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There is no restriction on the purchase by foreign investors of listed South African assets.

South African Securitisation - Foreign Exchange Considerations for offshore securitisation issuances. There is no restriction on the purchase by foreign investors of listed South African assets.

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There is no restriction on the purchase by foreign investors of listed South African assets.

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  1. South African Securitisation - Foreign Exchange Considerations for offshore securitisation issuances • There is no restriction on the purchase by foreign investors of listed South African assets. • Domestic securitisations generally listed on the Bond Exchange of SA, so no restriction on the purchase of such (Rand denominated) paper by foreign investors. • Unlisted issues (incl. unlisted tranches of listed domestic issues) denominated in a foreign currency and marketed to foreign investors, or the sale of a pool of assets to a foreign investor or vehicle, would require the prior approval of the SARB. • Such approval will generally not be unreasonably withheld. • General requirement for cash to flow into South Africa.

  2. South African Securitisation - Foreign Exchange Considerations for offshore securitisation issuances • Where an issuer issues high yield debt securities (ie above Prime plus 3%, as may be amended from time to time) and there will be foreign participation / cross-border funding, the issuer must obtain prior Exchange Control approval. • Once the transaction has been approved, cash flows associated with it (eg interest payments and capital repayments) can be remitted offshore. • Hedging of approved transactions is allowed (currency and interest rate risk hedging). • Arranging fees for foreign arrangers of domestic issues can be remitted offshore, as long as market based.

  3. South African Securitisation - Accounting Considerations • International Financial Reporting Standards apply in South Africa. • Securitisation accounting impacted by IAS39 and SIC12. • IAS 39 is relevant in determining whether the assets need to be derecognised off the originator’s balance sheet: • originator must transfer substantially all risks and rewards • SIC 12 is relevant in assessing whether the SPE should be consolidated: • where substance of the relationship between originator and SPE indicates that SPE is controlled by that originator. • Other current issue is the valuation mismatch that can arise on the valuation of assets/liabs and their underlying economic hedging instruments under IAS39.

  4. South African Securitisation – Basel II • South Africa is currently in the implementation phase of Basel II (refer timetable on next slide) • The Banks Act regulations have been rewritten for Basel II and are currently awaiting final approval. • The Securitisation Regulations have been rewritten for Basel II and are currently out for comment in draft form. The comment period closes 25 June 2007. • Full Basel II compliance will be required from 1 January 2008.

  5. South African Securitisation – Basel II

  6. Securitisation in the rest of Africa – Economic environment • Main growing economies in sub-Saharan Africa outside of South Africa are Kenya, Nigeria and Tanzania. • Limited number of commercial centres e.g. Nairobi and Lagos. • Large informal business community. • Small domestic capital markets. • Syndicated lending is a common funding mechanism. • Large residential property market, with on average only 25% owner occupied properties. • Attractive for foreign investment because of local infrastructure requirements.

  7. Securitisation in the rest of Africa - Banking industry • Banking industry represented by both local and international banks. • Difficult environment for international banks because they also have to comply with regulations in their home country. • Central Banks largely still attempting to implement Basel I concepts and therefore lots of progress required before Basel II will be implemented.

  8. Securitisation in the rest of Africa - Regulatory environment • Regulatory regime generally not well supported because the judicial process is very long. • Therefore it can take a long time to enforce security held against a mortgage loan. This creates liquidity concerns for securitisation. • Regulations can be difficult and costly to implement in the local market e.g. Know Your Customer requirements under the FSA regulations. • There is sometimes a lack of consistency in judicial decision making. • In some jurisdictions, corruption can be a major problem and is sometimes accepted as the norm when conducting business.

  9. Securitisation in the rest of Africa - Securitisation specifics • Due diligence process could be time consuming and expensive because there is often limited historical information available to assess past performance. • Spousal consent is generally required for a mortgage created over a matrimonial home to be valid. • Stamp duty is generally payable when assets are sold to an SPV. The industry is lobbying for relief from stamp duty in the case of a securitisation transaction. Kenya currently has a proposal for exemption from Stamp Duty. • Valued Added Tax is generally trapped in a securitisation transaction.

  10. Member of Deloitte Touche Tohmatsu

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