JOHANNESBURG, SOUTH AFRICA, August 24, 2000—The
International Finance Corporation has helped to structure, and invested
in, the first South African corporate debt securitization vehicle, Kiwane
Capital Holdings Limited (Kiwane), which is targeted to reach a size of
R2 billion (US$286 million).
Kiwane will convert illiquid corporate debt into relatively liquid, highly
rated senior asset-backed bonds, which offer an attractive investment instrument
to domestic and, eventually, to foreign investors. It will help South African
corporates to raise funds directly from the market, which will increase
competition and reduce their cost of borrowing.
The vehicle will be managed by Kiwane Asset Management (Pty) Limited, a
joint venture of Genbel Securities and Real Africa Durolink, two leading
South African investment banks.
The vehicle will invest in debt obligations of South African corporates
with investment-grade credit strength. Kiwane can buy assets with maturities
of up to 10 years, which is considered long by local standards. It will
issue junior, mezzanine, and senior classes of bonds to investors. Until
their expected maturity in 2005, Kiwane's senior and mezzanine bonds will
have the same interest payment dates and coupons as the R150 benchmark
government bond. Only if Kiwane were unable to refinance the bonds in February
2005, would the maturity be extended.
IFC will be an investor in mezzanine bonds for up to R70 million ($10 million),
providing most of the credit enhancement needed for rating senior bonds.
Haydee Celaya, IFC director for sub-Saharan Africa, called the transaction
a groundbreaking effort that will significantly enhance the liquidity of
the local bond market.
Cesare Calari, director of IFC's Global Capital Markets Group, added that
IFC's close involvement in the structuring and documentation of the transaction
has helped Kiwane achieve international standards and should serve as a
model for similar transactions.
Kiwane incorporates several credit enhancement features typical of collaterized
debt obligation vehicles (CDOs), which issue bonds backed by pools of corporate
or other debt. These include subordination of junior and mezzanine bonds,
diversification requirements, and hedging arrangements.
Kiwane has recently placed its first issue of bonds consisting of R450
million senior bonds rated AA-, R32 million mezzanine bonds rated BBB-,
and R20 million of unrated junior bonds. The ratings have been assigned
by two rating agencies on the local rating scale. Further issues up to
the targeted vehicle size of R2 billion are expected when Kiwane identifies
more suitable assets in the market.
The mission of IFC, part of the World Bank Group, is to promote private
sector investment in developing countries, which will reduce poverty and
improve people's lives. IFC finances private sector investments in the
developing world, mobilizes capital in the international financial markets,
and provides technical assistance and advice to governments and businesses.