If you doubted the market source who recently said the South African structured finance arena is "exploding" (see ASR 5/20/02 p.1), maybe this will change your mind - FirstRand Bank Limited's (FRB) subsidiary WesBank, is gearing up to launch Procul Ltd., the first-ever synthetic securitization of retail auto loans in South Africa, a deal that comes on the heels of the country's first synthetic CDO, Fresco 1, originated by FRB.

Procul is a synthetic securitization of auto loans originated and managed in South Africa by WesBank. Using a credit default swap, the bank will take on the economic risk of the reference portfolio amounting to Rand 2 billion (U.S. $206.8 million) and will issue eight tranches of funded notes totaling the portfolio amount for classes A through G. Procul is a bankruptcy remote, special purpose institution (similar to the special purpose entity in the U.S.) incorporated under the laws of South Africa with limited liability.

Fitch Ratings has assigned preliminary triple-A ratings to the Class A notes. The deal is expected to target asset manager and pension fund investors, as was the case in the Fresco 1 transaction. "The only synthetics in South Africa thus far have come from FirstRand," said one analyst looking at the Procul deal. "[Fresco] closed and was oversubscribed."

The Fresco 1 portfolio primarily consisted of corporate credits originated and managed nationally. The deal, which totaled Rand 12.5 billion (U.S. $12.3 million), also used a credit default swap to provide protection to FRB on the corporate names up to the value of the portfolio amount. Proceeds from the transaction will be used to purchase triple-A rated government bonds.

As noted previously in ASR, in addition to the recent up-tick in the size of transactions in South Africa, there are an increasing number of headline deals, such as Fresco 1 and Procul Ltd. In November, the country also saw its first MBS transaction, Thekwini Fund 1, a domestic Rand 1.25 billion (U.S.$125 million) deal joint managed by JPMorgan and Standard Bank of South Africa (see ASR 12/3/01). Now market players are said to be anxiously awaiting the first commercial paper transaction.

The analyst working on the Procul deal also noted that there are other various issuers currently in the market with new transactions that are not necessarily synthetic. Nevertheless, the South African market does appear to be gaining ground. Why? "[To satisfy] the appetite from investors for these types of deal," the analyst responded. "There is also an availability of investment opportunities in the bond market during a time when the South African government [is reducing activity in] the bond market."

FRB is a commercial bank that follows the multi-brand approach with retail, commercial and corporate servicing provided by First National Bank Holdings (FNB), the investment banking and treasury activities handled by RMB Holdings (RMB) and the installment loan finance serviced by WesBank. According to Fitch, WesBank has continued to gain market share over the last two years and currently has 30% of the vehicle financing market share in South Africa, marking the largest market share in that sector of the country.

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