Securitisation Comparative Guide

1 Legal and regulatory framework

1.1 Which laws typically govern securitisations in your jurisdiction?

• Banking Act (Chapter 24:20): Under the Banking Act, the Reserve Bank of Zimbabwe (RBZ) is tasked with the supervision of all banking and other financial institutions. As part of this regulatory function, it issues guidelines from time to time which are binding and enforceable on regulated entities. RBZ Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance, issued under Section 45 of the Banking Act, applies to all banking and non-banking financial institutions involved in SPVs, securitisation and structured finance transactions.
• Collective Investment Schemes Act (Chapter 24:19): The Collective Investment Schemes Act regulates and controls the promotion and operation of collective investment schemes in Zimbabwe. It defines a 'scheme' to cover any arrangement where property of any sort is pooled and managed by someone other than the owners, while the owners are entitled to receive profits or income from the scheme.
• Securities and Exchange Act (Chapter 24:25): This regulates:
• • trading and dealing in securities;
  • the registration, licensing, supervision, marketing and transfer of securities;
  • investment in securities; and
  • the registration and licensing of persons that trade, deal in or manage securities.
• Exchange Control Act (Chapter 22:05) and Regulations 1996: These regulate:
• • the issuance and transfer of securities registered in Zimbabwe to foreign residents; and
  • the movement of foreign currency
• Deeds Registries Act (Chapter 20:05): This governs the registration of security interests created over immovable property.
• Movable Property Security Interests Act (Chapter 14:35): This:
• • provides for the registration of security interests created over movable property; and
  • establishes a Collateral Registry.

1.2 Which bodies are responsible for regulating securitisations in your jurisdiction? What powers do they have?

The RBZ, under Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance, has oversight over regulated institutions undertaking securitisation transactions or structured finance transactions. The RBZ further interacts with the Securities and Exchange Commission of Zimbabwe and may request information necessary for the performance of its regulatory functions.

The Asset Management Act (Chapter 24:26):

• regulates and controls the business of asset management in Zimbabwe; and
• provides for the appointment and functions of a registrar of asset managers.

The Securities and Exchange Commission of Zimbabwe, established under the Securities and Exchange Act, is responsible for:

• regulating trading and dealing in securities;
• registering, licensing, supervising and regulating securities exchanges;
• encouraging the development of free, fair and orderly capital and securities markets in Zimbabwe; and
• advising the government on all matters relating to securities.

The registrar of deeds regulates the passing of security interests over immovable property. He has the power to determine:

• the form that the security interest should take; and
• to some extent, the terms to be included.

He has the discretion to refuse to register a security interest on given grounds..

The registrar of the Collateral Registry is responsible for the registration of security interests over movable property. The registrar's powers are limited to administrative matters.

1.3 What is the regulators' general approach in regulating securitisations?

The RBZ's focus is on the mitigation of risk, such as:

• credit risk;
• concentration risk;
• operational risk;
• liquidity risk;
• interest rate risk; and
• operational risk.

RBZ Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance outlines regulatory requirements relating to:

• appropriate policies and procedures;
• disclosure;
• separation; and
• where applicable, any other conditions related to the provision of facilities and services as seller, servicer, provider of credit enhancement or liquidity facilities, trustee or investor to any securitisation transaction.

1.4 What role, if any, does the central bank play in the securitisation market in your jurisdiction?

The RBZ plays a supervisory role to banking institutions or banking groups that conduct part of their banking business through securitisation activities. It is responsible for the issuance of licences to all banking and non-banking institutions that deal with securitisation. As such, the RBZ plays a pivotal role in the securitisation market as regulator.

RBZ Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance prescribes that any banking institution proposing to undertake or participate either solely or jointly with other parties in new schemes involving SPVs in securitisation or structured finance transactions must seek prior approval of the RBZ. The guideline also sets out:

• prescriptive parameters within which regulated entities may participate in SPVs and securitisation schemes; and
• guidance on:
• • appropriate policies and procedures;
  • disclosure;
  • separation; and
  • where applicable, any other conditions related to the provision of facilities and services as seller, servicer, provider of credit enhancement or liquidity facilities, trustee or investor to any securitisation transaction.

