Leasing deals: the basics
The Russian market of financial leasing services has been developing rapidly in recent years, although from a very low level. It demonstrated high stability against the background of the 1998 financial crisis, which delivered a hard blow on this emerging sector of the Russian economy. Russian leasing companies started to experience difficulties obtaining competitive financing in view of the problems facing the banking sector. Many active operators on the market of leasing services turned into outsiders, but the majority of independent companies weathered the crisis and managed to resume work in the new conditions, in spite of considerably reduced total volumes of financing.
Developing of Russian leasing in 1998-2003 (USD billion)
The existing legal framework for leasing in Russia is relatively well developed. The most important legal documents regulating leasing include the Civil and the Law on Leasing. Russia formally joined the Unidroit Convention on International Leasing in 1998 and the text of the convention is also a formal part of the legal framework.
The Ministry of Economic Development has issued approximately 2500 leasing licenses as of September 2001, but only 415 companies were active and 277 entered in new leasing agreements in 2000.
In the small circle of active leasing companies there is a considerable degree of concentration. Russias leading think-tank on leasing, Garant-Invest Co, estimated that 53.5 percent of new leasing deals in 2000 belonged to 20 leading companies. Among the 50 largest Russian leasing companies, 34 are in Moscow and five are in St. Petersburg, one - in Perm, Ekaterinburg, Tomsk, Yuzhno-Sakhalisk ("Salco"). However, an indicator of positive developments in the leasing sector is the growing number of independent leasing companies. The trend toward expansion of leasing into new industries and regions is expected to continue in the coming years.
As the legal system and the economy stabiles and as much-needed reforms to the tax system and in crucial parts of the economy are enacted, the leasing market should continue to grow apace.
Leasing is playing an important role in stimulating economic growth in Russia. A healthy leasing industry will result in increased flows of financing to the productive sector of the economy, facilitating an increase in domestic production, a rise in sales of capital assets in Russia, and a wider choice of financing options available to Russian enterprises. Foreign capital will then have to become a major source of financing for Russian investments. Leasing has a great potential to become the preferred tool of foreign investors as its share in investment shows steady growth.
Equipment leased in Russia in 2001 by industry
FUTURE TRENDS
In real terms, the absolute size of the market is less important than the trend of market development. The trend is clearly one of strong growth, with a number of leasing companies showing significantly increasing demand and supply. Just as importantly, we note a significant trend toward the establishment of small, specialised leasing companies. Increasingly, these companies are founded with the intention of working in the leasing industry on a long-term basis, with relatively fewer companies founded now in order to carry out one-off deals. These new companies tend to have very high growth rates. As with any new enterprise, a large proportion of these companies will probably not be successful in the long term, and many may not survive. Nonetheless, the trend is positive, as it indicates that there are an increasing number of industry specialists that understand the advantages of leasing, and this should result in increased competition -albeit beginning from a very low base. In terms of the effect on the Russian economy, it is worth noting that leasing appears to be playing its expected role in terms of providing increased access to financing for start-ups and small and medium-sized enterprises. The growth in the lending portfolios of existing companies, as well as the rapid growth in the number of companies, appears to be occurring without any significant change in the minimum sizes of lease deals available.LEASING IN SAKHALIN
The leasing business is stable and developing, leasing being very attractive for the local companies due to the advantageous accounting system applied to the leased property. Leasing companies state both the amount and scope of transactions has increased. In fact, it is estimated that over the next few years leasing in the Sakhalin region will increase by 20-30% per minimum, based on the experience of leading leasing companies from Yuzhno-Sakhalinsk. The local increase is comparable to the situation in the whole Russian leasing industry. In 2002 the amount of leasing companies and companies providing leasing services in the Sakhalin region already doubled compared to 2001. Increase in demand for leasing, as a more attractive business development tool, compared to loans, happens due to the following reasons:- oil and gas sector development;
- local companies assets have high level of wear and tear depreciation (60-70%) and need upgrades;
- some of the subcontractors on shelf projects do not have enough fixed assets;
- lack of long-term loans from the local banks;
- increased management awareness of financial advantages of leasing.
