Johannesburg, South Africa, February 13,
2014—IFC, a member of the World Bank Group, today announced financing
of a securitisation program with Mercantile Bank for equipment rental contracts.
The landmark transaction is the first of its kind in the sector for IFC
in Sub-Saharan Africa. Rental asset finance allows businesses to rent the
equipment they need to operate, rather than purchasing the equipment and
tying up capital. The contracts originate from Custom Capital, a rental
finance company majority owned by Mercantile Bank, and targets mostly small
and medium sized enterprises.
Custom Capital until now has relied on Mercantile
Bank to provide funding for growth. The securitisation program will help
it access South African capital markets and long-term cost-effective funding
through a source matched to its underlying assets.
The initial R240 million (approximately $22.5
million) notes were issued by the newly created listed vehicle Compass
Securitisation (RF) Limited to IFC, with additional issuances to future
investors targeted to reach R1 billion.
Mercantile Bank and IFC, with RMB as lead
arranger and Werksmans as legal advisors, have structured an innovative
"private securitization" that contains elements of a best-practice
securitization structure. The first unrated notes have been issued to IFC.
This provides cost-effective funding to Custom Capital and prepares it
for future public issuance by establishing a track record notes require
to receive a public credit rating.
Paolo Martelli, IFC Director Financial Institutions,
said, “IFC aims to support financial institutions to offer innovative
products and services that help small businesses grow. Custom Capital will
be able to expand its equipment rental portfolio while building the track
record necessary to access the broader capital market for further sources
Karl Kumbier, CEO of Mercantile Bank, said,
“When we acquired Custom Capital it had R30m of rental finance assets
on its balance sheet. We have managed to grow the book from R30m to R430m
in less than 3 years resulting in a requirement for us to come up with
an innovative self-sustaining funding mechanism to satisfy our future funding
requirements. The deal with IFC is fantastic and provides immediate access
to R240m of term funding and assists us in setting up a formal securitization
structure. This deal will allow us to grow our rental finance business
significantly and in turn assist more SME businesses to fund the assets
they require in order to grow their businesses. Rental finance makes
lots of sense for these companies as this funding method improves cash
flows, provides a good return on assets and reduces the risk of owning
IFC is commitmed to developing capital
markets in Africa. They allow private sector companies, including SMEs,
to raise long-term funding and hedge risks. Through its investments IFC
helps clients access capital markets to mobilize funding, while helping
to provide asset diversification to institutional investors. Through IFC’s
capital market programme, it invests in financial infrastructure; provides
guarantees or anchor investments for first-time issuances; and helps to
structure innovative solutions for its clients. IFC also issues its own
local-currency bonds in a growing number of domestic bond markets across
Africa to facilitate capital market development.
IFC, a member of the World Bank Group, is
the largest global development institution focused exclusively on the private
sector. Working with private enterprises in more than 100 countries, we
use our capital, expertise, and influence to help eliminate extreme poverty
and promote shared prosperity. In FY13, our investments climbed to an all-time
high of nearly $25 billion, leveraging the power of the private sector
to create jobs and tackle the world’s most pressing development challenges.
For more information, visit www.ifc.org
About Mercantile Bank
Mercantile Bank is a niche business and commercial
bank focussed on providing entrepreneurs and other businesses with personalised
banking services and the financial partnership that they need to grow.
The Bank was founded in South Africa in 1965 and is owned by Caixa Geral
de Depůsitos the largest bank in Portugal with more than 120 years’ banking
experience. The Bank provides a wide range of international and local banking
services including business and commercial banking, electronic banking,
treasury and investment products.
The Bank also offers attractive rental
products through subsidiary company, Custom Capital, a rental company offering
finance solutions for a range of asset classes to small and medium sized
corporates. The Bank seeks to differentiate itself through a single point
of contact, high touch service model and a deep understanding of the needs
of the South African entrepreneur. For more information visit www.mercantile.co.za