The RBZ, as the government's banker and depository of the country's currency and gold reserves, is also a player in the securitisation market

2 Market and motivations

2.1 How sophisticated is the securitisation market in your jurisdiction and how has it evolved thus far?

As illustrated in question 1, there is a regulatory framework in place for the securitisation market. The Zimbabwean securitisation market primarily comprises:

• traditional schemes; and
• synthetic securitisation schemes.

Historically, businesses and individuals that sought security for commercial transactions were largely limited to real security through various types of mortgage bonds over immovable security; while notarial general covering bonds were generally not preferred, as they provided insufficient security over movables. However, the market has evolved – particularly in structured trade finance, where a wide range of instruments can be realised as security. Security interests such as assignment of receivables, stock commercial papers and other asset-backed securities are, in principle, available.

However, the macroeconomic issues that have affected Zimbabwe in the past 20 years or so have negatively affected this market and there has been some significant regression. Factors such as instability in the exchange rates, high inflation and high interest rates have made it difficult for market players to formulate an attractive product range. There has also been low appetite for financing arrangements, as the productive sector has not been active.

2.2 In which industry sectors, if any, is securitisation most common in your jurisdiction? What major securitisations have been effected thus far?

Securitisation is most common in the banking and financial services sectors, where banks and other players (ie, asset management firms and fund management firms) have a pivotal role to play in capital raising and project financing.

2.3 What are the benefits of securitisation, for both originators and investors?

Benefits for originators:

• Securitisation allows for the conversion of an illiquid asset into a marketable liquid asset – for example, a pool of mortgage-backed securities is more marketable than a single mortgage bond in the secondary market.
• Securitisation allows the originator to transfer partial or full risks associated with the asset or security to investors or issuers.
• Securitisation further allows originators to unlock a wider investor base in funding capital.

Benefits for investors:

• Securitisation opens a wider range of investment options to investors while mitigating risk and improving return yields.
• Due to the nature of securitisation, investors share all aspects of the special purpose vehicle, spreading risk across members.
• The trusteeship structure protects assets from the insolvency of the originator.

2.4 What are the risks of securitisation, for both originators and investors?

The following general risks are applicable in securitisation transactions:

• Credit risk: This arises with non-payment by underlying borrowers in the pool of loans due to an inability or unwillingness to pay. Credit risk is heightened by macroeconomic factors such as liquidity constraints.
• Counterparty risk: This arises on account of non-performance of counterparties in the transaction.
• Legal risk: This arises if the originator goes bankrupt with no possibility that the bankruptcy court may attach the securitised receivables and decide that the pool cash flow should not be specifically earmarked for the investors in the securitisation transaction. A change in laws or regulatory guidance may also affect schemes.
• Market risk: This arises on account of factors external to securitisation transactions such as:
• • the payment of loans;
  • movement in interest rates; and
  • other macroeconomic factors.
• In Zimbabwe in particular, there is high inflation and over the past decade the monetary policy has been unstable. Currency changes and fluctuations may adversely affect the return on investments.

2.5 Is there a developed covered bond market in your jurisdiction and how does it compare and compete with securitisation as means of disintermediation and recycling bank capital?

Economic instability and currency changes have negatively impacted the bond market and in turn there has been an erosion of bond trading skills which has negatively affected the development of a vibrant bond market. This has limited the assets available to investors and reduced the financing options available to corporates. There have been recent attempts to revive the market for treasury bonds.

2.6 To what extent does the government intervene as a state actor in securitisation (eg, by guaranteeing certain securitised assets, providing credit enhancement to impact transactions or sponsoring public bodies to act as originator of or investor in asset-backed securities issues)?

The government will guarantee certain instruments backed by assets such as gold or platinum. The government also participates in securitisation through treasury bills issued by the Reserve Bank of Zimbabwe on behalf of the government. These bills are short-term government-backed securities, bringing the benefit of fair returns at minimum risk. The Zimbabwean government also issues government bonds as longer-term negotiable debt security.

