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There is no restriction on the purchase by foreign investors of listed South African assets. PowerPoint Presentation
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There is no restriction on the purchase by foreign investors of listed South African assets. - PowerPoint PPT Presentation


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South African Securitisation - Foreign Exchange Considerations for offshore securitisation issuances. There is no restriction on the purchase by foreign investors of listed South African assets.

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slide1

South African Securitisation - Foreign Exchange Considerations for offshore securitisation issuances

  • There is no restriction on the purchase by foreign investors of listed South African assets.
  • Domestic securitisations generally listed on the Bond Exchange of SA, so no restriction on the purchase of such (Rand denominated) paper by foreign investors.
  • Unlisted issues (incl. unlisted tranches of listed domestic issues) denominated in a foreign currency and marketed to foreign investors, or the sale of a pool of assets to a foreign investor or vehicle, would require the prior approval of the SARB.
  • Such approval will generally not be unreasonably withheld.
  • General requirement for cash to flow into South Africa.
slide2

South African Securitisation - Foreign Exchange Considerations for offshore securitisation issuances

  • Where an issuer issues high yield debt securities (ie above Prime plus 3%, as may be amended from time to time) and there will be foreign participation / cross-border funding, the issuer must obtain prior Exchange Control approval.
  • Once the transaction has been approved, cash flows associated with it (eg interest payments and capital repayments) can be remitted offshore.
  • Hedging of approved transactions is allowed (currency and interest rate risk hedging).
  • Arranging fees for foreign arrangers of domestic issues can be remitted offshore, as long as market based.
slide3

South African Securitisation - Accounting Considerations

  • International Financial Reporting Standards apply in South Africa.
  • Securitisation accounting impacted by IAS39 and SIC12.
  • IAS 39 is relevant in determining whether the assets need to be derecognised off the originator’s balance sheet:
    • originator must transfer substantially all risks and rewards
  • SIC 12 is relevant in assessing whether the SPE should be consolidated:
    • where substance of the relationship between originator and SPE indicates that SPE is controlled by that originator.
  • Other current issue is the valuation mismatch that can arise on the valuation of assets/liabs and their underlying economic hedging instruments under IAS39.
slide4

South African Securitisation – Basel II

  • South Africa is currently in the implementation phase of Basel II (refer timetable on next slide)
  • The Banks Act regulations have been rewritten for Basel II and are currently awaiting final approval.
  • The Securitisation Regulations have been rewritten for Basel II and are currently out for comment in draft form. The comment period closes 25 June 2007.
  • Full Basel II compliance will be required from 1 January 2008.
slide6

Securitisation in the rest of Africa – Economic environment

  • Main growing economies in sub-Saharan Africa outside of South Africa are Kenya, Nigeria and Tanzania.
  • Limited number of commercial centres e.g. Nairobi and Lagos.
  • Large informal business community.
  • Small domestic capital markets.
  • Syndicated lending is a common funding mechanism.
  • Large residential property market, with on average only 25% owner occupied properties.
  • Attractive for foreign investment because of local infrastructure requirements.
slide7

Securitisation in the rest of Africa - Banking industry

  • Banking industry represented by both local and international banks.
  • Difficult environment for international banks because they also have to comply with regulations in their home country.
  • Central Banks largely still attempting to implement Basel I concepts and therefore lots of progress required before Basel II will be implemented.
slide8

Securitisation in the rest of Africa - Regulatory environment

  • Regulatory regime generally not well supported because the judicial process is very long.
  • Therefore it can take a long time to enforce security held against a mortgage loan. This creates liquidity concerns for securitisation.
  • Regulations can be difficult and costly to implement in the local market e.g. Know Your Customer requirements under the FSA regulations.
  • There is sometimes a lack of consistency in judicial decision making.
  • In some jurisdictions, corruption can be a major problem and is sometimes accepted as the norm when conducting business.
slide9

Securitisation in the rest of Africa - Securitisation specifics

  • Due diligence process could be time consuming and expensive because there is often limited historical information available to assess past performance.
  • Spousal consent is generally required for a mortgage created over a matrimonial home to be valid.
  • Stamp duty is generally payable when assets are sold to an SPV. The industry is lobbying for relief from stamp duty in the case of a securitisation transaction. Kenya currently has a proposal for exemption from Stamp Duty.
  • Valued Added Tax is generally trapped in a securitisation transaction.
slide10

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Deloitte Touche Tohmatsu