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TUHF Housing
Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number 25400
South Africa
Sector1Mortgage Services and Other
Environmental categoryFI
StatusPending Signing
Date SPI disclosedMay 7, 2007
Projected board dateJune 7, 2007
Previous EventsApproved: October 4, 2007
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Project description
The proposed project involves:

- an IFC investment of up to ZAR125 million ($16 million equivalent) through a collateralized mortgage finance warehousing line to TUHF (Pty) Limited (TUHF Pty or the company); and
- an equity investment of up 10 percent in the company.

The company will be newly incorporated as a private sector firm, assuming the key business operations that are currently performed by Trust for Urban Housing Finance, a section 21 company duly registered under the Companies Act in South Africa (TUHF Section 21). Section 21 companies in South Africa are incorporated as “not-for-profit” firms.

TUHF Section 21 is a financing organization that provides:

- funding to entrepreneurs for the purposes of purchasing and rehabilitating dilapidated multi-family rental buildings in the inner city of Johannesburg; and
- extending long-term mortgage loans to these property owners once the acquisition and rehabilitation process has been completed.

These property owners (landlords) rely on revenues generated from their rent-rolls to make mortgage payments on the property. Over the years, TUHF Section 21 has built a working business model focused on inner city mortgage loan origination, and the outstanding portfolio currently stands at ZAR250 million ($33 million equivalent), with another ZAR400 million ($53 million equivalent) in commitments to be funded.

The management of TUHF Section 21 embarked on a program to rationalize its funding structure due to growth in its operations. This growth has prompted the need for a restructuring of TUHF Section 21 operations, and led to a proposal for the establishment of TUHF Pty. This conversion will ensure that the business model can be placed on a firmer financing footing by restructuring its sources of funding, thereby lowering the cost of funding and enabling operations to be further scaled up using a corporate structure that is driven by a profit motive. At the same time, the business model will retain its developmental mandate of inner city rejuvenation.

The management is currently in the process of putting together a ZAR1.075 billion ($143 million equivalent) comprehensive funding program (Total Funding Program) for TUHF Pty. This Funding Program will comprise:

- ZAR250 million ($33 million equivalent) warehousing line (of which IFC will participate up to 50 percent and Standard Bank of South Africa will provide the balance);
- ZAR825 million ($110 million equivalent) mortgage-backed securities (MBS) issue, broken down into three pieces as follows:

- ZAR450 million ($60 million equivalent) Class A notes;
- ZAR300 million ($40 million equivalent) Class B notes; and
- ZAR75 million ($10 million equivalent) Class C notes, which can be substituted with an equity investment in TUHF Pty.

The MBS issue will be a securitization of the current and future mortgage loan book. A group of Investors interested in the three classes of notes have expressed their interests in the debt offering to the Company. They include Future Growth Asset Managers, Standard Bank of South Africa, Development Bank of South Africa and National Housing Finance Corporation. All these entities, except Future Growth, are already lenders to TUHF Section 21 and will essentially swap their outstanding loans for the proposed notes.