3 Structures

3.1 What securitisation structures are most commonly used in your jurisdiction?

The most common structures include:

• mortgage-backed securitisation;
• asset-backed securitisation; and
• term finance.

Additionally, there are:

• traditional security schemes;
• synthetic schemes;
• credit enhancement facilities;
• liquidity facilities; and
• trenched cover.

3.2 What is the split between 'term' and asset-backed commercial paper transactions?

Statistics are not currently available; however, given the volatility of the economic landscape, preference is given to asset-backed transactions.

3.3 What are the advantages and disadvantages of these different types of structures?

Asset-based commercial paper transactions have the advantage of the security, which can be realised on default or insolvency. This also hedges against any changes in monetary and fiscal policies. The disadvantage is that insolvency proceedings are protracted and it is unlikely that a creditor will realise the full value of its investment.

Term finance is time sensitive, which can be both an advantage and a disadvantage in a volatile economy, where policies may change suddenly.

3.4 What other factors should originators consider when deciding on a structure?

Costs, tax efficiency and the nature of the security will determine:

• the taxes payable; and
• the costs of establishment.

Other factors include the legal and regulatory obligations of:

• the originator;
• the special purpose vehicle; and
• the investor.

It is obviously better to deal with a well-established and regulated entity such as a banking or non-banking financial institution which is well rated than a newly established scheme.

4 Eligibility

4.1 What requirements and restrictions apply to prospective originators in your jurisdiction?

Reserve Bank of Zimbabwe (RBZ) Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance allows a banking institution to act as an originator. It further provides that a banking institution must not invest in any securities where the originator or company setting up the special purpose vehicle (SPV) is a defaulter in any financial institution.

The Collective Investment Schemes Act differentiates between internal and external schemes for regulatory purposes. The trust deed of an internal scheme must:

• be executed in Zimbabwe by the scheme's manager and trustee or proposed manager and the proposed trustee; and
• comply with such requirements as may be prescribed.

Additional requirements for the registration of external schemes include the following:

• The regulation of the scheme within the country or territory in which it is established affords Zimbabwean participants a level of protection which is generally comparable to that provided for participants in internal schemes.
• Zimbabwean residents can participate in the scheme on terms generally equivalent to those on which other persons may participate.
• Participation in the scheme by Zimbabwean residents will not be contrary to the Exchange Control Act or any regulations thereunder.
• The scheme's manager and any trustee are fit and proper persons and will generally have been eligible for a licence had Section 13 of the act, mutatis mutandis, applied to them.

4.2 What requirements and restrictions apply to prospective investors in your jurisdiction and how are retail and wholesale/professional investors distinguished?

RBZ Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance set out requirements under which banks can purchase assets issued by SPVs and use them for capital adequacy purposes. Where the conditions are not met, the purchase will be regarded as a credit enhancement.

Professional schemes are regulated in Part VI of the Collective Investment Schemes Act, which sets out additional requirements for the registration of professional schemes. It provides that the registrar will not register a professional scheme unless it is satisfied that the promoters of the scheme are:

• qualified to be managers of an internal scheme; or
• individuals who:
• • are registered as public accountants, public auditors or legal practitioners; or
  • possess such other qualification as prescribed.

Further, promotion of the scheme will be restricted to persons who are eligible to become participants in a professional scheme.

4.3 What requirements and restrictions apply to custodians and servicers in your jurisdiction?

The Securities and Exchange Act governs the establishment of central securities depositories and states that a depository may be established under a scheme approved by the Securities and Exchange Commission that provides for:

• the maintenance by the central securities depository of accounts and other records to reflect depositors' titles to their deposited securities;
• the safeguarding of deposited securities and funds of which the operator of the central securities depository has custody or for which the operator is responsible; and
• the admission of all qualified persons as participants to the central securities depository.

