The use of listed debt by real estate companies in South Africa.
Date
2011-03-28
Authors
Chathley, Ajay Singh
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Abstract
This research report aims to identify the factors which influence the decision for
real estate companies, to utilise listed debt as a source of finance.
The researcher conducted a content analysis on the responses to 15 semistructured
interviews representing the five largest banks in South Africa, ten
property listed companies, and the Bond Exchange of South Africa. The themes
from this empirical data were used to confirm or reject the nine propositions arising
from the literature review.
The research revealed that firstly, through the use of securitisation, it is possible to
reduce the cost of debt finance.
Next, in terms of flexibility, a number of properties owned by a listed property
company would be transferred into a bankruptcy remote vehicle during the
securitisation process. This is done to enhance the rating of the issue. In order to
obtain a higher rating, strict covenants are put in place. This, however, does not
have to be a limiting factor, as some flexibility can be built into the initial structure.
Finally, since the banking sector has reduced their lending rates considerably, an
uncovered corporate bond may not be viable at this stage. It is more viable to
reduce the cost of funding through the issue of securitised / covered bonds.
Description
MBA - WBS
Keywords
Real estate, Debt, listed