Report on Orix Leasing Pakistan

8/12/2019 Report on Orix Leasing Pakistan

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Report on Orix Leasing Pakistan

LEASING

Leasing:Lease is a contract whereby the owner of an asset (the lesser) gives the other party (the

lessee) the right to use the asset for a specified period of time, in return for the payment

of rent.

Leasing As An Innovative Mode Of Financing

Leasing adds a new dimension to modern financial management. The basic concept of

leasing is that profits are earned through use, not ownership of equipment. The ownership

of equipment is vested in the leasing company (lesser) and in return for rental payment;

the lessee has virtually unrestricted use of the equipment.

Leasing is a medium to long-term hire of assets. It takes care of companys fixed assets,

requirements and effectively allows the company to utilize its capital and other sources of

funds for more profitable use.

Types of Lease:

There are two types or leases:

1.Operating lease

2.Financial lease

Operating lease:

In this type economic life of assets is longer than lease term. It is short term often

cancelable usually with a pre determine penalty for cancellation. At the end of lease

period asset is return to the lesser.

F inancial Lease:

It is long term than operating lease often non-cancelable. Lease term is more than 75

percent of the economic life of the asset. At the end of the lease period the ownership of

the asset is transferred to the lessee.

Forms of Leasing:

There are three forms of leasing.

1.Sale and Lease Back

2.Leveraged Lease


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3.Direct Leasing

Direct Leasing:

In this the lesser owns the asset leased to the lessee.

Sale and Lease Back:

In this case the lessee sold the existing asset to lesser and then leased it back.

Leveraged Lease:

Under a leveraged lease the lesser acts as an equity participant, supplying about 20

percent of the cost of asset, and a lender supplies the balance.

Prudential Regulations

Not less than three years lease term (except for computers)

Must invest at least 70 percent of its asset in leasing business.

Internal control procedure for transaction exceeding Rs one million.

Exposure to a single group cannot exceed 30 percent of the net investment.

Credit Information Bureau

It is a department of state bank of Pakistan maintaining information of borrowers. It is

mandatory for the leasing companies to obtain CIB information prior to approval of

credit to any client.

General Set Up of Leasing Companies in Pakistan

Public limited companies established under Companies Ordinance 1984.Leasing Industry started to develop in mid eighties.

The first leasing company established in 1985

From 1985 to 1999, 32 leasing companies were incorporated.

Securities and Exchange Corporation of Pakistan regulates leasing companies.

Leasing Association of Pakistan

Mandatory for the leasing companies to be the member of the Association.

Develops a common code of conduct and professional interaction.

Identifies and deals with the strategic issued and policy development.Maintains a liaison with the global and regional leasing Association.

A plate form to deal with regulatory agencies like SEC & SBP.

Scope and Trends of Leasing in Pakistan

Islamic mode of financing.

Evolving from a pure tax efficient funding to the value added lease product.


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Need of small to medium size companies to have large equity base.

Focus on BMR requirements of the industry as well as financing small ticket

consumer leases.

Advantages of Leasing

Leasing is acceptable within the Islamic modes of financing as fixed rental payments

are made and interest is not involved

Lease rentals are allowable as deductible expanses for tax purposes.

Access to substantial amount of funds.

Can be tailored according to clients cash flow.

Re lease facility after the completion of lease period.

Equal installments through the lease period.

Benefits from the services of the asset without increasing the asset or liabilities onthe balance sheet.

Increases in liquidity by converting the existing asset into cash, which can be used as

working capital.

Leasing provides long term funding at fixed rates, such funding is scarce in the

countrys present economic scenario.

Less restrictive covenant as compared to long-term loan.

Leasing also guards against equipment obsolescence, changes in market conditions,

and situations where the future is uncertain.

Leasing arrangements are very flexible and can be designed on the basis of three,

four or five years. Lease rentals can also be structured in accordance with the

lessees cash flow requirements.

Leasing is a hedge against inflation. In later years, in a leasing deal you are paying

in yesterdays currency units for yesterdays purchases.

Disadvantages of Leasing

Slightly higher mark up.Payment despite the obsolescence over the lease period.

No improvement on the asset without the approval of the lesser.

Smaller capital base of leasing companies.

Fixed rates all over the lease period.


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ORIXCORPORATION.ORIX Corporation is Japans largest diversified financial services institution with assets

in excess of US $ 50 billion. Incorporated in 1964, ORIX is a pioneer of the leasing

industry in Japan. While leasing remains its core business, ORIX has expanded the

financial services and products it offers to installment loans, real estate, insurance,

securities, venture capital, trust banking and commodity funds. The company enjoys a

global presence and has established ORIX Group companies in 20 countries. ORIX

Corporations shares are listed in Japan and on the New York Stock Exchange.

BUSINESS OPERATI ONS

In Japan ORIX provide a wide array of office equipment, industrial machinery and

transport equipment under finance and operating leases. ORIXs leasing and loan

operations have established a strong and unique nationwide customer base with a solidcore of small and medium sized companies. ORIX has effectively used this base for cross

selling (the marketing of various additional financial products to existing customers). To

further strengthen its customer services, the Company is proactively developing e -

business by utilizing IT for direct provision of services to customers as well as

distribution and settlement activities and auction markets.

ORIX is amongst the leading automobile leasing companies in Japan with approximately

261,000 vehicles under lease. The Company owns and maintains a fleet of Airbus aircraft

and Boeing 737s, which are given on operating lease to airlines around the world.

During the current year, ORIX entered into strategic alliances with the American

International Group (AIG) by forming a joint venture to handle casualty insurance: and

with Enron Corporation for investment in companies which market electricity from wind

power generating facilities.

