An interview with Europlan President Nikolay Zinoviev
The production assets of many domestic industrial companies are worn out and need to be replaced, but the companies are experiencing difficulties in attracting the necessary long-term financing. As a result, company financial directors are trying to use various sources of financing, including leasing. Our interviewee tells us what problems may be encountered along the way.
How easy is it to lease equipment through your company?
There are several procedures for organizing leasing, depending on what is required by the client. For example, if the client needs a vehicle, he provides us with a packet of documents consisting of six items, including the company’s founding documents and financials for a certain number of reporting periods. We analyze these and reach a decision within five working days. After this we sign a leasing agreement with the client, and a sale agreement with the dealer – that is, we acquire the automobile and lease it to the client. The procedure is very clear and transparent and is aimed as a large market. It is similar to consumer crediting. There are hardly any restrictions.
If the client needs complicated industrial equipment, in this case the procedure is slightly different. It is similar to a bank credit. The project that we will finance is discussed, we should understand all the details, and, in particular, how it will pay for itself. In this case, the client should fill out an application in which he describes the main aspects of the project – why this equipment is being acquired, how it will be paid for, etc. This form also includes information about the company and its market. The application is considered for about 10 working days. A decision is reached and the equipment is acquired and leased.
We do not require any security or guarantees. The deal is secured by an advance payment of 25%-35% of the cost of the contract, and by the equipment itself. The main thing is that the client should understand why he needs the leased asset, and from whom he wants to acquire it.
Is it possible to sign a leasing agreement without an advance, by providing security?
This scheme is possible in exceptional cases, but it is not the norm. As a rule, our clients do not have sufficient fixed assets to use as security. These are companies that were set up over the past several years and their property is usually used as security in banks, to receive short-term ruble resources, for example, to replenish working capital. In fact, it doesn’t make sense to provide property as security as part of a program to renew fixed assets, because a profitable company can find funds to use as an advance payment. An advance of 25%-30% of the cost of the equipment is feasible. If a company hasn’t got the funds for an advance payment, we immediately ask why. The ability of a company to make an advance payment is a sign that the business is in order and management is paying a lot of attention to this project. In other words, we and the lessee jointly invest in the project – 75% and 25% respectively. This scheme has been technically developed, and it is convenient. Moreover, we do not believe in the institution of using movable assets as security in Russia – it is too risky in my opinion.
What are the main reasons for refusing to sign a leasing agreement?
As a rule, we reject deals if the equipment is not liquid. For example, if the client proposes to us to acquire some sort of laser unit to produce unique details, which is produced in Germany over a period of six to 12 months, under order. We understand that there is no secondary market for this property, as in Russia nobody else is involved in this business, and there is practically no way out of the deal.
Another reason for refusal – is the financial situation of the lessee. For example, we refuse the manager of a company that has low income, for example $30,000 per month, and has practically no equipment, that wants to buy a printing press costing about a million dollars.
What is your relationship with the lessee after you have leased the equipment?
After the equipment has been leased, like any financial partner, we step back into the shadows. The client carries out his plans. Naturally, we keep in contact, and receive information on how the business is going, how it is developing. He makes leasing payments. We control and monitor that the equipment is insured and that the insurance terms and conditions are not violated.
Do you monitor the correctness and effectiveness of use of the equipment and the development of the entire project as a whole?
Everything depends on the project. For example, for automobiles – of course not. But we have in the company a monitoring department to control the use of industrial equipment. People with an engineering background work in this department. They visit our clients regularly to see that the equipment is in place and is being used in accordance with the recommendations of the producer, and that production has reached the targets set down in the business plan. This work is continuous.
What happens if the monitoring service discovers a violation or a discrepancy?
We prefer, where possible, to resolve all issues through negotiations, because going to court ends up in lamentable results for the client. In addition, not much can be achieved in the courts. We do not want to adopt the position of an aggressive creditor that wants to take over the business. We have thousands of clients in our portfolio and in the end our success is based on their success.
During our five years of work there have been many interesting stories. For example, we even had to participate in the process of finding financial directors for one of our clients – a furniture factory. When we discovered that the person in this position at the time was stealing, we notified management. After an investigation the financial director was fired. After this, we looked for a financial director together with management, because it was important to us that the person in that position was loyal to us and the client, that normal relations were maintained, and that the project developed successfully.
There were situations when we helped clients find partners, thereby resolving the issue of sales. In the end, all business is built on human relations, especially small business.
What is the reason for the slow development of operational leasing in Russia?
The main reason is the underdeveloped secondary market for equipment. The second reason – is the mentality of the consumer, due to his desire to receive ownership for the leased asset. Operational leasing makes it possible for the client to significantly reduce leasing payments, but at the end of the leasing agreement the equipment is returned to the lessor. At the moment, in 99% of deals the clients want to receive ownership of the leased asset at the end of the deal, thereby giving their business some sort of stability. In other words, the market is not ready yet for a product like operational leasing. This area is starting to develop for automobiles, and we are already signing the first operative leasing deals.
Did the instability on the banking market in the summer influence your work and that of our clients?
Due to this micro-crisis, some companies that have traditionally been financed by banks fell on hard times: their credit lines were withdrawn or frozen. But as a result, a group of potential companies appeared on the market that found new banking partners, or applied for new types of financing, such as leasing. In June-July there was an influx of clients onto the leasing market, which had previously been financed by banks.
At the same time, I believe that the situation is stable as never before. We talk with hundreds of businesspeople and small and mid-sized businesses. Most of these need a stable ruble rate and a clear taxation system. These are totally common things that make up their revenue every day, and allow their business to develop and grow. From this point of view I do not see any problems in the country.
Interviewer – Anna Ogenva Source: Financial Director №10 October Back to Projects List 
|
