Markets & Finance

Vaell seeks nod to issue Sh8.5bn asset-backed bond

VAELL

Equipment for lease at Vaell yard on Mombasa Road. PHOTO | SALATON NJAU

Vehicle and Equipment Leasing Limited (Vaell) is set to issue a Sh8.5 billion ($95 million) asset-backed bond, as it looks to step up regional expansion.

If approved, it 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 normally backed against 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 will create additional assets from the proceeds of the bond, with the cash generated used to pay for the bond.

The ABS will therefore be a bond subdivided into small units sold through the securities exchange.

NIC Capital, the investment banking subsidiary of the NIC Bank Group, has been appointed the lead arranger and placing agent for the issue, which is pending before the Capital Markets Authority (CMA) for approval.

“We have seen a healthy appetite for debt and equity in the market this year 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, though counties might start issuing such bonds backed by their recurrent income as they have been encouraged to do so by the CMA.

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 managing director Mike Mulili, the firm has been signing some lease deals which 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,” said Mr Mulili.

READ: Leasing equipment firm overcomes challenges to expand

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 week, 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.

Mr Mulili said Vaell also participated in the Sh3 billion contract to supply 1,100 vehicles under lease to the police service late last year, and will be looking to enter further deals with the government on leases of vehicles.

Last month, Vaell signed a Sh356 million ($4 million) financing deal with Mauritius-based agriculture-focused private equity firm Innovare Finance to hire out machinery for use in agro-processing.

READ: Kenyan leasing firm signs deal with Mauritius fund

The arrangement will see Vaelllease agricultural machinery such as food processing equipment to SMEs across the region.

Mr Mulili said the firm has opted to go for the asset-backed bond as opposed to bank loans due to concerns over the relatively high interest rates being charged by the lenders.

“Our business is capital intensive so we need to think creatively in terms of cost of capital. We would normally use bank borrowing to fund our deals, but on doing a cost benefit analysis we see that the investors in the bond will provide cheaper capital than banks,” said Mr Mulili.

“We are looking for further expansion into the region, and by the end of next year we want to be in 20 countries,” he said.

Vaell, a family owned business established eight years ago in Nairobi, has already expanded into Uganda, Tanzania, Rwanda and Zambia.

Other than the Vaell bond, NIC Capital has also handled the CIC Bond, NIC Bond, NIC Bank Rights Issue, and a Sh5 billion bond for South African micro-financier Real People Investment Holdings Ltd.