Vehicle and Equipment Leasing Limited (Vaell) is set to issue an asset-backed bond to raise Sh8.5 billion ($95 million) to power its regional expansion. This will be the first asset-backed bond issue in the market under the Capital Markets (Asset Backed Securities) Regulations, 2007.
Asset-backed securities (ABS) are secured by a company’s assets, with investors being paid for the bond held through the cash the assets generate. Vaell has been signing lease deals and to create additional assets from the proceeds of the bond.
The ABS will be a bond subdivided into small units sold through the securities exchange. NIC Capital has been appointed the lead arranger and placing agent for the issue, which is before the Capital Markets Authority (CMA) for approval.
“We have seen a healthy appetite for debt and equity in the market and are optimistic about this asset-backed securities deal. Vaell will be using the proceeds to support their balance sheet growth by creating additional assets,” said NIC Capital managing director Maurice Opiyo.
Since the enactment of the regulations in 2007, no company has brought an ABS product to the market. Asset-backed securities can also come in handy for the mortgage industry by providing banks with an alternative source for long-term funding at a lower cost. Investors are paid from the cash paid by those holding mortgages.
According to Vaell Regional Managing Director Paul Njeru, the firm has been signing lease deals that will provide the returns to back the asset bond. Vaell’s clients include Haco, Telkom Kenya, Coca-Cola, ARM Cement, BAT and Bamburi among others. “The market did not take to leasing immediately but over time companies and government are seeing the benefits of leasing equipment and vehicles and this has seen us grow our business,” he said.
Leasing is considered important because it frees a company’s cash flows by doing away with the need to spend more money by actually buying the required vehicle or equipment.
Last month, Vaell signed a Sh115 million three-year agreement to lease 20 vehicles (Ford double cabins) per year to Orange Kenya. According to the company, the vehicles will be used by Orange in product distribution across the country, mostly in remote and rural markets, as well as improving on its response time to clients’ technical calls.