The Securities and Exchange Act requires those carrying out the duties of a securities custodian to be registered in terms of Section 38(1)(e) of the act. The Securities (Registration, Licensing and Corporate Governance) Rules, 2010, Third Schedule, lists the registration requirements, which include relevant experience and expertise.

RBZ Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance provides as follows:

• Treatment for servicer advances and controlled amortisation features is the same under the Internal Ratings Based approachas under the standardised approach.
• The servicer is not obliged to remit funds to the SPV or investors or until they are received from the underlying assets. The servicer may receive a performance-related payment (or benefit from any surplus income generated), in addition to its base fee, provided that:
• • the base fee is on market terms and conditions; and
  • any performance-related payment does not commit it to any additional obligations.
• Such payment will be recognised for profit and loss purposes only after it has been irrevocably received.

4.4 What classes of receivables and other assets may be securitised in your jurisdiction? What requirements and restrictions apply in this regard?

• Receivables arising from a revolving finance facility, such as:
• • credit cards and overdrafts; and
  • contracts of sale and insurance.
• Assets such as:
• • mortgages; and
  • consumer loans.

RBZ Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance provides that the sale of revolving credit receivables can be considered a clean sale where, among other things:

• the rights and obligations of the banking institution and investors are clearly specified at the commencement of the securitisation scheme;
• the distribution of the principal and other cash flows during the run-down period is clearly stated at the commencement of the programme; and
• the pro rata shares of payments (or expenses) due to investors do not exceed their interest in the underlying receivables in the securitisation scheme.

4.5 What measures, if any, have been taken in your jurisdiction to promote investor involvement in securitisations?

Zimbabwe's administrative operational framework seeks to:

• introduce foreign investors to various investment promotion bodies; and
• clarify regulations on the remitability of dividends, disinvestment proceeds, contraction of offshore loans and other projects in which investors may invest.

The main avenues for investment include:

• the Zimbabwe Investment and Development Agency;
• the Zimbabwe Stock Exchange; and
• the RBZ (through exchange control).

The Zimbabwe Investment and Development Agency Act promotes investment generally. As the securitisation and banking sectors do not qualify as reserved sectors of the economy, foreigners can freely participate in them.

5 Special purpose vehicles

5.1 What forms do special purpose vehicles (SPVs) typically take in your jurisdiction and how are they established?

Special purpose vehicles (SPVs) are business entities that may typically take the form of:

• a company;
• an orphan company;
• a limited partnership;
• a trust;
• a society;
• a mutual fund; or
• another entity specifically designed to conduct a single predefined activity.

In some instances, SPVs are not companies in substantive operations, as they have no business except for acting as a legal instrumentality. SPVs are generally constituted so that they are insulated from insolvency risks, both voluntary and involuntary. Their establishment is governed by their statutes.

5.2 Are SPVs typically established locally or offshore? What are the benefits and risks of each?

SPVs can be established both locally and offshore. A locally established SPV provides the benefits of ease of business when operating locally. However, if the intention is for the SPV to operate outside of Zimbabwe, it must comply with exchange control regulations regarding thew inflow and outflow of funds.

Under the Collective Investment Schemes Act, the trust deed of an internal scheme must:

• be executed in Zimbabwe by the scheme's manager and the trustee or proposed manager and proposed trustee; and
• comply with such requirements as may be prescribed.

Any unit trust scheme which is established and managed outside of Zimbabwe is subject to the provisions related to external schemes under the act.

5.3 How is the SPV typically owned?

SPVs are typically owned and made up of investors such as:

• banking or financial institutions;
• debt investors;
• equity investors; and
• high-net-worth individuals.

