29th November 2001

Securitisation Summit

A Case Studyby

Simon Stockley

Presentation Summary…

Overview : SAHL•What is SAHL?•Activities since launch

Securitisation•Defined •Global growth•Structure•Strategic advantages

Case Study•Product•Positioning•Funding•Way forward

“Banking establishments are more dangerous than standing armies”

Thomas Jefferson

“Except for con-men borrowing money they shouldn’t get, and widows who have to visit with handsome men in the trust department, no sane person ever enjoyed visiting a bank”

Martin Mayer

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 regard to home loans.

What is SA Home Loans?

It is a management organisation that links institutional investors with borrowers.

The company is owned by Peregrine Holdings Limited, Chase JP Morgan, Standard Bank, International Finance Corporation (the commercial arm of the World Bank), International Bank of SA (co-owned by Banque Nationale de Paris & Dresdner Bank), and Management.

SA Home Loan Shareholders

Number of loans processed : 15 000

Value of loans processed : R 5 billion

Value of loans approved : R 2 billion

Breakdown by region : Gauteng 30%

KZN 35%

W Cape 35%

South African Home LoansActivities since launch: February 1999

(As at 01 November 2001)

Definition…

Securitisation Defined

“The packing of individual loans and other debt instruments, converting the package into a security, enhancing its credit for the further sale to a third party.”

Kendall

Securitisation Defined

The conversion of illiquid individual loans to marketable securities, which are generally asset backed.

The effect then is …….

Securitisation Defined

In practical terms …

Securitisation pulls apart financial transactions and allocates the risk and rewards to those entities that are best able to accept and therefore price for them.

Securitisation DefinedBut what does securitisation actually do …….

Gets more money into the economy to lend.

Gets more money into the country to lend.

Allows for cheaper funding so consumers benefit.

Allows for diversified funding options and pricing

for risk so investors benefit.

Securitisation DefinedContinued …...

Bypasses the traditional intermediaries and links borrowers directly to money and capital markets.

Disintermediates the entire financial market and encourages competitive forces.

Securitisation Some Facts

Securitisation is America’s most reliable source of low cost finance.

In the USA, half of all home loans are presently funded

through securitisation and one fifth of motor and credit

card receivables.

In 1998 half of Chryslers corporate debt was funded

through securitisation.

The pace of growth in structured products continues to attract substantial global investor interest

Total Issuance Average annual growth of 32%

Securitisation Market Size

Western Europe$31 billion

Latin America$1 billion

Asia$9 billion

Non-US Asset Backed$41 billion in 1997

EXPORTRECEIVABLES

STUDENTLOANS

DELINQUENTTAXES

ENTERTAINMENTRECEIVABLES

HEALTH CARERECEIVABLES

SUB-PRIMEAUTO LOANS

SOCIAL HOUSINGLOANS

EMBEDDEDVALUE

UTILITYRECEIVABLES

LOTTERYRECEIVABLES

ROADTOLLS

BOATLOANS

EQUIPMENTLEASES

INSURANCEPREMIA

RV’s

HOME EQUITYLOANS

TRADERECEIVABLES

AUTOLOANS

SMALL BUSINESSLOANS

CREDITCARDS

COLLATERAL MORTGAGE

OBLIGATIONS

COMMERCIALMORTGAGES

RESIDENTIALMORTGAGES

1970’sEarly

1980’sMid

1980’sLate

1980’sEarly

1990’sMid

1990’s

USA UKCanada

FRANCE SPAINNETHERLANDSVENEZUELAMEXICO

GERMANY, ITALY, TURKEY, ARGENTINA, BRAZIL,INDONESIA, MALAYSIA,THAILAND, SOUTH KOREA,PHILLIPINES, CHINA ETC.

Geographic Expansion & Product Innovation Securitisation

Domestic Securitisation dates from 1989…

This year has seen a breakthrough in South Africa

R250 million (United Building Society, pt of ABSA Group). Bank mortgages.

19891989

R85 million (Sasfin Ltd): Corporate lease rentals.19921992

National Housing Finance Corporation (announced). Non-bank mortgage for lower & middle income groups.

19971997

Kiwane. R450 million in AA-rated collateralised debt obligation.

