Washington D.C., December 5, 2001
—The International Finance Corporation has made a Rand 15 million (US$1.5 million) investment in mortgage backed securities (MBS) issued through South African Home Loans (SAHL), the country’s first specialized residential mortgage origination, servicing, and securitization company.
This groundbreaking transaction is the first MBS issue in Africa and is expected to significantly accelerate the development of a modern, transparent, and efficient housing finance sector in South Africa. The introduction of MBS to local financial markets will increase competition in the five largest South African commercial banks, thereby stimulating a general reduction in mortgage interest rates and increasing affordability of housing. The transaction is also expected to establish the blueprint for further MBS issues in the country and will be critical in establishing credibility for the securitization of other local currency assets such as consumer loans and commercial paper.
Haydée Celaya, Director of IFC’s Sub-Saharan Africa Department, said, “The SAHL securitization is part of IFC’s push to develop and modernize the housing finance sector in emerging markets through investments in model transactions that other investors may wish to follow. It is also an efficient way of channeling long-term financing from institutional investors in MBS to retail home mortgage borrowers in emerging markets, resulting in a more competitive home loan market.”
SAHL’s main shareholders include IFC, Standard Bank of South Africa, JP Morgan, and Peregrine Holdings. The company’s business model is to provide affordable home loans at a significant discount compared to traditional retail banks, based on efficient securitization-driven funding, information technology, and low overhead expenses. Over the last two years, SAHL has successfully originated close to R2 billion ($200 million) worth of mortgages, a large portion of which have now been securitized and sold to institutional investors as part of the MBS issue.
The issue consists of a AAA rated senior tranche of R1.15 billion ($118 million) and a BBB rated subordinated tranche of R100 million ($10 million) and is backed by Rand-denominated mortgage loans and collateralized by residential properties located in South Africa. The issue was co-arranged by JP Morgan and Standard Chartered Merchant Bank and the mortgage-backed notes are listed on the Bond Exchange of South Africa. The issue was well received by South African institutional investors with the senior tranche being twice oversubscribed. IFC has purchased 15 percent of the subordinated tranche providing credit enhancement to investors in the senior tranche.
IFC’s mission is to promote sustainable private sector investment in developing countries, helping to 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. Since its founding in 1956, IFC has committed more than $31 billion of its own funds and arranged $20 billion in syndications for 2,636 companies in 140 developing countries. IFC's committed portfolio at the end of FY01 was $14.3 billion.
