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IFC Supports Mercantile Bank’s Compass Securitisation Programme


IFC Contacts
In Johannesburg
Desmond Dodd
Phone: +2711 731 3053
E-mail: ddodd@ifc.org

In Washington
John McNally
Phone: +1202 458 0723
E-mail: jmcnally@ifc.org

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 of funding.”

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 obsolete assets.”

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.

About IFC
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

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Mercantile/Custom Capital Contact
Mari Blumenthal
H+K Strategies
Phone: +2711 463 2198
Email: mari.blumenthal@hkstrategies.co.za