20002000

SA Home Loans. Non-bank residential mortgage securitisation. (R1.25 Billion)

20012001

Structural Impediments

Banks - cash rich.

Big is best.

Rating agencies.

Exposure to international markets.

Historically little incentive for banks to securitise.

Origination Impediments

Need to originate.

Time to originate.

Registration process. Costs of transferring assets.

Cost associated with origination.

Information Technology Impediments

Lack of silver bullet applications.

Costs.

Integration.

SA Home LoansA case study

The product.

Its positioning.

Funding.

The Product

20 year, variable rate, reducing term mortgage.

No prepayment or redemption penalties.

Discounted legal and administrative fees.

No ongoing administrative charges.

Re-advance facility twelve times a year.

Fixed margin above cost of money.

Positioning

How much will I save monthly?Get a discount on your home loan – for life

Monthly Savings

R300 000 R200 000 R100 000

1.00% R235 R158 R79

1.50% R254 R236 R118

2.00% R471 R314 R157

2.50% R587 R391 R196

3.00% R703 R464 R234

ReservingRequirements

BankDepositsLoans

ToPublic

Margin : 4 - 5%

Traditional Bank Funding

Control

Public

SpecialPurposeVehicleTrust

LoansTo thePublic

SeniorSecurities

SubordinatedSecurities

PurchaseSecurities

IndependentTrustee

ExternalAuditor

Origination & ManagementFee : 0.5%

JIBAR Rate

Plus 2.1%

1.6% Yield pick up

Securitisation Structure

InstitutionalInvestors

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

VEHICLESMORTGAGE

BACKED SECURITIES

INSTITUTIONAL INVESTORS

Proposed SAHL Legal Structure

Public

Loans

JIBAR + 2.1%

MBT 1

Special

Purpose

Vehicle

R1 Billion

A Class

92 %

AAA Rating

JIBAR + 20/100 Points

B Class

8 %

BBB Rating

JIBAR + 200/300 Points

C Class

2.5 %

Unrated

Pay away1.6% to investors

SAHL

0.5% Management Fee

Standard Bank

Deloitte & Touche

Standby Administrator

Investment Structure

General Observations

True sale to remove from balance sheet and to make insolvency remote.

Quality of asset pool.

Role of rating agencies.

Investor support.

Will Investors buy?

Yield enhancement.

Rating.

Liquidity.

Portfolio diversification.

Privatisation/shortage of quality script.

The Strategic Advantages

Diversify funding base – access to new sources

of funding – less reliance on bank lending.

Lower cost of funding to originator and consumer.

Allows unrated / poorly rated originators to access capital markets.

Off balance sheet treatment/Capital relief.

The Strategic Advantages

Optimises the use of scarce capital resources.

Transcend the sovereign risk ceiling.

Allows pricing for risk.

Continued ...

Securitisation is increasingly being used as a tool to achieve the issuer’s broader objectives

Maximise Capital Efficiency

Improving Return on Equity & managing regulatory capital efficiently is a growing concern among financial institutions & publicly held corporations.

Asset/Liability Management

Match-fund term sheets through issuance of variety of currencies & bases.

Reduce Leverage of Balance Sheet

With the proceeds of the sale of the assets, some originators may choose to pay off their outstanding debt.

Credit management

By selling assets, some institutions are

able to reduce their exposure to certain

industries &/or names

Alternative &/or cheaper finance

In some cases, ABS issuers achive ratings above their unsecured or country ratings. Issuers can also benefit from investor diversification

Grow assets under management

Using CBOs, fund managers can increase

funds under management without inflating the balance

sheet

Capital Relief

Securitized assets are sold into a vehicle for off balance-sheet treatment, thereby releasing capital held against them

Why the Securitisation Model?

Ability to access capital markets directly.

“Unbank lending”.

Pricing for risk.

Funding diversification.

The Way Forward

Increased activity MBS market – placements.

Investor education.

Cross border applications – ability to bridge sovereign risk ceilings.

Growth secondary market – listing bond exchange.

Expansion to other asset classes.

Greater product diversification.

Thank you.Simon Stockley

CEO - SA Homeloans (Pty ) Ltd

Phone : (031) 560 5392

Fax : (031) 562 4266

Cell no : 083 276 0068

e-mail : simons @sahomeloans.com