Home loans to debut mortgage-backed securities; But SEC urges caution

The Ghana Home Loans (GHL) Company Limited plans to issue the country’s first mortgage-backed securities next year.

This forms part of the company’s effort to explore ways to raise stable and low cost funds to support its operations.

The securities, to be issued in the form of bonds, will target pension fund managers, insurance industry players and resident and non-resident investors.

The Chief Operating Officer (COO) of the company, Mr Kojo Addo-Kuffour, who disclosed this in an interview, added that the offers will particularly target high worth investors who have appetite for long-dated instruments and are, therefore, willing and prepared to put their funds into promising coupons such as securities backed by mortgages.

The issue would, however, not be for retail investors who have fewer funds at their disposal, Mr Addo-Kuffour said, noting that the minimum subscription could be perked at US$5,000.

“We need to be very clear; this is not a share offer where people can go and buy GHC10,” he said.

Each offer could have an annual return of seven per cent, according to him.

Ghana Home Loans, which is one of the leading mortgage companies, has, since the beginning of this year, been sampling expert opinions on the possibilities of pioneering a mortgage-backed securities.

The company hosted the first-ever Residential Mortgage-backed Securities conference on July 24 in Accra at which experts from countries where the instrument is well developed were invited to speak.

Local pension fund managers, capital market players, the industry regulator as well as bankers were also present to look at the various modalities needed for mortgage-backed securities to be issued.

The conference ended with a roadmap to the first issuance, which Mr Addo-Kuffour said could materialise in the first quarter of 2014.

Although the capital market regulator, the Securities and Exchange Commission (SEC), has welcomed GHL’s intentions, its Director-General (DG), Mr Adu Anane Antwi, said in a separate interview that caution needed to be taken given that similar issues in the USA had led to huge defaults in mortgages partly contributing to the credit crunch there.

Why mortgage-backed securities?

GHL has, since its establishment seven years ago, relied on funds from development financial institutions (DFIs) such as Proparco, DEG and the International Finance Corporation (IFC).

Although these partner DFIs as well as similar ones are still interested in partnering the company, its COO said the time had come for GHL to explore alternative ways of accessing funds to fund its ever-increasing business portfolios.

“We think there is an opportunity for alternative sources of funds and residential mortgage-backed securities is one such sources,”  Mr Addo-Kuffour said.

Mortgage-backed securities are a pool of mortgages of similar interests that are bundled together and sold to investors, often by an investment bank.

Having operated in the mortgage industry for close to a decade, GHL’s COO emphasised that the company had created enough portfolios of mortgages that it could easily bundle and, through an investment bank, issue to the investor public.

He added that the securities will be US dollar-denominated and the proceeds will compliment the company’s current source of funding, not replace them.

Although it is yet to firm discussions on the issue, which will be the first in the country, Mr Addo-Kuffour said the first offer could be a US$20 million security that will have a five-year lifespan.

“We are actually looking at the long term and the minimum we are considering is a five-year issue. That one will be used to test the market and base on the response we get, then we’ll now know what to do next,” he said.

On the value of each issue, he said “we have some numbers in our minds but we don’t want to put them across yet.”

“How much every issue will be actually depends on the appetite from investors,” Mr Addo-Kuffour said, adding that although US$100 million per issue was a possibility, it currently looked “too ambitious.”

By Maxwell Adombila Akalaare/Graphic Business/Ghana

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