Emira Property Fund has recently replaced 650 million rand of bank-sourced debt with funds raised in the debt capital market, thereby bringing down its cost of borrowings significantly, it said on Thursday.

The 650 million rand deal, which was effective from March 28 2008, represents the second series of Notes to be issued by Freestone Finance Company (Pty) Ltd, and was arranged by Rand Merchant Bank.

Damian Botoulas of Rand Merchant Bank said that the Notes, secured by 2 billion rand worth of mortgages over 36 office, retail and industrial properties in the Emira portfolio, have been assigned an Aaa.za rating by Moody's Investors Service South Africa - the first commercial mortgage-backed securitisation to achieve such status for an entire debt issuance.

Emira estimated that the margin saving on its debt would save the Fund about 2.1 million rand a year in interest charges.

Emira CEO James Templeton said a number of listed property companies have already taken steps to securitise their debt and bring down their average cost of borrowing, but Emira is the first Property Unit Trust (PUT) to go this route.

Taken with the 500 million rand of Freestone Property Fund debt that was securitised by RMB in mid-2006 – Freestone property Fund was absorbed into Emira in April 2007 – 1.15 billion of Emira's total 1.3 billion rand debt is now securitised.

According to Templeton, in addition to the annual interest charge saving, additional advantages of the debt securitisation were that the increased spread of investors improved Emira's ability to raise further capital in future and allowed for more flexibility in funding the Fund's growth strategy.

"On top of that, as most of the cost is incurred in the initial setting-up of the new debt structure, it is possible that we will be able to raise further cash at reduced margins through top-ups to the existing series," he said.

Source: I-Net Bridge