International Activities

Since entering the Hong Kong market in 1971, ORIX has expanded its leasing operations

and other business overseas through the establishment of wholly owned subsidiaries and

joint ventures. The ORIX Groups international presence is represented by 43 companies

in 20 countries. The wide geographical spread of the ORIX Group has diversified

revenue streams and Group companies benefit from a deep pool of experience and

technological advances available to them due to a worldwide presence.

ORIXS PRINCIPAL ACTIVITIES


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Di rect F inancial L eases

Aircraft and Marine Vessels

Automobile

Industrial Equipment

Information related and Office Equipment

Operating Leases

Aircraft

Marine Vessels

Measuring Analytical Equipment

Information-related Equipment

Automobiles

I nstallment Loans

Corporate Finance

Housing Loans

Card Loans

Other Operations

Investment Banking

Life Insurance

Trust and Banking

Securities Brokerage

Securities Investment

Real Estate and Development Brokering

Venture Capital Investment

Future and Options Trading

Commodities Funds

Computer Software Development

Insurance Agency Services

Ship Management

Environmental ServicesCommercial Mortgage Servicing

Range Of Operations

At the same time that ORIX offers creative proposals to its clients, it is actively

promoting more specialized activities in its core businesses to strengthen its

competitiveness. Some of these are described below:


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Di rect F inancing Leases

As one of ORIXs core business, direct financing leases are used to finance computers,

office automation (OA) equipment, and other information-related items as well as

industrial, commercial services, and transportation equipment. These leases allow users

to replace obsolescent facilities and reduce the clerical burden associated with arranging

for insurance, maintenance, taxes, and other aspects of equipment purchase and

maintenance.

In particular, in the field of small-ticket leases for OA and other equipment, the Company

has introduced the ORIX Quick Lease (OQL) system to speed up credit analysis and

approvals. OQL has enabled ORIX to conduct its marketing activities to provide

enhanced convenience for customers.

ORIX is also able to offer leaseback arrangements for customer assets and package leases

of buildings built on land under term leases.

Automobile Leasing

Automobile leasing services offered by ORIX Auto Leasing Corporation (OAL) relieve

customers of such time-consuming activities as negotiations with dealers, maintenance,

payment of taxes, and arranging for insurance. ORIX has the largest service network in

the industry and is able to provide high-quality maintenance services throughout the

country.

To further upgrade automobile maintenance capabilities, OAL supplies ORIX brand low

cost, high quality automobile replacement parts to cooperating vehicle repair facilities

throughout Japan. In addition, ORIX has concluded a tie-up with three oil refining and

distribution companies and, in 1998, began issuing an Auto Management Service (AMS)

card that can be used anywhere in the country to allow customers to monitor fuel costs on

a centralized basis and obtain other data services. Moreover, to deal with legal, labor-

related, accident, and other types of risks, management services and assist customers,

from a variety of perspectives, in effectively managing and controlling costs related to

automobile usage.ORIX has actively promoted leaseback schemes to customers interested in the

outsourcing of vehicle maintenance. This has resulted in growth in the number of vehicle

under contract in its automobile fleet business, which involves companies that have 10 or

more vehicles.

Real Estate Operations


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Beginning with housing loans and other financing services, ORIX has worked to expand

the range of its real estate operations to include such activities as rental and residential

property development and sales business. At present, the Company undertakes the rental

and lease of company dormitories, office building, and apartments; the planning,

development, and sale of condominiums and unit houses; and the management of hotelsand golf courses.

Aiming to utilize management resources more efficiently, ORIX divided its former Real

Estate Business Headquarters into two organizational entities in March 1999. The

operations of departments responsible for responsible for real estate related finance were

reorganized within the new Real Estate Finance Headquarters. Real Estate development,

leasing and rental business, and other real estate related operations of the former Real

Estate Business Headquarters and various Group companies were consolidated in the

form of a newly established subsidiary, ORIX Real Estate Corporation. Responding tothe February 1999 implementation of the Special Measure Law Concerning Credit

Management and Collection Business, the Company established ORIX Asset

Management Loan Services Corporation to undertake service operations.

Measur ing Equipment Rentals

ORIX pioneered the development of the equipment rental business in Japan, first offering

rentals of measuring equipment for R&D use through ORIX Rentec Corporation. At

present, ORIX is expanding and diversifying the types of equipment available for rentals

and is going beyond the rental framework to provide technical support, includingmeasuring services. Moreover, such activities are being expanded to include closely

related engineering services, including computer systems integration.

ORIXs Tokyo and Kobe technical centers provide high-quality equipment and

sophisticated management techniques and were the first to receive ISO 9002 quality

assurance certification among domestic rental companies. In addition, ORIX has

developed a computer network distribution management system that allows rental

equipment to be retrieved from the warehouse in only 26 seconds after a customer places

an order. This system has been highly appraised by rental customers. ORIX also develops

strong resale channels for the disposal of items, including sales via the internet and

equipment auctions. These channels allow for the sale of used equipment on favorable

terms.

Environment-Related Business

ORIX Eco Services Corporation, a wholly owned subsidiary, was established in April

1998 to assist ORIXs clients to deal with their waste management problems. Its activities


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include organizing a network of waste disposal companies, introducing them to ORIX

customers, and acting as an intermediary between these companies.

Retail Financial services market

The retail financial services market, which appears to have strong growth potential,

ORIX has developed and supplied life insurance as well as financial and investment

products that elicit a high level of customer satisfaction. To further develop such

business, the Company has adopted unique approaches that emphasize efficiency. ORIX

plans to continue to offer services carefully tailored to customers needs and will to

establish a strong base in the field of financial services for individual.