5.4 What requirements and restrictions apply to SPVs in your jurisdiction?

Due to their nature, SPVs may only function and operate within the ambit for which they are intended. Additionally, under Reserve Bank of Zimbabwe (RBZ) Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance, SPVs are subject to the following requirements and restrictions:

• Any SPV controlled by, or which is an associate of, a banking institution may not conduct any business that the bank would otherwise be prevented from carrying out by law.
• Where the SPV is a trust, the beneficiary and/or issuer trustee must be third parties independent of the banking institution.
• An SPV must:
• • have its own board with independent directors;
  • have organisational documents which restrict its ability to place itself into bankruptcy;
  • maintain separate assets, bank accounts and recording keeping; and
  • pay its own expenses out of its own funds.
• Prior consent of the registrar is required under the Collective Investment Scheme Act and the Asset Management Act in respect of SPVs established as multi-issue vehicles, especially if:
• • the securities to be issued by the SPV are to be issued and/or redeemed continuously or at short, regular intervals; and
  • The transaction operates to spread risk through the purchase of different assets by the SPV.
• All business transactions between the banking institution and the SPV must be conducted at arm's length and on market terms and conditions.
• SPV schemes or activities should clearly stand apart from any banking institution involved in the schemes and there should be clear limits governing the extent of that involvement.
• Any undertakings given by a banking institution to an SPV and/or investors should be subject to the banking institution's usual approval and control processes. Such undertakings are to be expressed clearly and in the legal documentation of the scheme.

5.5 What requirements and restrictions apply to the directors of the SPV? What are their primary duties?

Under RBZ Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance, an SPV must have:

• its own board of independent directors; and
• organisational documents which restrict its ability to place itself into bankruptcy.

In terms of the Collective Investment Schemes Act:

• the manager and trustee of an internal scheme must be separate companies under separate control; and
• to that end, most of the directors of the manager must not be directors of the trustee and vice versa.

Due to the specific nature of SPVs, directors:

• must act within the reasonable ambit of the securitisation scheme, managing, issuing and promoting in order to generate interest and income for the unit holders (investors) in the SPV; and
• have a duty of responsibility and reporting obligations to investors.

5.6 What measures can be implemented to ensure, as far as possible, the insolvency remoteness of the SPV?

The confinement by design of an SPV's activities to conduct just one pre-specified activity greatly assists prospective investors in assessing the quality of assets and risks in the venture undertaken. In addition to having restricted activities and powers, an SPV is generally constituted so that it is insulated from insolvency risks, both voluntary and involuntary. These restrictions minimise the risk of an SPV carrying out any other activity that might lead to its insolvency.

5.7 If the originator becomes insolvent, is there a risk that the assets of the SPV may be consolidated with its own by the courts? If so, how can this be mitigated?

There is no risk due to a relationship of trusteeship common in securitisation structures. The property or security interest is transferred, assigned or ceded to the SPV, which then holds the property on behalf of the investors and not the originator.

6 Transfer of receivables

6.1 Can the transfer of receivables to the SPV be governed by laws other than your local law? If so, what laws are typically chosen?

Yes. To this end, English laws typically apply.

6.2 What local law requirements (documentary and procedural) are required to ensure that foreign law documents are recognised and enforceable locally?

They must be written in English (or a translated version must be made available). In the case of documents that require formalisation or authentication in their country of origin, this must also be done in accordance with the law of that country.

6.3 How does the transfer of receivables from the originator to the SPV typically take place? What are the formal, documentary and procedural requirements for perfecting the transfer?

The enforcement and recognition of foreign documents is a contractual matter between private parties. Parties may secure this through:

• a deed of trust;
• a bond;
• registration of a participating bond; and
• in the case of a bond holding company, registration as such under the Deeds Registries Act.

6.4 What other requirements and restrictions apply to the transfer of receivables?

Contractual requirements are applicable in addition to legal registration requirements.

Under the Movable Property Security Interests Act, the following requirements and restrictions apply to the transfer of receivables:

• The failure of the transferor of the receivable in the case of an outright transfer of a contractual receivable to perform the contract giving rise to a receivable does not entitle the obligor to the receivable to recover from the secured creditor a sum paid by the obligor of the receivable to the debtor or the secured creditor; and
• In case of an outright transfer of a receivable, the transferee is entitled to collect the receivable before or after the default of the transferor.

6.5 Is there a doctrine under which a transaction describing itself as a sale can be recharacterised by the courts as a financing secured by assets which are the subject of the purported transfer? How can the application of this doctrine be overcome?

