JOHANNESBURG, SOUTH AFRICA, August 24, 2000—The International Finance Corporation has helped to structure, and invested in, the first South African corporate debt securitization vehicle, Kiwane Capital Holdings Limited (Kiwane), which is targeted to reach a size of R2 billion (US$286 million).
Kiwane will convert illiquid corporate debt into relatively liquid, highly rated senior asset-backed bonds, which offer an attractive investment instrument to domestic and, eventually, to foreign investors. It will help South African corporates to raise funds directly from the market, which will increase competition and reduce their cost of borrowing.
The vehicle will be managed by Kiwane Asset Management (Pty) Limited, a joint venture of Genbel Securities and Real Africa Durolink, two leading South African investment banks.
The vehicle will invest in debt obligations of South African corporates with investment-grade credit strength. Kiwane can buy assets with maturities of up to 10 years, which is considered long by local standards. It will issue junior, mezzanine, and senior classes of bonds to investors. Until their expected maturity in 2005, Kiwane's senior and mezzanine bonds will have the same interest payment dates and coupons as the R150 benchmark government bond. Only if Kiwane were unable to refinance the bonds in February 2005, would the maturity be extended.
IFC will be an investor in mezzanine bonds for up to R70 million ($10 million), providing most of the credit enhancement needed for rating senior bonds.
Haydee Celaya, IFC director for sub-Saharan Africa, called the transaction a groundbreaking effort that will significantly enhance the liquidity of the local bond market.
Cesare Calari, director of IFC's Global Capital Markets Group, added that IFC's close involvement in the structuring and documentation of the transaction has helped Kiwane achieve international standards and should serve as a model for similar transactions.
Kiwane incorporates several credit enhancement features typical of collaterized debt obligation vehicles (CDOs), which issue bonds backed by pools of corporate or other debt. These include subordination of junior and mezzanine bonds, diversification requirements, and hedging arrangements.
Kiwane has recently placed its first issue of bonds consisting of R450 million senior bonds rated AA-, R32 million mezzanine bonds rated BBB-, and R20 million of unrated junior bonds. The ratings have been assigned by two rating agencies on the local rating scale. Further issues up to the targeted vehicle size of R2 billion are expected when Kiwane identifies more suitable assets in the market.
The mission of IFC, part of the World Bank Group, is to promote private sector investment in developing countries, which will reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.