L if e I nsurance

ORIX Life Insurance Corporations ORIX Direct, which commenced in September

1997, is Japans first range of whole life, endowment, and term life insurance products

offered through direct channels. As this insurance is sold via newspaper advertisements

the Internet, and other direct channels, such administration expenses as agent fees and

marketing office expenses have been reduced. As a consequence, ORIX is able to offer

this insurance at a lower cost than its competitors.

Trust and Banking

ORIX Trust and Banking Corporation became a member of the ORIX Group in fiscal

1998 and, in March 1999, began to market Direct Deposits, which are also offered via

direct channels. Operating costs have been restrained by marketing these deposits through

newspaper advertisements and other media, making it possible to offer more attractive

deposit rated than other financial institutions. These services have been highly evaluated

by the Companys customers.

Personal F inancial Services (PFS)

In July 1997, the PFS Department began to offer Life Insurance Diagnostic Services,

which are of strong interest to consumers as they address issues relevant to everyday life.

The objective of these services is to provide detailed advice to customers regarding the

type of insurance most suited to their individual lifetime financial plans. In addition,

based on the data gathered while providing these services, the PFS Department makesproposals for insurance products that are tailored to individual customers.

The PFS Department has also begun to offer commodity fund investment products to

individuals via direct channels.

Card Loans


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VIP Loan Card, offered by ORIX Credit Corporation, is a card-based line of credit

provided to businesspeople. Well received by customers, this service allows cardholders

to make withdrawals from a broad nationwide network of CDs and ATMs up to

prearranged limit at reasonable interest rates and select from a range of repayment plans.

ORIX also issues the CLUB CARD through its ORIX Club Corporation.

To enhance convenience for customers, applications for these card products can be

submitted not only to ORIX offices but also through newspaper advertisements and via

the Internet.

Discount Brokerage Services

To take advantage of deregulation with respect to securities brokerage commissions

scheduled for October 1999, ORIX Securities Corporation is making preparations to offer

discount brokerage services to individual investors. As part of this move to further

develop its activities, in May 1999 the Company began to offer ON-LINE TRADE, anequity trading service available via telephone, facsimile, and the Internet.

Housing L oans

ORIX offer a range of housing loans to individuals especially tailored to their needs and

circumstances. Examples include one million yen loans that require down payment of

only1 million for customers purchasing a home for the first time, 100% loans that

ensure that customers can finance the difference between the prospective selling price of

their present homes and the purchase cost of a new house, level-up loans, that

accommodate the needs of customers desiring to sell their present houses where thebalance of their mortgage exceeds the sales price, loans over leasehold housing, and

floating-rate loans with a initial fixed-rate option.

Management by objectives

The ORIX Group presents a management style quite different from the standard image of

Japanese business houses. The style is flexible and based on trust and confidence in the

local management of joint ventures. The Group network is represented in many countries,

but is guided by similar objectives and guidelines. The emphasis is on understanding

these goals and the corporate philosophy, so that individual strategies could beimplemented in the best possible way.

A strong bond exists between the ORIX employees of different countries, which have

helped evolve a distinctive corporate culture that all employees can relate to. The group

gives high priority to exchange of information and personnel among the group

companies.


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Equities, Inc (OREE), is engaged primarily in investing in profitable properties and

providing real estate management services. OREE has a good track record for employing

the build-to-suit approach to real estate development, which involves locking in

revenues by negotiating a long-term contract in advance and offering a purchase option to

potential tenants.

Banc One Mortgage Capital Markets, LLC, provides highly sophisticated professional

services, including the securitization of commercial mortgage-backed loans and

commercial mortgage servicing. Another company accounted for by the equity method is

Stockton Holdings Limited, which is engaged in various typed of commodity investments

and financial futures trading as will as offering reinsurance services.

ORIXLEASING PAKISTAN LIMITEDHistory and Prospects

ORIX Leasing Pakistan Limited began operations in January 1987, as a joint venture

between ORIX Corporation, Japan and local sponsors. ORIX Corporation is Japans

leading diversified financial services institution with assets in excess of US$ 50 billion

and subsidiaries and associates in 21 countries. Following the footsteps of its Japanese

parents,OLP has played a major role in promoting the leasing industry Pakistan. Its

strength lies in an extensive branch network, a diversified portfolio of over 3000 clients, a

wide range of financial products, personnel development and office automation.

Operations

Since the start of operations in January 1987, the Company has written leases totaling Rs

15.54 billion. The Company has an asset base of Rs. 6.1 billion, net worth of Rs. 926

million and earned a pretax profit of Rs. 156 million for the year ended June 30, 2000.

The Pakistan Credit Rating Agency has rated the Companys short and long-term debt as

A1+(A one plus) and AA- (double A minus) respectively. The Company enjoys the

highest Credit rating in the leasing sector. The Companys Head Office is in Karachi with

branches in Lahore, Islamabad, Peshawar, Faisalabad, Hyderabad, Multan, and Sialkot.

The company serves as the regional base for ORIX Groups activities in the Middle East

and North Africa. It manages joint venture leasing companies in Oman and Egypt. The

Company has recently established a joint venture leasing company in the Kingdom of

Saudi Arabia. The Company is also a founder shareholder of ORIX Investment Bank

Pakistan Limited.


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Business Activities

The Companys main business is leading of moveable assets primarily industrial

machinery, commercial vehicles and passenger cars. The Company provides lease

financing to both large and small businesses. Lessees include public and private limited

companies, partnerships, and sole proprietorships. The Company specializes in providing

lease financing to small and medium size businesses. The Company has also been active

in micro enterprise financing since inception and has been given special lined of credit

for micro enterprises by multi lateral institutions, which include the World Bank, FMO

(The Netherlands Development Finance Company) and the Swiss Development Agency.

