presentation to the gordon institute of business science
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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 - PowerPoint PPT PresentationTRANSCRIPT
Presentation to
The Gordon Institute of Business Science
Creating and Developing The New Organisation
Simon Stockley11 March 2005
South African Mortgage Market Overview
Sophisticated mature – R300billionDichotomous Dominated by Big 4 BanksSound legal structure – title & foreclosureWide margins – no real competitionNo non bank lendingBanks “cash rich” – no shortage of capitalCredit data good
0
50
100
150
200
250
300
May
-93
Aug
-94
Aug
-95
Aug
-96
Aug
-97
Aug
-98
Aug
-99
Aug
-00
Aug
-01
Aug
-02
Jul-0
3
Nedcor25%
ABSA30%
SBSA20%
Investec4 %
SAHL3 %Other
2 %
First Rand Bank 16%
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
SAHL REGISTRATIONS
R0m
R200m
R400m
R600m
R800m
R1,000m
R1,200m
SAHL
BB
Total
What is SA Home Loans?
The first South African company to discount home loans on a national basisThe first South African company to fund its loan book through the internationally recognised practice of “securitisationThe first South African company to operate with a transparent pricing policy with regards to home loans
What is SA Home Loans?
It is a management organisation that links institutional investors with borrowersThe company is owned by Chase JP Morgan, Standard Bank, International Finance Corporation (the commercial arm of the World Bank) and Management
SA Home LoansActivities since launch: February 1999
: R20billion
: R1.1billion (December 2002)
Number of clients : 75 000
Monthly increase in clients : 3 000
Value of loans approved
Securitised PortfolioThekwini Fund I : R1.25billion (December 2001)Thekwini Fund 2
Thekwini Fund 5 : RR3billion (February 2005)
Thekwini Fund 3 : R2billion (December 2003)Thekwini Fund 4 : R2.5billion (July 2004))
Single Seller Conduit Programme
: R15billion (launch July 2005)
Why No Securitisation prior to December
2001?
Big is bestRating agenciesExposure to international marketsLegal framework not securitisation friendlyLittle incentive for banks to securitiseNo ability to reinsure first loss position
S A Home Loans
The productIts positioningFunding
20 year, variable rate, reducing term mortgageNo prepayment or redemption penaltiesDiscounted legal and administrative switch feesNo ongoing administrative chargesRe-advance facility/access bondFixed margin above cost of moneySwitch re-finance proposition
The Product
ReservingRequirements
BankDepositsLoans
ToPublic
Margin : 4 - 5%
Traditional Bank Funding
• Mismatch
• Dead Capital
• Contamination
Control
Public
SpecialPurposeVehicleTrust
LoansTo thePublic
SeniorSecurities
SubordinatedSecurities
PurchaseSecurities
Independent Trustee
ExternalAuditor
Origination & ManagementFee : 0.5%
J IBAR Rate
Plus 2.1%
1.6% Yield pick up
SA Home Loans Securitisation Structure
InstitutionalInvestors
Public
Loans
J IBAR + 2.1%
Thekweni I
Special
Purpose
Vehicle
R1.25 Billion
A Class
92 %
AAA Rating
J IBAR + 70 Points
B Class
8 %
BBB Rating
J IBAR + 230 Points
C Class
2.5 %
Unrated
Pay away1.6% to investors
SAHL
0.5% Management Fee
Standard Bank
Deloitte & Touche
Standby Administrator
Investment Structure
Public
Public
Public
Public
Public
SPV
SPV
SPV
Senior MBS
Junior MBS
Senior MBS
Junior MBS
Senior MBS
Junior MBS
Short Term
Insurer
Life Insurer SAHL
Interim Funder
External Directors
AuditorsMARKET MAKER
INVESTORS
INVESTORS
SECURITIES AND AGREEMENTSTHE PUBLIC SA HOME LOANS SPECIAL
PURPOSE VEHICLES
MORTGAGE BACKED SECURITIES
INSTITUTIONAL INVESTORS
SAHL Legal Structure
Thekwini 4 Summary
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 %
Class B – R 115 m
JIBAR + 1.00 %
Additional Capital [0.5]%
Class A2 - R 643 m
JIBAR + 0.39 %
Class A3 – R 107 m
10.34% %
Class C – R 50 m
JIBAR + 2.10 %
Tranching
Capital [0.6]%
BBB
Rating
AAA
A
Not rated
WAL
5 yrs
5 yrs
4.18 to 5 yrs
In brief
Growth in SA Securitisation Market
0
2
4
6
8
10
12
14
16
18
Pre-2000
2000 2001 2002 2003 2004
R b
illi
on
2000 2001 2002 2003Kiwane (CDO) - R 450 m Thekwini 1 (RMBS) - R 1 350 m FRESCO (CLO) - R 900 m Cars 1 (Auto) - R 3 000 m
On the Cards (In-store) - R 2 000 m BMW 1 (Auto) - R 1 000 mPROCUL (Auto) - R 1 300 m BMW 2 (Auto) - R 1 000 mPrivate Mortgages (RMBS) - R 1 000 m Private Mortgages - R 1 000 mFintech Receivables (Equipment Lease) - R 700 m Thekwini 3 - R 2 000 mThekwini 2 (RMBS) - R 1 000 m InDWA (Conduit) - R 3 000Blue Titanium (Conduit) - R 500 m Grayson 1 (Conduit)ABCUS (Conduit) - R 250 m Blue Titanium (Conduit) - R 1 500 m
ABCUS (Conduit) - R 1 500 m
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
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
T1 T2 T3 T4
Investor support to date…
Securitisation – Cost of Funds History
0.000%0.100%0.200%0.300%0.400%0.500%0.600%0.700%0.800%0.900%
Thekwini 1 Thekwini 2 Thekwini 3 Thekwini 4
Thekwini
Blended Cost of Funds
What We Got Right!
Got to profitability!TimingCopied unashamedly!Had a documented business plan … and stuck to itKept it simpleSuccessful launch … the power of PR!Advertised … built a brand and a culture consistent with that propositionEstablished and owned the “category”
continued …
What We Got Right! (continued …)
Adopted and maintained a consistent “position” … anti bank … consumers’ champion Focus … single product offering until profitabilityInvested in systems and technologyPaid well … incentivised greatly … not just financially!Chose our location well (accidentally?)Planned the Exit/Succession!Finally … had fun!
What We Got Wrong!
Undersold ourselves … entrepreneurs are a scarce resource!Did not retain sufficient equity for a subsequent dilutionDid not focus on team dynamicsUnder-estimated the distraction of intra-shareholder relationsShould have divisionalisedBuilt a second tier representative management team … soonerTiming!