Botswana Stock Exchange
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Botswana Stock Exchange

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Botswana Stock Exchange Botswana Stock Exchange Presentation Transcript

  • SECURITIZATION- A Financial Perspective for Botswana Markets Thapelo Tsheole Product Development Manager Gaborone, 9 th May 2007
  • Structure of Presentation
    • Background
    • Securitisation
    • BSE Listing Requirements (ABS)
  • Botswana Stock Exchange (BSE)
    • Established by statute in 1994, prior to which Stockbrokers Botswana acted as the informal share market since 1989
    • 31 companies listed – 19 domestic and 12 dual listings
    • 25 Bonds listed (Commercial, corporate and govt.
    • Market Capitalisation – P29.9 billion domestic, P561.2 billion Foreign & P4 billion Bonds
    • BUT Liquidity is extremely low
    • - Lack of instruments to draw out liquidity
    • - Narrow depth and breadth of market
    • Currently BSE is almost solely focused on equities
    • In the future – we intend to offer more than pure equity products.
    • BSE will encourage innovative products to allow the market to develop
    • One of products is Securitized products to unlock liquidity
  • Role of BSE in Innovative Products
    • Help banks/ financial institutions turn cash faster – increase velocity of assets, make asset management system efficient
    • Make institutions generate money
    • Give investors more opportunities
  • What is Securitization?
    • Repackaging of Assets
    • - Income or other receivables from assets(
    • the collateral pool) is sold to bond
    • investors
    • - Bond investors are exposed to the credit risk of the
    • Assets not of the Originator
    • Turns assets into marketable securities
    • Any asset that generates cash flows can be securitized
    • Securitization provides ‘cheap” finance by turning often illiquid and undervalued assets into tradable capital market instruments
    • Companies with strong tangible assets backed by a well documented track record and mature demand are obvious candidates for securitization
  • In a securitization 3 things must happen:
    • A pool of assets is sold in a “true sale” to a remote Special Purpose Vehicle (SPV)
    • The SPV issues debt, backed by the asset itself and the payment streams associated with it (asset-backed)
    • Repayment of debt comes from the cash flow generated by the asset pool rather than the company’s cash flows
  • Securitization Diagram SPV Originator INVESTORS True Asset sale Sale proceeds Sale proceeds of securities Interest & principal
  • The Collateral Pool
    • A pool of credit risk either:
    • 1. Cash Assets
    • - Loans
    • - Mortgages
    • - Credit card receivables
    • - Auto card receivables
    • - Asset backed securities
    • - Phone/electricity account receivables
  • Why securitize?
    • 1. Efficient use of Capital
    • Release capital through the transfer of assets
    • to a non-consolidated legal entity
    • - where the risks of an assets are fully
    • transferred to investors
    • - Also the seller retains no residual credit
    • exposure to the assets
    • - The assets move off balance sheet
    • 2. Optimal Funding
    • Securitization can be simply an efficient
    • funding exercise
    • - some major banks became active in
    • securitization at a time when their own credit
    • rating was lower
    • - When they (Banks) securitized things like
    • credit cards balances and the sale of credit
    • card receivables were sold to SPV it allowed
    • these receivables to be funded by the issue of
    • securities rated much higher
    • 3. Liquidity
    • Through securitization banks/companies are able to add substantial liquidity to their balance sheet
    • - raise funds without ballooning the
    • balance sheet – generate cash by selling a pool
    • of cash flows
    • - raise money from good debts
    • - tap a new investor market
    • - improve profitability
    • 4. Credit Risk Hedge
    • Credit risk of the assets can be transferred to the bondholders
    • - However, seller often retain first loss
    • position
    • - There are also reputational risks in the
    • transfer of poor quality assets to
    • investors
    • - Negative selection of assets should be
    • avoided
  • Role of Seller/Originator
    • The party selling assets, cash flows or an interest in assets or cash flows
    • The seller can be the same as the originator (original lender) or it can be a dealer or mortgage wholesaler
    • Seller is the driving force behind the transaction
    • There can be a servicer, who manages the assets, collect payments, perfection of security on secured loans/mortgages. Assumes management role
  • Role of SPV
    • Purchases asset from Seller
    • Issues securities to investors
    • Holds assets “Bankruptcy Remote” from the Seller
    • Independent from the seller, different name, different shareholders, not consolidated
    • Interested parties generally agree that they will not file for bankruptcy in respect of the SPV
  • BSE Listing Requirements (ABS)
    • BSE should be consulted at early stages due to complex nature of asset backed securities transactions
    • Where issue of Asset- backed fin. Instru is backed by equity securities, those securities must be exchange listed or traded on another regulated & regularly operating open market
    • Those securities must represent minority interests and NOT confer legal management control of the issuing companies
    • Audited A/c (14.73)
    • Trustee or other appropriate independent party representing interests of holders of ABS, with right of access to appr. Inform relating to the assets
  • THANK YOU