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June 2002
Standard Bank offers corporate clients asset backed securitisation
Standard Corporate and Merchant Bank (SCMB), a division of Standard Bank, has become the first local financial institution to enter the asset backed conduit market in South Africa with the launch of Blue Titanium Conduit.
Blue Titanium Conduit is an asset backed commercial paper (ABCP) conduit – a company that will issue commercial paper to finance the purchase of financial assets, such as consumer loans,
instalment sales, trade receivables, corporate loans, credit card receivables and equipment leases. Its objective is to provide flexible and competitive low cost financing to customers. Standard Bank will administer the company.
This Standard Bank-sponsored vehicle will serve the financial needs of corporate clients by combining their assets into one diverse portfolio.
Blue Titanium Conduit then issues commercial paper, backed by the assets, to investors. The funds received from investors are used to buy the assets. The vehicle will be able to issue R20 billion worth of commercial paper.
This is expected to occur over a period of five years.
The commercial paper is expected to have a F1+ rating, the same rating as Standard Bank.
It will be available to institutional investors and fund managers in the form of promissory notes, which will be issued in denominations of not less than R1 million and have an expected tenure ranging between 30 days and 270 days.
"We are offering asset managers a significant asset class away from the more traditional concentration in government, financial institutions and corporate debt securities," says AJ Rothman, Director SCMB Securitisation.
SCMB was the first local institution to bring mortgage backed securities (MBS) to the market and will now be the first to offer asset backed commercial paper.
Mortgage backed securities are securities that are collateralised by a pool of individual mortgage loans. Asset backed securities, on the other hand, are securities that are collateralised by a variety of receivables.
Securitisation is widely used in international markets to convert generally illiquid assets with fairly predictable cashflows into tradable securities.
In the United States, where about 75% of the global volume in securitisation is originated, the asset backed commercial paper market has grown from US$52 billion in 1992 to US$645 billion in 2001.
"The development of a large and sustainable securitisation market in South Africa will benefit both issuers and investors," says Rothman.
Issuers benefit from the increased flexibility, lower cost of funds and better access to both public and private capital markets.
On the other hand, Rothman says that investing in securitised offerings will provide investors with superior yields to plain vanilla investments of comparable maturities and credit.
Asset backed securities allows investors to participate in markets that have largely been dominated by banks. "Through securitisation, investors will gain access to a wide range of new products.
This allows investors to diversify their investments at a time when government supply of bonds is decreasing," says Rothman.
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