transformation in order to accommodate the growing interest in securitisation. Precedents regarding the taxation of securitisation structures are still lacking in South Africa. Both legal and taxation issues around securitisation transactions are likely to change over the coming years. The South African securitisation market still needs to be improved significantly ahead of being classified as world class. The lack of familiarity among investors involved in securitisation is keeping the market from growing to its full potential. Investor education and the documentation of deal information are crucial. The growth of securitisation issues is necessary to increase volumes and in turn enhance liquidity. Knowledge, volumes and regulations regarding securitisation are certainly lacking in South Africa, and though this may slow growth, it will most definitely not prevent the business from rapidly expanding.

AFRIKAANSE OPSOMMING: Die tekort aan staatseffekte in Suid Afrika is een van die redes wat gelei het tot die groei van die Suid Afrikaanse bate effekte mark. Alhoewel bate effektering nog 'n nuwe konsep in Suid Afrika is, het die finansiele markte in Suid Afrika effektering aanvaar en groot belangstelling word getoon deur beide finansiele instellings en beleggers. Bate effektering kan beskryf word as die proses waar onverhandelbare bates saam gegroepeer word en omskep word in likiede sekuriteite wat in die ope mark verhandel kan word. Bate effektering het sy oorsprong in die Verenigde State van Amerika gehad, waar verbandlenings ge-effekteer is. Groot suksesse is behaal en ander vorme van bates is vinnig ge-effekteer en aan die mark gebied. In Suid Afrika is verskillende vorme van effektering al aangetref, die nuutste en mees opwindenste is egter sintetiese effektering. Effektering sluit verskillende entiteite in, en elkeen speel 'n baie spesifieke rol. Kortliks is die proses soos hierna beskryf. Die bates word deur die oorspronklike eienaar aan 'n spesiale doel voertuig verkoop. Die spesiale doel voertuig is heeltemal onafhanklik van ander eenhede in die effekteringsstruktuur en finansiele probleme in die struktuur het geen effek op die kredietwaardigheid van die spesiale doel voertuig nie. Die spesiale doel voetuig verkoop effekte aan beleggers, en die inkomste ontvang van beleggers befonds die aankoop van die poel bates van die oorspronklike eienaar. Die spesiale doel voertuig word gediens en onderhou deur 'n diens verskaffer in ruil vir 'n kontraktuele vergoeding. Die Suid Akrikaanse finansiële markte is tans besig om 'n transformasie proses te ondergaan om effektering te akkomodeer, die fokus is veral op wetlike en belasting aspekte. Alhoewel baie veranderinge al plaasgevind het, sal daar nog baie gedoen moet word voor die Suid Afrikaanse mark as wereld-klas geklassifiseer kan word. Ongelukkig is beleggers nog onbekend met effektering en daarom weerhou dit die mark van vinnige ontwikkeling. Kortom, kennis, volumes en duideliker regulasies wat betrekking het op effektering is definitief nodig in Suid Afrika, en alhoewel dit groei verstadig, sal dit definitief nie die nuwe finansiële instrument keer om tot een van Suid Afrika se vooraanstaande finansiële instrumente te ontwikkel nie.

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