Update on the Consolidation of the Human Settlements

Update on the Consolidation of the Human Settlements Development Finance Institutions Mr. M. Tshangana Acting Director-General 1 March 2016

Background High Level…Proposal for a Consolidated DFI… • the desired Consolidated Human Settlements DFI, – Is not only a significant and an urgent development imperative, but also, – a key National Development Plan, MTSF and Ministerial imperative, • to create a robust balance sheet – size matters, to improve scale of delivery • To ensure greater leverage of the private sector to increase and sustain levels of sustainable human settlements delivery of quality and scale, • To be an efficient and effective delivery platform of the radically revised human settlements funding and financing strategy. 2

Background High Level…Proposal for a Consolidated DFI… • The HSDFI will be established through enabling legislation. • The options analysis has indicated that the entity should be established by enabling legislation as a Government Development Finance Enterprise, being a schedule 3 entity in terms of the Public Finance Management Act. • The primary reasons for the proposed form of the entity are: – To ensure that the entity has the mandate and capability to raise and fund state led development from external sources to meet its objectives. – To enable the entity to invest surplus funds directly in its own activities and not be required to place these funds with National Treasury. – To ensure that the entity is established by legislation as a tax exempt entity enabling the entity to reinvest the tax saving towards achievement of its objectives. 3

Overall Approach The Three Phases … Phase 1 Phase 2 Phase 3 Operational Transaction Consolidation Optimisation 4

PHASES… • Phase 1: Transaction (01 Nov 2015 – 30 April 2016) – Finalise operational integration of existing entities into NHFC through a buy-sell transaction – Finalise governance & executive management arrangements – Transfer payroll function for NURCHA and RHLF to NHFC – Transfer accounts payable and receivable and related financials functions for NURCHA and RHLF to NHFC – Transitional guidelines - IT, staff, procurement – Communicate changes to market 5

PHASES… (cont. ) • Phase 2: Consolidation (01 April 2016 – 30 March 2017) – Address change management issues – Commences March 2016 – Implement Work-Streams – March 2016 – Enhanced Business and Development Case – Completed - 15 September 2016 – Develop legislation – Completed - 15 September 2016 – Completion of Operational System Integration – Completed - 30 September 2016 – Strategic and APP and Budgets tabled – 15 January 2017 • Key outcome of this phase is to set the foundation for Phase 3 …. 6

PHASES (Cont. ) • Phase 3: Optimisation (01 April 2017 - ) – Operate as single new entity – Full integration of all systems and processes – Implement new products / service lines • Optimisation can only start if the legislation required is promulgated in Phase 2 in time for this to start on April 2017 7

Buy and Sell Options… Based on the exploratory engagements with both the National Treasury (NT) and South African Revenue Services (SARS) in Nov 2015 – Jan 2016; • Two options were considered, to facilitate the above Buy and Sell transaction : – the enablement of the NHFC through Section 10 (1) T as first option indicates that it does make the above Buy and Sell transaction Tax Neutral OR – the payment of potential tax liability owing by NURCHA and RHLF, based on the determined Net Asset Value of both NURCHA and RHLF. 8

Buy and Sell Chosen Option… The enablement of the NHFC through Section 10 (1) T as the first option is the option being pursued: – the NHFC would be Tax Exempt and can receive the transfer of assets and liabilities from NURCHA and RHLF. – The changes are being done through the budget proposals as per the Budget Speech, and be included in the Tax Bills for 2016, towards the latter part of the year. – The Minister of Finance as part of the budget speech acknowledged the work of the Department on the consolidation and has tabled the legislative amendment as required. 9

PHASE 1 Transaction Activities… • Phase 1: Transaction (01 Nov 2015 – 31 March 2016) Finalise buy-sell transactions Finalise governance & executive management arrangements Transfer payroll function for NURCHA and RHLF to NHFC Transfer accounts payable and receivable and related financials functions for NURCHA and RHLF to NHFC – Transitional guidelines (IT, staff, procurement) – Communicate changes to market – – 10

Way Forward… • Liaise with NT early in March to codify the enablement of NHFC • Activate the Buy and Sell transaction effective date – NT • Implications of the decision on the draft time-frames - March 2016 and April 2017 • Determine the triggers to implement balance of Phase 1: Transaction Activities • Conclusion of Agreement with GTAC by NDo. HS – for the implementation of Phase II and Phase III – Operational and Legislative Consolidation 11

Thank You “We have come a long way – Celebrating 20 Years of Freedom!” 12