The securitization market is plowing ahead in South Africa. Mirroring the scene in other emerging markets, securitizers are keeping deals in domestic currency in response to increasing local depth and hurdles to the crossborder. "It's a very domestically oriented market," said Arjan Verbeek, vice-president at Moody's Investors Service.
Most securitizable assets are denominated in rands and sources say exchange-rate swaps beyond three years are prohibitively expensive. Other obstacles loom large as well. "You have to be careful with exchange controls," said Alex Gress, an associate with the structured finance origination group at JPMorgan London. In addition, the local investor is growing increasingly sophisticated, emboldening securitizers to push into new assets.
One deal that recently closed is a R653 million (US$67.3 million) securitization of office equipment leases. Led by JPMorgan Securities and co-managed by Gensec Bank, the transaction closed earlier this month. A R619 million (US$63.8 million) senior tranche rated Aaa.za' on the national scale by Moody's priced at 75 basis points over the Johannesburg Inter-Bank Agreed Rate (JIBAR). A R34 million (US$3.5 million) subordinated piece priced at 240 basis points over JIBAR. For the Aaa.za' piece the average weighted life is three years.
Apart from the conventional group of pension funds and asset managers, "a new buyer came to the table," Gress said. Asset backed commercial paper conduits snapped up about a third of the deal, which was 60% oversubscribed.
Up ahead is South Africa's second ever MBS, structured jointly by Standard Bank and JPMorgan. That deal amounts to R1 billion (US$103 million), which would put outstanding MBS at 2.2 billion rand, hardly a dent in South Africa's R250 billion pool of mortgages.
Moody's gave a Aaa.za' national-scale rating to two tranches totaling a combined R902 million. The Aaa.za' piece of the first MBS, sized at around R1.1 billion, yielded 70 basis points over JIBAR. The upcoming transaction is expected to price tighter.
Bankers are eyeing new assets for securitizations. "To date, they've done store credit cards, corporate loans, auto leases and equipment leases," said Chris De Noaillat, vice-president at Moody's. Future deals could come from credit cards, consumer loans, trade receivables, and auto leases.