Other business areas

While lease financing remains the Companys core business, ancillary financial services

have also been added to its product range. These include installment loans for household

appliances to corporate employees, auto leasing to salaried employees, self-employed

professionals and businessmen, and provision of vehicles and equipment on operating

lease.

OLPs current portfolio of financial services includes:

Corporate F inance Lease:

Providing industrial commercial machinery and transportation equipment to corporate

sector.

Consumer f inance:

Allowing corporate employees to acquire domestic appliances.

Automobile Leasing:

Vehicle leases for individual and corporate clients.

Operating Leasing:

Providing productive assets on short-term rental basis.

M icro Enterprises Lease:

Financing for cottage industries and unorganized sector entities.

Certificate Of Investment (COIS):

Offering investment plans matching the needs of our valued customers.

Strategic Focus

The Companys business strategy is to concentrate on providing lease finance to small

and medium sized enterprise. This has resulted in a high degree of risk diversification


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through sectoral and asset class diversification with risk spread over a large client base

with lower per party exposure. At the same time, the Company also competes actively in

the big-ticket lease market where target lessees comprise local and multinational blue

chip corporate.

Product Development

Since inception, the Company has primarily developed its leasing business and ancillary

products such as consumer finance, rental of equipment and operating lease. Accordingly,

a high degree of expertise has developed amongst the Companys staff in the various

leasing products. This technical expertise of the Companys management is being fully

utilized in the various job placements in the joint venture abroad.

Assets Class and Strategic Shifts

Economic slowdown and low capital formation has resulted in weak demand for plant

and machinery. To make up for the decline in machinery leasing, the Company has

shifted emphasis to vehicle leasing over the past three years and this has been the

business focus since then. Vehicles provide greater comfort in the event of default due to

their high resale value, as under current market conditions, plant and machinery has low

residual values.

Diversification

A major strength of the Company is its ability to maintain a highly diversified portfolio

with low single party exposure. The Company will continue to target its niche market of

small to medium size lessees with low exposures and will only entertain big-ticket leases

where spreads are reasonable and credit risk is good. The Company has eight marketing

offices located in the Countrys major industrial cities. To further extend its market

reach, the Company uses its existing offices to source business in adjoining cities through

periodic visits by marketing teams and intends to continue this strategy, as marketing

results in smaller cities have been good.

To further diversify revenue sources, the Company has entered into related ancillary

businesses of consumer finance and auto lease for individuals. The Company started

operating lease two years ago and is now among the market leaders in providing

generators and communication equipment on short-term rental basis. Recognizing the

potential for investment banking in Pakistan, OLP established ORIX Investment Bank

Pakistan Limited (OIBP) in 1995.


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The Companys policy on internal diversification is to enter into fields closely allied to

leasing to reduce risk and make best use of available expertise within the ORIX Group of

companies.

Area of Activity

Fund Based Activi ties

Leasing remains the Companys main activity. However, the Company has diversified

into different areas of leasing such as operating lease, factoring, hire purchase and

consumer finance, etc.

Non-F und Based Activiti es

Non-Fund based activities include technical advice which the management of the

Company has been providing to its associated companies in the region.

Resource Mobil ization

The Company offers Certificates of Investment (COIs) with varying maturities ranging

from 3 months to five years.

A key factor in the Companys profitability has been its ability to raise finance for its

business at competitive rates. The Companys sources of funds are diversified and

continuous efforts are made to broaden this base and ensure that the ratio of short term to

long-term funds remains satisfactory.

The Companys long term funding has traditionally been provided by multilateral lendinginstitutions while local financial institutions have provided the Company with medium

and short term funds. Companys long term financing sources include:

International Finance Corporation

Asian Development Bank

FMO (Netherlands)

IBRD (World bank)

The Company follows a conservative policy of ensuring that the average maturity of its

borrowing exceeds the average maturity of its lease portfolio. The Company aims to earnsufficient spread to enable the Company to be cushioned against major shifts that might

occur in future interest rates

Use of Proceeds

The TFCs are being issued for purposes of writing new leases and other business as

permitted under the Companys Memorandum & Articles of Associations. The


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Companys lease disbursement in the past two years (1999 & 2000) exceeds Rs. 4,849

million and in 2001 exceed 5.1 billion and the business requires term financing since

leases being written are for three years or longer period. The total amount of Rs. 700

million realized from the present issue (first tranche) will be used to finance new business

volumes. The Company has traditionally relied on International and domestic lendinginstitutions to meet its medium to long-term funding requirements and the Company sees

TFCs as a instrument to diversify its funding sources.

Relationship with ORIX Group

A significant factor in OLPs development over the past decade has been the harmonious

relationship and complete understanding between its foreign and local sponsors. This

partnership is a model for successful joint ventures, where foreign shareholders provide

the technical know how and local partners support through funding and market

knowledge. With cohesion at Board level, management is left free to pursue developmentof the Company.

OLP enjoys good relations with the ORIX Group, enabling it to capitalize on the

expertise of other Group companies. Over the years, OLPs staff has visited Group

Companies in Japan, Thailand, Singapore, Malaysia and Australia under an exchange

program, which sends one or two employees of OLP for overseas training every year.

OLP also contributes to the Group by referring business and investment opportunities in

Pakistan to Group companies. The Company anticipates doing the same in other Middle

East countries as it expands its international presence..Associated Companies

Overseas Joint Ventures

Oman ORIX Leasing Company SAOG (Oman ORIX):

Oman ORIX, in which ORIX Leasing Pakistan Limited holds 20.25% of equity and

provides management support, continues to show strong growth in volumes and profits.

