Russians have been familiar with leasing mechanisms for more than a decade now, but a glut on the leasing market is nowhere in sight. Competition is still scarce, experts said, and risks associated with an emerging market show in the costs and collateral requirements put in place by leasing companies.
Greg Alton is an investment officer at the International Finance Corporation, and was head of the IFC's leasing program in Russia until its completion in 2002. He said that Russia's leasing market was fairly developed, compared to the markets in other post-Soviet countries where the leasing program moved after it finished here.
But two main issues remain, both associated with taxes, he said.
"It's almost impossible [for leasing companies] to get reimbursement on the VAT from tax authorities," he said. "More importantly, cases have come up that have thrown into doubt the ability to offset VAT received from clients against VAT already paid. This could cripple the industry."
High down payments and requirements of additional collateral have also been characteristics of the leasing market in Russia, experts said.
In the West, one of the advantages of a lease, as opposed to a loan, is that little or no down payment is required. Russian businesses, however, are often required to submit a high down payment when leasing a piece of equipment or a car.
Poland's Carcade, one of Russia's largest vehicle leasing companies, for example, has an express leasing program that requires a first payment in the amount of 39 percent of the vehicle's value.
Nikolai Zinovyev, CEO of leasing company Europlan, said down payments in the Russian leasing market were unavoidable, as it was still impossible to project what would be the residual value of leased equipment or vehicles after a few years' wear and tear.
"There are no actuaries [specialists analyzing the financial consequences of risk], no reference books, no data banks, very few catalogues," he said.
Another reason for a down payment is that the fair market value for certain leased assets may change in the future, subject to currency rate fluctuation, Zinovyev said.
"I hear people complaining all the time that a 25 percent down payment is a lot," Alton said. But "it's not a lot taking into consideration the risks, like repossession." He added that this would come down as the legal system improves and competition grows.
A 25 percent down payment is what Europlan -- a leasing arm of Delta Private Equity until 2003, when it was known as DeltaLeasing -- takes on its vehicle lease deals.
A 30 percent down payment is required on equipment. Europlan also leases commercial property for terms of up to seven years.
A down payment serves as "confirmation of earnest intentions" of their clients and demonstrates the clients' readiness to put some of their own equity into the project, Zinovyev said.
At Europlan, lease terms vary between two and three years for vehicles and between two and five years for equipment. Minimum lease deals start at $5,000.
Sale leaseback -- a transaction involving the sale of equipment to a leasing company and a subsequent lease of the equipment back to the original owner -- enjoys popularity among Europlan's 1,500 clients, as it frees up additional capital for them, the company said.
Another benefit of leasing is that the only collateral is the equipment leased. That may not be the case with many leasing companies in Russia due to risks associated with emerging markets.
But "one cannot work in this market and ask for collateral," said Zinovyev, whose Europlan does not demand additional collateral from its clients.
Neither does Vladivostok-based DeltaLeasing, the current leasing arm of Delta Private Equity. It was established in the Far East in 1999 to finance purchases of equipment, trucks and automobiles for businesses in that region and Siberia. Equipment is leased for terms of up to five years, with a minimum deal starting at $20,000.
Another issue, experts said, is that many leasing companies take too long to review clients' applications. Many businesses make it look as if they were doing "hand-carved transactions," Alton said.
"Companies should standardize their procedures and become more efficient," he said. And yet, he added, a seven- to 10-day review period for an application is a big improvement from only three years ago.
Moskovskaya Lizingovaya Kompaniya, or Moscow Leasing Company, claims to take 30 minutes to review applications under its new express program. To qualify, a business should have a successful history on the market of more than two years.
The standard plan allows companies and individual entrepreneurs with at least one year's successful record to get a reply within three days of submitting an application.
Established in 1993, MLK was originally created to serve small and medium-sized enterprises. Today, its leasing deals range from $3,000 to $2 million, according to general director Vladimir Kolomeitsev. Catering to "thousands of clients," it leases both equipment (construction, metalworking, restaurant, office and other types) and vehicles.
MLK's risk-adjusted pricing means that while some businesses are not required to submit a down payment, some pay up to 50 percent of the equipment or vehicle's value, he said. "It all depends on our confidence in the client," Kolomeitsev said.
Source: Anna Smolchenko Moscow Times 09.03. 2005 Back to Projects List 
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