ABSA and listed property loan stock heavyweights iFour Properties and Pangbourne Properties has on Wednesday launched SA's first commercial mortgage-backed securities programme on the Bond Exchange of SA.

The programme vehicle called Prime Realty Obligors Packaged Securities (Props) will enable iFour Properties to benefit from direct access to the cheaper debt available in the capital markets.

Jointly sponsored by iFour and Pangbourne, Props is a R2-billion securitisation programme.

Securitisation allows companies to pool similar loans (such as mortgages) into bonds. The bonds then use interest paid on the underlying loans to pay interest to bondholders.

Andisa Securities property analyst Len van Niekerk said the market could expect more listed property companies to undertake debt securitisations.

He said companies needed to find cheaper forms of funding to improve their yields.

The first series of bonds launched involved a securitisation of R800-billion of loans advanced to iFour. The Props loans replace R800-billion of existing bank debt.

Rating agency Moody's gave R568-billion of the R800-billion securitisation an Aaa.za rating, equivalent to the credit rating given to the South African government, because iFour has specialised in A-grade properties.

Nick Job, lead arranger of the Props transaction, said most major listed property companies in SA would adopt a securitisation strategy in the next two years.

iFour CEO James Nunes said one advantage of a securitisation was the ability it gave them to go to the larger capital markets and obtain a much cheaper source of finance. This would facilitate iFour's growth going forward.

Pangbourne, which provides property management and financial administration services to iFour will, as a co-sponsor of the Props programme, be able to take advantage of securitisation to achieve its strategic objectives.

Geoff Cannings, GM of Absa Commercial Property Finance, said a programme of this type offered cheaper debt than bank debt and the property loan books of banks would contract a bit as similar initiatives took off in SA.

Business Day
Publisher: Business Day
Source: Business Day