IN 1999, net profit after tax rose by 26% to Rial Omani (RO) 684,989 (Pak Rs 92.33

million) from RO 542,403 (Pak Rs. 73.1 million) enabling the Company to declare a

dividend of 10% and a bonus of 2.45%. Purchase cost of new business written during theyear increased to RO 16.9 million (Pak Rs.2.28 billion) compared to RO 13.6 million

(Pak Rs.1.84 billion) last year and gross lease receivables increased by 33% to RO 24

million (Pak Rs.3.24 billion). As at December 31,1999, Oman ORIX had total assets of

RO 22.3 million(Pak Rs. 3.0 billion) and a net worth of RO 5.397 million (Pak Rs.727.47

million).


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For the year ended June 30, 2000, the Company earned a pre-tax profit of RO 455,719

(Pak Rs.61.4 million) and increased its asset base to RO 29.19 million (Pak Rs.3.9

billion).

Oman ORIX leases all type of assets including motorcars, construction, earthmoving and

transportation equipment, information technology equipment and plant and machinery.

The Companys lessees include individuals; small and medium size companies and large

sub contractors in diverse economic sectors including services, trading and contracting,

construction and manufacturing.

Oman ORIXS Head Office is in Muscat and during the year the Company extended its

geographical reach by opening branches in the cities of Sohar and Salalah.

ORIX L easing Egypt SAE (ORIX Egypt)

ORIX Corporation, Japan and ORIX Leasing Pakistan Limited each hold 23% of ORIX

Egypts equity. The Company started operations in November 1997 and has established a

good business base.

For the year ended December 31,1999, ORIX Egypts profit before tax of Egyptian

Pounds (EP) 2.04 million (Pak Rs. 30.8 million) was more than double last years profit

of EP 0.9 million (Pak Rs, 13.6 million). Business volume increased by 57% with

disbursements of EP 38.3 million (Pak Rs. 577.9 million compared to EP 24.4 million

(Pak Rs. 368.2 million) last year. Gross lease receivables increased to EP 47.7 million

(Pak Rs. 719.8 million) from EP 30.5 million (Pak Rs.460.3 million). The Company

continued to focus on needs of small and medium sized businesses, which enables it todiversify risk and earn good spreads.

Saudi ORIX Leasing Company (Saudi ORIX)

Saudi ORIX is under formation and is expected to commence operations by the end of

this year. The Company will be a pioneer of leasing in Saudi Arabia. As the largest

economy in the Gulf with the biggest oil production in the world, Saudi Arabia offers

immense potential for leasing.

Saudi ORIX Leasing Company will start with a paid up capital of Saudi Riyal 60 million,

equivalent to approximately Rs.900 million at current exchange rate. ORIX LeasingPakistan proposes to take 10% equity in the new venture together with other sponsoring

shareholders ORIX Corporation, Japan (20%), International Finance Corporation (10%),

Saudi Investment Bank (30%) and a private business group consisting of eminent Saudi

bankers and businessmen (jointly holding 30%).

Joint Venture in Pakistan


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ORIX I nvestment Bank Pakistan Limi ted (OIB)

ORIX Corporation, Japan and ORIX Leasing Pakistan Limited hold 20% and 15%

respectively of OIBsequity. For the year ended June 30, 2000 OIBsprofit before tax

rose by 37.5% to Rs.44.28 million from Rs.32.2 million last year. The bank continues to

concentrate on maintaining a high quality loan portfolio while seeking to improve fee-

based income from advisory services. OIB is primarily engaged in providing a range of

investment banking products, which include corporate advisory services, project

packaging, structuringand placement of capital market debt products, issuance and

discounting of bankers acceptance and treasury operations. At June 30,2000,OIB had

total assets in excess of Rs. 1.46 billion.

Board of Directors

Mr. Yoshihiko Miuauchi Chairman

Mr. Shakirullah Durrani Vice Chairman

Mr. Takeshi Sato Director

Mr. Masatoshi Yokota Director

Mr. Muhammad Mazharuddin Director

Mr. Shaheen Amin Director

Mr. Mohammad Qamrul Haq Director

Mr. Humayun Murad Chief Executive

Branches of ORIX Leasing Pakistan Limited

Head Office of ORIX Leasing Pakistan Limited is in Karachi. There are total 8 braches of

ORIX Leasing in different cities of Pakistan. Which are as follows:

1.Karachi (Head Office)

2.Lahore

3.Islamabad

4.

Faisalabad5.Sialkot

6.Peshawar

7.Multan

8.Hyderabad


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DEPARTMENTALIZATION OF ORIXLEASING PAKISTAN

LIMITED

There are total 11 departments in Karachi Head Office of ORIX Leasing Pakistan

Limited. Which are as follows:1.Marketing department

2.Credit department

3.Business Control department

4.Rental Recoveries

5.Administration department

6.Human Resource department

7.Finance & Accounts department

8.Treasury department

9.Rental Collection department

10.Information System development

11.Hard Ware Section

12.Consumer finance services

13.Auto lease

14.Operating lease

Marketing department

The principal responsibilities of the marketing department are identify customer need for

credit, carry out credit analysis, prepare detailed report on lessees financial position and

submit it to higher-ups for approval. Involve in searching and developing new clients and

manage good relationship with them.

They also evaluate the documents submitted by the customers prepare the files (approval

and payment) and then send it for checking to the Business Control department

Credit department

This department define broader based credit polices for the Company. By evaluating

different environmental conditions it set guidelines for credit evaluations. Mostly big-

ticket files credit analysis is done here.

