The embryonic South African market recently saw its first corporate debt obligation issued to domestic investors. The initial R502 million ($72 million) offering - called Kiwane Capital Holdings - is backed by a portfolio of investment grade rated corporate debt with maturities of up to 10 years.

The SPV is managed by the joint venture company Kiwane Asset Management Ltd., set up by two South African investment banks, Genbel Securities and Real Africa Durolink. Over time the company will invest in more assets to build the program up to its target of R2 billion.

The International Finance Corp., the World Bank affiliate set up to promote private sector investment in the developing world, was brought in as structural advisor on the deal, and will also provided credit support by buying up to R70 million of mezzanine bonds as the SPV grows. Additional credit enhancement will come from subordination on the junior notes, the diversity of the underlying collateral and hedging.

The transaction was split into three tranches, which carry the same interest and payment criteria as government bonds. The senior R450 million notes were given a local rating of AA-minus from Fitch, the R32 million mezzanine tranche BBB-minus, while the R20 million junior tranche was unrated. The senior notes priced at 150 over JIBAR (Johannesburg Inter Bank Agreed Rate).

Arun Sharma, head of structured finance at the IFC, said that the deal had been a success but could not be certain of the timing for the next issue from the vehicle. "The bonds that were marketed were fully subscribed to institutional investors," he said. "As the vehicle wraps in terms of accumulating the required assets with the required credit and diversity characteristics, then the vehicle will issue new tranches to match the fund."

According to Sharma, the IFC is keeping itself busy in promoting the use of securitization techniques in developing countries. "We are still waiting to do a large pilot issue with S.A. Home Loans (ASRI 7/3/2000 p.1) very soon, and the company has been very successful in originating a high quality pool of mortgages in a short period of time," he said. "We've also been involved in the Brazilian medical receivables transaction with MSF Holding, MSF Funding (ASRI 8/14/2000 p.1), in the role of structuring advisors. We're considering investing in the subordinate tranches to improve the efficiency of the deal, but we have not made that decision yet."

In terms of future deals, Sharma confirmed that there were things in the pipeline but said that there was nothing concrete. "There are several other things that we are looking at: maybe some in Turkey following the work we did with Rabobank on the Garanti Leasing deal (ASRI 1/17/2000 p.6), but there's nothing firm yet," he said. "We're also potentially looking at something in India, something in Mexico, but these are still in the early stages."

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