Another Absa first for local securitisation market

Posted On Thursday, 28 October 2004 02:00 Published by eProp Commercial Property News
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Absa, iFour Properties Limited and Pangbourne Properties Limited made finance history today with the launch of South Africa’s first Commercial Mortgage Backed Securities (CMBS) programme.

Maria RamosPROPS - Absa, iFour Properties Limited and Pangbourne Properties Limited made finance history today with the launch of South Africa’s first Commercial Mortgage Backed Securities (CMBS) programme.

The programme vehicle, aptly named  “PROPS”, is structured to allow iFour continued operational flexibility while benefiting from direct access to the cheaper debt available in the capital markets.  The PROPS bond programme is listed on the Bond Exchange of South Africa and will, in line with international trends, create long-term benefits for iFour stakeholders.

“iFour’s objective on listing in June 2002 was to utilise securitised debt to fund its A-grade property portfolio. Although not achieved at the time, the right corporate structure established at listing and the dynamic approach adopted by the team solved the problems originally encountered at listing. It enabled us to underpin our strategy of delivering sustainable growth in distribution to unit holders,” says James Nunes, CEO of iFour Properties. 

“Pangbourne, which provides property management and financial administration services to iFour assisted them in reaching their objective of securitising its debt by providing expertise, systems and procedures. As a co-sponsor of the PROPS programme, Pangbourne will also be able to take advantage of securitisation which will assist it to achieve its strategic objectives which will ultimately be of benefit to the unit holders in both companies,” comments Athol Campbell, CEO of Pangbourne.

Demand for the securitised bonds has been unprecedented with the initial R800 million iFour issue under the R2 billion programme being ?? times  oversubscribed.  The intense demand has also resulted in very tight pricing in the bond auction process, surpassing the targets set by the team and the overall cost of capital targets of iFour.  

In comparison to the usual all in 2-3% credit margin typically charged by commercial banks for commercial property loans, the Moody’s rated bonds issued by PROPS achieved a credit margin of only [??]%.

The innovative transaction was pioneered by the Capital and Debt Markets team at Absa Corporate and Merchant Bank (ACMB) and Absa Commercial Property Finance (ACPF), and represents a marriage of international best practice in non-tax driven structured finance techniques with traditional South African property expertise. 

“We are very pleased with the level of innovation that the collaboration between ACMB & ACPF has brought to the South African commercial property sector,” says Robert Emslie, managing executive of ACMB.

“We anticipate that, as with other markets around the world, commercial property securitisation will be widely used by most significant South African commercial property companies within the next few years and we fully support this initiative.”

The process of obtaining a credit rating from an internationally recognized agency such as Moody’s for bonds ultimately secured by a portfolio of commercial properties is also a first in South Africa.

Commercial property securitisation accounted for in excess of Euro 100 billion of debt funding raised in the US and Europe last year alone, and is the favored form of debt funding around the world for larger listed and non-listed property companies.  The Australian listed property sector also uses securitisation as a preferred debt source, with over Aus$ 6 billion of debt raised in this manner over the past five years.

Absa currently lends to the majority of the locally listed property companies and is well placed to offer this product to the sector. Absa is also an innovative and active player in the South African securitisation market, recently concluding transactions such as the R3 billion CARS transaction – the largest securitisation to date in the South African market and ABACAS, South Africa’s first segregated series asset-backed commercial paper conduit listed on BESA (currently sized at R4,5 billion). In August this year, the bank also announced the issue of the NBC Future Guard, the securitisation of provident-backed home loans – the first transaction of its type in the world.

Last modified on Wednesday, 14 May 2014 11:36

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