Introduction
The history of securitisation in South Africa dates back to 1989 with a mortgage-backed issue, followed by two further issuances in 1989 and 1991, the latter being a securitisation of rentals from leasing of machinery and equipment. It took until the late 1990s for further issuances and since then securitisation transactions have occurred on a regular basis. Most securitisations involve assets originated by banks, such as Nedbank, FirstRand and Standard Bank, but there are a number of non-bank financial; institutions that securitise their assets on a regular basis, such as SA Taxi Holdings and SA Home Loans.
Assets that are regularly securitised in South Africa include:
- Residential mortgage loans
- Commercial mortgage loans
- Car loans (including taxi loans)
- Office equipment leases
- Personal loans
- Credit card receivables
- Trade receivables
There are public (listed) as well as private transactions. Although not securitisations in a strict sense, South African banks are regular users of repackaging transactions for corporate and other loans. South African banks also enter into risk participation arrangements in relation to their loan portfolios, but for regulatory reasons, synthetic securitisations are still uncommon.
South African securitisation market
In 2022, the issuance of securitisation bonds amounted to ZAR 16.2 billion with an outstanding volume of around ZAR 160 billion. The large majority of the public securitisation transactions involve residential mortgages, car loans and equipment leases.
Regulatory framework
Securitisations are governed by the regulations published under the Banks Act 94 of 1990 (Banks Act) of 1 January 2008 (the securitisation regulations). The securitisation regulations exempt an issuer SPV from the obligation to register as a bank, provided that the transaction is implemented in accordance with the conditions set out in the regulations. These include the requirement that the transfer of the assets to be securitised should be effected as a true sale as well as conditions regarding the issuer SPV and ownership and control, credit enhancement and liquidity arrangements. Under the securitisation regulations, the written authorisation of the South African Reserve Bank (SARB) must be obtained before the issue of securities by the issuer SPV.
South Africa is part of the Basel Framework and has and is adopting various measures that follow from the Basel III agenda, including criteria for identifying simple, transparent and comparable term and short-term securitisations. There are currently no risk retention requirements.
When the originator in a securitisation transfers its rights under receivables that are subject to the National Credit Act (which includes consumer credit) to the issuer SPV, the latter must register as a credit provider under that act.
The parties to a securitisation transaction must also comply with data protection and privacy as well as anti-money laundering regulations.
Structure
A typical South African securitisation is structured as set out below and will be familiar to those working with European securitisation structures.
Below we discuss some particular aspects of South African securitisation structures:
- Issuer: There are no specific regulations that regulate securitisation vehicles and the issuer SPV usually takes the form of a ring-fenced public or private company, subject to generally South African company law. The shares in the issuer SPV are owned by an independent owner trust. Profits are often extracted through a preference share held by the originator in the share capital of the issuer SPV. The objects of the issuer SPV are typically limited to undertaking those activities that are necessary for the securitisation transaction. South African law recognises subordination, limited recourse and non-petition undertakings.
- Security: A security SPV is usually established in the form of a ring-fenced private company to hold security for the benefit of transaction creditors. The shares in the security SPV are held by an independent owner trust.
- Transfer: The receivables to be securitised are typically sold and transferred by way of cession. Unless the underlying agreement provides otherwise, it is normally not necessary to inform the debtor of the cession unless the underlying agreement provides otherwise. The sale is typically perfected on payment of the purchase price by the issuer SPV. The parties can agree when notice of the cession must be given to the debtor. There are no particular formalities for providing such a notice, which can also be given after the insolvency of the originator.
- Credit enhancement: A bank or other institution within a banking group may provide a credit enhancement facility in respect of a securitisation scheme, subject to the conditions set out in the securitisation regulations. These include transparency and disclosure requirements as well as the condition that they are entered into on ordinary, arm's length commercial terms. The securitisation regulations do not address credit enhancement by non-banking institutions.
- Clawback: In the event of the insolvency of the originator, the sale of the receivables can be challenged if the transaction prejudiced creditors of the originator, and is entered into before certain other conditions in this regard are met. There is no automatic clawback if a transaction is entered into during a period prior to the originator's insolvency.
- Securities issue: The issuer SPV may issue securities publicly or privately. Pursuant to the securities regulations, the securities must be issued or transferred in minimum denominations of ZAR 1 million. An exemption applies if, for example, they are listed on a licensed financial exchange or have a term exceeding five years.
Foreign exchange control
Under South African foreign exchange control regulations, if securities by the issuer SPV are issued to investors who are non-residents of South Africa, the approval of the Financial Surveillance Department of SARB must be obtained before issuance if the securities are either issued in South African Rand and bear interest at a rate which exceeds the South African Prime Rate plus 3%; or issued in another currency and bear interest at a rate which exceeds the relevant base rate for that currency as published by the SARB plus 2%. Although the request for such approval is subject to certain formalities, the approval itself is typically granted without too much complication.
Taxation
A withholding tax of 15% is payable on interest payments made to or for the benefit of foreign persons from a South African source. However, such interest payments are exempt from the withholding tax if the securities are listed on a recognised exchange. The amount of withholding tax may be reduced or eliminated under applicable double-taxation treaties between South Africa and the relevant foreign jurisdiction, or where the foreign person has a permanent establishment in South Africa (for example, a branch or representative office) and the debt claim in respect of which the interest is paid is effectively connected to the permanent establishment. The sale of receivables from the originator to the issuer SPV is not subject to VAT.