No.

6.6 If the originator becomes insolvent, is there a risk that the transfer of receivables may be unwound? If so, how can this be mitigated?

Section 35(2) of the Insolvency Act provides protection regarding securities market transactions, allowing for the completion of outstanding transactions under market rules following insolvency. In addition, Section 35(6) provides as follows:

Accordingly, once the receivables have been transferred and all obligations of the originator have been fulfilled, the transaction will not be reversed

However, the Insolvency Act does not apply to institutions registered under:

• the Banking Act;
• the Securities and Exchange Act; or
• the Collective Investment Schemes Act.

Such institutions may be subject to directives by their regulator on the cancellation, waiver or revocation of licences. To safeguard against the possible reversal of transfers of receivables, it is important that the transaction itself complies with the letter of the law governing the institution involved. Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance, for example, stipulates rules and procedures governing the transfer of receivables.

7 Security

7.1 What types of security interests can be taken over the assets of the SPV in your jurisdiction? Which are most commonly used?

The most common types of security interests taken over the assets of SPVs are:

• bonds;
• assignments; and
• debentures

7.2 What are the formal, documentary and procedural requirements for perfecting a security interest?

To perfect a security interest, it must be:

• executed in writing by the parties; and
• registered either in the Deeds Registry or the Collateral Registry, depending on whether the property is immovable or movable.

In both cases, the security document or agreement must:

• be in writing and signed by the secured creditor and the debtor; and
• except in the case of an agreement that provides for the outright transfer of a receivable or other liquid document, describe the secured obligation, whether by reference to all obligations or generally or specifically.

A further requirement for security interests created over movable property is that the security interest be registered with the Collateral Registry through a registration notice. Either party to a security agreement may register an initial notice in the Collateral Registry by completing the prescribed form and submitting it to the registrar of the Collateral Registry.

The debtor must authorise the registration of a notice in writing. A written security agreement is sufficient to constitute authorisation by the debtor for the registration of a notice. In terms of the Movable Property Security Interests Act, registration of an initial notice is ineffective unless authorised by the debtor in writing.

A security interest over immovable property is created via a mortgage bond, which must be:

• reduced to writing;
• stamped; and
• registered with the registrar of deeds.

7.3 What charges, fees or taxes arise from the perfection of a security interest?

Stamp duties and legal fees are applicable on the perfection of a security interest.

7.4 What other considerations should be borne in mind when perfecting a security interest in your jurisdiction?

The nature of the asset being securitised and the formalisation requirements under the law. A security interest is perfected in accordance with its underlying nature. A security interest over immovable property is perfected through registration and stamping with the registrar of deeds, while a security interest over movable property is perfected by registration with the Collateral Registry.

7.5 What are the respective obligations and liabilities of the parties under the security interest?

These are bilateral obligations which relate to ensuring:

• conformity with the law;
• formalisation; and
• registration.

7.6 In the event of default, what options are available to enforce the security interest? Is self-help available in your jurisdiction or must enforcement action go through the courts? Are there insolvency regimes such as conservatorship or examinership that impose an automatic stay on the exercise of self-help remedies?

Depending on the form of security, if it is perfected by delivery, one can resort to self-help; but in the case of all other securities, one must foreclose through the courts.

The laws applicable to insolvency, reconstruction and business rescue impose an automatic stay on self-help until the liquidator, administrator or business rescue practitioner determines that the security can be enforced.

7.7 Will local courts recognise a foreign court judgment in favour of an investor?

Yes, subject to the requisite formalities.

7.8 If the servicer becomes insolvent, will an enduring power of attorney/mandate granted by the servicer in favour of the secured parties be recognised and enforceable post-insolvency of the servicer?

Yes, subject to insolvency proceedings.

7.9 Do limited recourse, non-petition and subordination provisions bind creditors of SPVs in your jurisdiction and what are the applicable qualifications?

