In a positive sign for the burgeoning South African securitization markets, a unit of The Standard Bank of South Africa has completed the structuring of the country's first-ever ABCP program. The multi-seller conduit also a hybrid combination with a securities arbitrage vehicle will ramp up its asset purchases in the coming months.

Dubbed Blue Titanium Conduit Ltd. the vehicle's purchase limit totals 20 billion Rand ($1.9 billion equivalent), and is the latest in a string of firsts for the South African securitization markets following the December 2001 passage the Banks Act No. 94, which provides exemptions allowing for the issuance of ABCP.

In the past year-and-a-half, South African markets have now seen the first-ever mortgage securitization (See ASR 12/03/01) an auto loan ABS and a CDO (See ASR 5/20, 6/03). Up to five other entities, both large and small, are said to be exploring similar ABCP programs according to Fiona Steel, associate director at Fitch Ratings, who worked on the Blue Titanium transaction.

The most likely candidates to follow suit are the large banking entities that make up the lion's share (74%) of the South African banking panorama. While Standard is the second largest South African bank, with an 18.5% market share, the pending merger between Nedcor Ltd. and BOE Bank will make it the largest, according to Fitch. Absa Bank, First National Bank and Investec round out the South African banking powerhouses.

Since this is the first such program the nation has seen, expectations vary quite a bit on pricing levels, with the bank looking to the more developed U.S. markets and investors looking for a much greater return from the new investment structure.

As an entity that can purchase both receivables and rated securities, there are a pair of credit supports to protect each of the transactions as well as the program as a whole. Transaction-specific support may come in the form of subordinated interests, collateral accounts, excess spread, or a surety wrap. The program is supported by a 10% subordinated loan facility issued to Blue Titanium by Standard Corporate and Merchant Bank, a unit of the parent bank.

Rating agency confirmation is needed prior to the purchase of any receivable pools by Blue Titanium. "Each asset purchased by Blue Titanium will have a reserve specifically tailored to its risks that takes into account the type of assets purchased and the credit strength of the seller," Steel notes in the presale report for the vehicle.

The program-wide credit enhancement is set up allowing Blue Titanium to draw upon the available 2 billion Rand to pay down creditors, covering any shortfall in the cashflows coming into the conduit and out to investors. Fitch adds that the subordinated loan facility may not be used to pay servicing fees due following an asset sale and servicing agreement.

With the conduit entirely Rand denominated, there is no currency exchange risk with Blue Titanium. "Blue Titanium is not permitted to purchase assets denominated in a foreign currency, and as such, there will be no foreign exchange risk," the report concludes.

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