Business Control department

The legal documents, which are signed by the customers, are re-checked here. They also

maintain the record of these documents. They handle the matters related to insurance of

the asset such as arrangement of insurance, insurance claims etc.


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Rental Recoveries

The cases, which require special handling regarding recovery of overdue rentals, go to

rental recoveries department. The recovery process is carried out by various means such

as:

Repossession of vehicle

Legal action

By customer consent

Administration department

They handle all the office matters related with office administration such as office vehicle

maintenance, utilities bills, rents of offices, renovation of offices, maintenance of office

equipment, arrangement of inter branch tours etc. In short it can be said that it deal with

all the general administration matters.

Human Resource department

This department involve in the activities such as planning of the human resource,

development of the human resource, annual reviews for promotion, for employment

made broad based policies, evaluate employees and nominate for different courses,

arrange orientation for new employees, formalized job description, set employees

packages etc.

This department also set rules and regulation for the employees and employer or

redefined them. Also it deals with the hiring and firing of the employees. In short we can

say that it deals with all the affairs related with the employees of the company such as

salaries, promotions, annual leaves, bonuses, employees in house training sessions etc.

Finance and Accounts department

It maintains companys accounts records. It maintains the record of all the business

transactions. It operates the companys bank accounts and maintains the record of

payments and receiving.

This department arranges internal audits. It also facilitates external audits by State Bank

of Pakistan or by different audit agencies.Treasury department

This department manages and arranges the financial resource for the company as and

when required. The finance is required for the disbursement activities. It also manages

the holding financial resources of the company. So the basic function of this department

is the money management.


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On branch level it facilitate the account opening or provision of over draft. Also it

handles the repayment of the loans, which are taken by the company.

Rental Collection department

This department involves in the activities like physically collecting the rentals on due

dates and updates the records by feeding the date about the rentals collection. Branches

send statement of deposits to this department and it is then feeded it in the computer

and debt notes are generated.

Information System Department

1.Software development and data maintenance.

This department is responsible for the development and continues up gradation of the

information systems. On the basis of data generated at different locations this system

generate required reports.

The integrated computer system has the information about customers history,

customer grading, contract information, rental repayment records, customer exposure,

salary database etc.

Presently it is working for connecting all the braches on line. Recently on very shorter

scale they are developing software for different companies on their demand.

2.Hard ware section

They are responsible for the replacement of the hard ware of the computer also they

repair if there is any fault occur in the hard ware of the computers.Consumer Finance Services

This department gives household appliances on hire purchase basis to the individuals

such as refrigerators, microwave ovens, computers, bikes etc. In the beginning they have

provided this service to the employees of the multinational companies such as PIA, Engro

chemicals etc. Companies gave undertaking that the rentals will be deducted form the

salary of the employees and it will be paid to ORIX in one check. But now this service

can also availed by the general public.

Auto leaseThey finance automobiles to individuals including businessmen; corporate employee and

self employed professionals. The lease period is 3 to 5 years and insurance is included in

the rentals. They provide different features of insurance such as the individual life

insurance are also included in it.

Operating lease (Rentec Division)


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This department provides various types of assets on rental basis such as:

Power generators

Air compressors

Satellite equipment

Delivery vans

Luxury buses

Transportation vehicles

ORIX has wider range of diesel and gas power generators. It gives them on short-term

lease. It gives air compressors on lease to civil aviation. Satellite equipment is used for

wide area computer networking it gives it to different companies and banks. Delivery

vans are given on lease to different distribution companies on daily bases. Luxury buses

are given on lease to different multinational companies. Transportation vehicles such as

big containers and traulas are given on lease to different companies for moving theirgoods.

For every type of asset there is separate asset manager. These asset managers are

appointed by the companies or firms or business houses, which are expert in maintenance

of these assets.

Benefits of operating lease

Off Balance Sheet F inancing

As the asset is returned to ORIX at the end of the contract, the transaction is a pure

operating lease, therefore it remains off balance sheet thus improving the return on assets.

No capital budgeting is required.

Lower Rentals

As the asset is not completely depreciated therefore it carries higher residual value, which

results in lower rentals for the user as the financial costs are significantly reduced.

Value added comforts

Operating lease can bundle together various services required with the asset such as

maintenance, operation, insurance and replacement of the asset in one value added

package.

Customizable

The package can be tailored for the requirements of your organization.

Resource allocation f lexibil ity


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Operating lease allows your business greater flexibility in terms of utilization of the

capital and insulates your business against the risk associated with capital investments.

Furthermore operating lease allows you to:

Complete solution as per user demand

Hedge against technological obsolescence and inflation

Asset without investment

Better utilization of tax benefits

Conservation of credit lines

Time to concentrate on core business

Take advantage of the lessors purchasing power

Historical success

In the recently closed financial year they got the historical success by achievingdisbursement of Rs.5 billion. The major reasons for this success were availability of

cheaper funds due to which they have low rates, they have offered new products in CFS

and operating lease, they start providing factoring services and they have exploit new

markets

Comparison with competitors

ORIX is providing diversified financial services to its customers. They are providing

corporate lease, auto lease, operating lease, consumer finance services, term finance

certificates and hire purchase.They are providing much better rates in leasing as compared to their competitors because

cheaper funds are available to them. It is a multinational company and has a good

reputation in the financial market due to which they can get better funds in the local

money market.

They believe in providing personalized services to their customers. The person who

generates business he has to build good business relations with the customers. Similar

person deals with the customer from taking of the lease proposal to follow up so he is

building a long-term relation with a customer. Also ORIX is providing doorstep servicesto its customers.