Subordination provisions are binding on banking institutions as creditors of SPVs in Zimbabwe. To this end, Reserve Bank of Zimbabwe Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance provides that there shall be no subordination or deferral of cash flows due to the banking institution, other than arising from a facility provided pursuant to the guideline. Additionally, on the use of inferred ratings, the guideline provides that one of the requirements to be satisfied before a banking institution may assign 'inferred ratings' to an unrated position is that any credit enhancements must be considered in determining subordination of the unrated position and the reference position. There is also a requirement limiting the period during which a banking institution can provide credit enhancement facilities. The bank must ensure that the duration of the facility is limited to a specified timeframe, being the period during which:

• all claims connected with the securities issued by the SPV are paid out; or
• the banking institution's obligations are otherwise terminated.

The same applies to the underwriting of SPVs.

8 Registration and disclosure

8.1 What public disclosure and reporting requirements apply to securitisations in your jurisdiction?

Under Reserve Bank of Zimbabwe Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance, a banking institution involved in SPVs and securitisation activities must disclose in the financial statements the extent, nature and incidence of risk and reward obligations relating to its involvement. These disclosure requirements extend to investors, which must be fully informed of:

• the form and nature of their investments; and
• potential risks.

Written evidence of the fact that investors have been so properly informed and acknowledged the disclosure is also required.

Similarly, under the Securities and Exchange (Zimbabwe Stock Exchange Listings Requirements) Rules, an issuer must, without delay – unless the information is kept confidential for a limited period in terms of Section 33(3) – release an announcement providing details of:

• any new development in such issuer's sphere of activity that:
• • is not public knowledge; and
  • may, by virtue of the effect of that development on its financial results, financial position or cash flow, or on the general course of business, lead to material movements of the reference price of the issuer's listed securities; and
• any information that is necessary to enable holders of the issuer's securities and the public to avoid the creation of a false market in such issuer's listed securities.

8.2 What registration requirements, if any, apply to securitisations in your jurisdiction?

The law relates to the registration of the security interest and not the securitisation itself. The SPV must meet all of the the registration requirements set out under Reserve Bank of Zimbabwe Guideline 01-2007BSD: Special Purpose Vehicles, Securitisation and Structured Finance including reporting and disclosure.

8.3 Is there any requirement to notify obligors of a securitisation? If so, how is this effected?

This is governed by the laws of contract. Most documents creating a security interest allow for the cession and assignment of rights of the creditor without the approval of the obligor. The law does not impose any such requirement.

9 Credit rating agencies

9.1 What requirements and restrictions apply to credit ratings agencies in your jurisdiction? Are there specific provisions that regulate their relationship with issuers?

For banks to use the Internal Assessment Approach the credit rating agency must be accredited or recognised by the Reserve Bank of Zimbabwe (RBZ). A bank cannot use an external credit rating agency's methodology to drive an internal assessment if the agency's rating criteria is not publicly available. RBZ Guideline 04-2004/BSC: Accreditation of Credit Rating Agencies deals with the accreditation criteria, eligibility and application for accreditation in respect of credit rating agencies. The following restrictions and requirements are applicable under the guideline:

• No credit rating agency that is an associate of a banking institution and/or banking group operating in Zimbabwe through direct or indirect significant shareholding, common directorship or common enterprise may be eligible for accreditation.
• Every credit rating agency must enter into a written agreement with each client it proposes to rate or whose securities it proposes to rate, and every agreement shall include the provisions stipulated in the guideline.
• A rating agency must have policies on:
• • consultation with issuers;
  • the resolution of appeals;
  • any material issues or concerns that may arise during the rating and surveillance process; and
  • any rating downgrades or upgrades.
• An application for accreditation must, among other specific requirements provided for elsewhere, be accompanied by details of the following:
• • the business plan and organisation structure;
  • the qualifications and experience of senior management of the board;
  • the capital structure, financial statements and projections;
  • internal practices, policies and procedures; and
  • a code of conduct for analysts and committees.

9.2 What are the main factors that rating agencies consider when rating the securities of the issuer?

Credit rating agencies consider:

• industry analysis;
• financial analysis;
• qualitative analysis;
• business analysis; and
• qualitative analysis.

