Capital Markets

Firm prepares for issuance of asset-backed securities

mmc

MMC Africa partner George William Rubagumya during the interview at his Nairobi office April 30, 2014. Photo/DIANA NGILA

A local firm is preparing for issuance of the first asset-backed securities in the market probably before the end of the year.

MMC Africa, a Nairobi-based, law firm, says it is working with local finance institutions on issuing the securities, based on company cash inflows, this year.

“Before the end of this year we should have done one or two transactions,” George William Rubagumya, a partner at the firm told the Business Daily in an interview Wednesday.

He said that details of the financial institutions and the type of securities they plan to bring to the market cannot be revealed just yet.

Details will come once the first set of assets are pooled and packaged into a security that can then be sold to investors, either through the Nairobi Securities Exchange (NSE) or directly to more sophisticated investors such as pension funds.

The securities are normally backed by a loan, lease or receivables against a company’s assets and can be traded. Investors will earn returns from the cash the assets generate in the form of rent from leases or monthly repayments on mortgages taken.

The law, allowing the introduction of asset-backed securities, was put in place in 2007 by the Capital Markets Authority (CMA) but so far no company has brought a product to the market.

Utility provider KenGen, however, announced in February 2013 that it was planning to issue a Sh30 billion asset-backed bond. KenGen said that the proposed bond would be repaid using cash generated from the geothermal plants being constructed.

READ: KenGen lines up NSE’s first asset backed bond sale

CMA has in the past vouched for asset-backed securities as an alternative source of funds for both private companies and the government, especially county governments whose needs will require them to look for feasible sources of funds other than levies.

“This is where capital markets come in as there will be unique opportunities to raise funds through vanilla products such as initial public offers for the companies operating at the county level...,” said CMA chairman Kung’u Gatabaki at a governors’ conference held in Nairobi last October.

READ: CMA targets county bonds with new guidelines

Mr Rubagumya said 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.