Critical Success Factors

Today OLP occupies a leading position in the leasing industry. The companys success

may be attributed to its:

Marketing expertise


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Funding ability

Branch network

Technical ability based on the world wide experience of the ORIX group

FUTURE PLANS OF ORIXLEASING PAKISTAN LIMITED

Presently they have entered into a strategic alliance with United bank limited to introduce

leasing business in previously untapped areas. As per the scheme ORIX will establish its

counters in selected UBL branches in the cities where ORIX does not has its own offices.

In the first phase such 5 counters will be established in Rahim Yar Khan, Bahawalpur,

Sargodha, Sahiwal and Gujranwala. The operations will eventually be extended to other

locations.

Moreover ORIX plans to increase its business and profitability by introduction of new

products, expanding the operating lease and CFS business etc.

ORIXLEASING PAKISTAN LIMITED MULTAN

BRANCHORIX Leasing Pakistan Limited Multan Branch established in February 2001 on LMQ

Road Trust Plaza.

Multan Branch is offering three types of leasing.

1.Corporate Lease2.Auto Lease

3.Hire Purchase

Corporate Lease

In this lease the asset is leased in the name of the Company. In Corporate lease they are

offering finance against these assets:

1.Automobiles

2.Machinery

3.Office equipment

In corporate lease there are two modes of leases:

1.Direct Lease

2.Sale and Lease back agreement


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Direct lease is mostly of Automobiles and office equipment. In this case ORIX buys the

asset to be leased directly from the vendor and then leases it to the lessee.

In sale and lease back agreement they are giving mostly machinery. In this case ORIX

lease on the cost of the machinery custom duties are berried by the customer. So

customer purchase machinery himself and sell it to ORIX than from ORIX he leases it

back.

Equipment selection and pri ce

In all cases, the lessee determines selection and price. Upon approval of a lease, ORIX

purchases the equipment to the lessees specification, and pays the vendor in full when

the equipment has been delivered and accepted by the lessee.

Payment

Rental payments are usually due in advance. A deposit is usually required at inception of

the lease contract. Lease can be structured on lessee requirement such as monthly or

quarterly payments, for advance or arrears payment, equal or uneven payment.

Length of lease

The minimum lease term is 3 years and this can be extended to five years depending on

lessees requirements

Expiration of lease

At the expiration of lease, several options are normally available to the lessee:The equipment can be returned to ORIX

The lease can be renewed on a year-to-year basis at a greatly reduced annual cost

The lease may purchase the equipment at the residual value of the asset.

In corporate lease there is option that the asset either insured by ORIX or by the lessee.

The interest rate and the deposit rate in corporate lease are set by negotiation with the

lessee. The minimum down payment is 10%.

Auto LeaseAuto lease program was launched in January 1997 with all the cars dealers manufacturers

through their authorized dealers in order to market individuals falls under three categories

as follows:

1.Corporate Employee

2.Self-Employed Person (Professional)


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3.Businessman

In auto lease brand new cars are leased to the individuals. Maximum leased period is 3 to

5 years. The insurance of the asset in this case is arranged by ORIX. Minimum down

payment is 20% and minimum interest rate charged is usually from 19% to 23%.

Hire Purchase

Hire Purchase is same as lease the only difference is lease period, which is less than 3

years. In higher purchase automobiles, household durable is given on installment,

Honda Easy Pur chase Plan

ORIX Leasing Pakistan Limited on 2nd

July 2001 launched Honda Easy Purchase Plan

with the cooperation of Atlas Honda in all eight cities where it has its branches.

They are offering Honda CD 70 and Honda CG 125 with a minimum down payment of

Rs. 25,000. Lease period is 1 to 3 years and this plan is offered to both salaried personand businessman.

Departments in Multan Branch

There are two departments in the Multan Branch.

1.Credit and Marketing department

2.Accounts department

Credit and Marketing department

In credit and marketing department the designation of the working staff is credit and

marketing officer. At presently only one person is working in this department other three

persons are yet to be appointed.

Credit and marketing department is responsible for achieving assigned targets and in

developing business. Ensure recovery of over dues and maintenance of relevant records.

Principal activities of the department include:

Business Development:

Credit and marketing people strive to generate corporate clients for the company and

define strategies to retain them.

Target Accompl ishment:

These people work as a team member to assist team leader in achieving the targets.

Follow Up:

They collect and follow up rentals in order to assist Rental department in their operations.


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Reporting:

They prepare various reports and documents to submit them to concerned authorities for

further proceedings.

Credit Approval:

They coordinate with team leader for credit approval.

The people working in the credit and marketing department identify the customer need

for credit, carry out credit analysis, prepare detailed report on lessees financial position

and submit it to higher-ups for approval. Involve in searching and developing new clients

and manage good relationship with them. They try to contribute and meet targets as a part

of a team. Interact with Rentals department for daily rental updates. Responsible for

recovering rentals on due dates and overdue rentals as well. Prepare credit analysis report

of lessee, complete lease execution documents for credit approval and contract execution.

Submit lessees financial standing to top management for the credit approval.

Accounts department

The designation of the person working in accounts department is Assistant Accounts.

At this time only one person is working in this time. The main responsibilities of the

assistant account are as follows:

Cash and cheques holding and preparation of relevant registers and statements

Purchase of stationery for office use.

Makes statement of deposit.

Paper filling of contract and confidential files.

Dealing in other branch expenses such as telephone, electricity, courier service, petrol

and hotel bills payment.

Maintenance of contract papers.