10 Taxation

10.1 What tax considerations should be borne in mind from the perspective of the originator? What strategies, if any, are available to mitigate them?

The Zimbabwean taxation system uses a source-based tax system. The gross capital amount derived from a source within Zimbabwe is taxable. If the originator transfers a security interest of a capital nature derived from a source within Zimbabwe, that transfer will be taxable in terms of the Capital Gains Tax Act (Chapter 23:01).

10.2 What tax considerations should be borne in mind from the perspective of the issuer? What strategies, if any, are available to mitigate them?

As highlighted in question 10.1, the tax regime in Zimbabwe is source based. Therefore, if the source of income is in Zimbabwe, an issuer that has sold a security interest to an investor and has received proceeds for that sale within Zimbabwe is liable to income tax and levies.

A holder of a securities (dealers) licence must:

• pay a levy of 0.18% of the total consideration, net of any duty or tax payable, for any purchase, sale or exchange or securities brokered by it on a securities exchange; and
• remit it to the Securities and Exchange Commission in terms of the Securities (Registration, Licensing and Corporate Governance) Rules, 2010.

If the SPV is a trust and it issues pass-through certificates, these will not be taxable at the trust level, as the certificate owners will be subject to tax. If the SPV is a corporation and it issues pay-through bonds, corporate tax will be payable, as the SPV's taxable income or loss will be the difference between the yields on its assets and the coupons on its pay-through bonds.

10.3 What tax considerations should be borne in mind from the perspective of investors? What strategies, if any, are available to mitigate them?

The following could potentially be payable:

• investor protection levy;
• brokerage fees;
• value-added tax at a rate of 15%;
• central securities depository levy; and
• Securities and Exchange Commission levy.

Investors should also consider investing in some bonds or stock in respect of any loan to the state to any company whose shares are fully owned by the state, a local authority or a statutory cooperation, as these may attract income tax exemptions.

11 Trends and predictions

11.1 How would you describe the current securitisation landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The market in Zimbabwe has a greater appetite for asset-based commercial papers, as they give borrowers and investors flexibility on receivables and payment terms. Economic instability and currency changes have negatively impacted the bond market and there was in turn an erosion of bond trading skills, which negatively affected the development of a vibrant bond market. This has limited the assets available to investors and reduced the financing options available to corporates.

There have been recent attempts to revive the market for treasury bonds and the use of treasury bills. There have been some legislative reforms in the last decade in the securitisation market. The Reserve Bank of Zimbabwe has also published guidelines to assist banking and non-banking financial institutions in navigating this space.

No additional developments are anticipated in the next 12 months. The introduction of a new structured currency together with the continuation of a multi-currency regime until 2030 provides some comfort and stability, and may encourage new developments in the future.

12 Tips and traps

12.1 What are your top tips for the smooth conclusion of securitisations and what potential sticking points would you highlight?

It is important to engage local professionals to conduct thorough due diligence on the security interest which forms part of the scheme. Many entities are over-borrowed and may have obligations to or arrangements with third parties that may take preference over other liabilities.

It is important to ensure that all parties have obtained the necessary corporate and regulatory approvals in the prescribed manner.

Zimbabwe has recently seen changes to its currency framework and monetary policy. In line with these, cognisance must be had to the need to:

• comply with exchange control provisions; and
• ensure that transactions are denominated in both local and foreign currency.

The following should also be borne in mind to facilitate smooth transactions:

• Zimbabwe has adopted and prescribed International Financial Reporting Standards, which may apply to relevant financial statements.
• The Arbitration Act (Chapter 7:15) gives effect to domestic and international arbitration agreements and does not prohibit arbitration in relation to financial agreements.
• Offshore loans and equity must be registered with the Reserve Bank of Zimbabwe in terms of the exchange control provisions.
• All legally binding documents should include clauses which cater for the possibility of a currency regime change, as monetary policies in Zimbabwe are volatile and may be subject to change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.