HIERARCHICAL STRUCTURE OF ORIXLEASING PAKISTAN

LIMITED

Branch Manager

Credit &

Marketing

Assistant Finance

& AccountOfficer


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Process of Lease

Process of lease consist of following steps:

Contact of customer for lease information

First of all the company in case of corporate lease or the individual in case of auto lease

contacted the ORIX for getting information about the lease options and terms. Marketing

and credit officer give this information to the customer. He gives them lease proposal in

which terms of lease are mentioned about their selected lease option. In other case

marketing and credit officer himself contacted the company or individual and give them

the lease proposal.

Approval of Lease proposal

If the company or individual accepts the terms and conditions of the lease proposal they

give the lease acceptance to ORIX.

Submission of the required documents by the customer

Marketing and credit officer ask customer to submit the required documents for getting

asset on lease which are as follows:

For an Employee

1.Copy of National Identity Card

2.Copy of recent Utility Bills (Residential) in his / her name

3.Copy of last six months Bank Statement

4.Copy of Ownership Documents or Rent Agreement of the residence

5.Original / Copy of recent Pay slip

6.A letter from employer confirming:-

Date of joining

Designation

Salary Package

For a Self -Employed Person (Professional), L ike Doctors / Lawyeretc.


2.Copy of Ownership Documents or Rent agreement of the residence

3.Any of the recent utility Bills (Residential)

4.Copy of Professional Degree

5.Copy of Membership Evidence in case the applicant is a member of any

professional organization


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6.Financial statement (audited) or Management Accounts, If audited Financial

Statement are not available.

7.Copy of Last two years Tax Assessment Statements.

8.Copy of Last Six months Bank Statement

For a Businessman (I ndividual)


2.Copy of Ownership Documents or Rent agreement of the residence

3.Any of the recent utility Bills (Residential)



6.Copy of Driving License

For a Business (Corporate)

1.Copy of National Identity Cards of all partners (if partnership)


3.Copy of last three years audited accounts (Balance Sheet, Profit & Loss Account)


5.Copy of Form 29

6.Copy of Form A

7.Copy of Certificate of Incorporation

8.Copy of Ownership Documents or Rent agreement

For Honda Easy Purchase Plan these documents are requi red

1.Copy of individuals NIC

2.Copy of driving license

3.Copy of last six months paid utility bills

4.Two fresh snaps

5.Copy of NIC of two guarantors

6.Copy of last six months bank statements

7.For salaried persons copy of their appointment letter and salary certificate.

8.For businessmen copy of tax return of their last assessment.9.Bank managers certificate.

10.If the business is on rent then their deed of rent or ownership documents.

Analysis of the credit worthiness of the customers

After the submission of the documents by the customer credit worthiness of the

customers is evaluated for giving them asset on lease.


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Individuals (employee) credit worthiness is evaluated from their salary slip and bank

statements. From these documents they come to know the monthly income of the

customer and deposited amount in the bank account.

Individuals (businessman) credit worthiness is evaluated from the bank statements they

gave from the bank statements they done the volume test to calculate their monthly

average revenue. Also marketing and credit officer personally visited the customers

business place to verify the information provided by the customer.

Corporate customers credit worthiness is evaluated from the financial information

provided by them. From their financial statements (balance sheet, income statements etc;)

ratios analysis are conducted to measure the financial strength of their business.

Approval of the lease from ORIX

Credit limit, which can approve by different persons, is as follows:

Designation Credit Limit

Assistant Manager 500,000

Manager 1.5 million

SR. Manager 2.5 million

A.G.M 3.5 million

Director marketing 5 million

Managing director 10 million

Executive committee 30 million

Board of Directors Above 30 million

Final procedures

After approval of the lease legal documents are prepared and signed by the lessee and

lesser. Deposit is taken from the lessee and purchase order is issued to the vendor in case

of direct lease. In case of sale and lease back first vendor issue sale invoice and cash

receipt to the lessee, lessee gave these documents to ORIX and issue sale invoice to

ORIX. ORIX then issue purchase order to lessee and leased the purchased asset to lessee.

After this lessee rentals are started which can be in advance or in arrear.

In corporate lease two types of files are prepared

1.Approval file

2.Payment file

Approval f ile


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In approval file documents relating to credit evaluation and are kept.

Lease Application Form

Summary lease report

Annual Reports

Lessee information sheet

Volume test

Bank statements

Tax Returns

Property documents

Purchase certificate

Checklist for lessee

Payment f il e

In payment file all legal documents are kept such as lease contract, promissory note,acceptance receipt, undertaking indemnity for the use of the asset, for import, taxes,

duties and other charges, for insurance premium, also it include guarantee and indemnity,

execution slip, all rental receipts and all other memos related to the leased asset. In case

of auto lease there is only payment file and all document are kept in it.

FUTURE PLANS OF ORIXLEASING PAKISTAN

LIMITED MULTAN BRANCHIn future they want to offer more lease options to its customers such as they want to offer

operating lease and consumer finance services. For operating lease they intended to target

textile sector in which they plan to provide power generators on lease there is a much

potential in this sector. Also they plan to target pharmaceutical sector because lots of

hospitals are establishing in the surrounding areas of Multan so they wanted to provide

medical machinery on lease to them also they wanted to target doctors market for

automobile lease which is presently dominated by Al-Falah financing.

They want to provide consumer finance services to multinational companies in this area

such as PARCO and CAPCO. They want to make contracts with them that ORIX will

provide household appliances, automobiles etc on lease to their employees and the

company will deduct rental form the salary of their employees and paid it to ORIX.

Also Multan Branch always wants to remain ahead of their annual business targets set by

the company. Multan office also planning to expand operation geographically to the

surrounding areas i.e R.Y.K, Bahawalpur and other cities.


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