LEASE FINANCING IN RUSSIABy Aditya Gupta

Roll No. 857 Semester V (U.G)

INTRODUCTIONA lease is a contract whereby the owner of an

asset (the lessor) grants to another party (the lessee) the exclusive right to use the asset in return for the payment of rent.

Leasing’s share of real GDP of Russia in 2011 was 2.40% (2010: 1.62%); the share of new leasing business in capital investment (production assets) was 12% (2010: 7.7%); and the share of the leasing of machinery, equipment and transport vehicles in the total volume of investments in such assets made up 30.1% (2010: 17.0%).

REGULATORY MECHANISM FOR LEASING IN RUSSIAFinancial Leasing Law, 2002Civil Code of RussiaUNIDROIT Convention on International

Financial Leasing

STATUTORY PROVISIONSProperty that Can be the Subject of a LeaseAny non-consumable tangible property, other than land

plots and other natural objects, may be the subject of a lease under Russian law. (Arts. 4(1) &19 of the Financial Leasing Law.)

Parties to a leaseFinancial lease transactions involve three parties under

Russian law. A financial lease transaction involves a lessor who undertakes to purchase non-consumable property identified by the lessee from a seller and to deliver temporary possession of that property to the lessee for the lessee's commercial use.

Required provisions of a Lease Agreement in Russia.

1. It must be in writing 2. A financial lease agreement must

unambiguously identify the subject property and the seller.

3. A lease agreement also should indicate the amounts of the lease payments, the payment due dates, and any other conditions and obligations to which the lessor or lessee agree.

STRUCTURE OF THE LEASING INDUSTRY

Railway Rolling Stock

– 49.4%

Motor Vehicle for

transportation- 9.5%

Light Passenger Cars – 7%

Aircraft – 6.4%

Building equipment & Machinery –

10.5

Building-2.8

STRUCTURE OF LEASING INDUSTRYStructure of the leasing industry was prepared on structural

market analysis with a breakdown by type of leasing, asset (equipment, transport vehicles, immovable property)

and calculated the share of each such asset segment in the total volume of new leasing contracts concluded in 2011.

Transport vehicles have always been the most popular leasing assets, and the present-day Russian leasing industry is no exception. The combined weight of railroad rolling stock and locomotives, aircraft, and vehicles. segments of the domestic leasing market reaches 75%.

In Russian leasing, have there been cases of segment

occupying more than 49%,

FUNDING OF LEASES IN RUSSIA

52.6

8.42.7

6.3

7.1

22.9

Russian Bank Cred.Forgn Bank CreditLoan from founderBondsown funds Other

ANALYSIS OF THE FUNDINGWith each year the number of Russian leasing

companies that can obtain financing directly from foreign banks grows.

There is a growth in the volume of credit operations with the involvement of the national agencies for insurance of export-import operations, e.g. from Germany, Austria,, the USA and other countries.

In general, such institutions provide credits for a term of three to five years, and in some cases 7 years.

Contd……. Analysis showed that in 2012 more than

50% of new business was initiated by leasing companies affiliated with the State. This means that the State has been supportive of leasing companies in the crisis.

ACTIVITIES OF LESSOR IN RUSSIAIn practice many Russian leasing companies

have managed not only to copy but also successfully to adapt the experience of the countries with developed leasing industries.

In 2012 Russia had 44 leasing companies whose new business volumes were each in excess of US$100 million, including 7 of which were over the US$1 billion level, two of which recorded more than US$7b billion.

LEADING LEASING COMPANIES IN RUSSIAAmong the leasing companies who used this form

of financing in their leasing operations1. VTB-Leasing2. Europlan3. Caterpillar Finance4. MAN Financial Services5. Carcade6. Siemens Finance (Vladivostok)7. Folkswagen Group Finanz8. VR Leasing9. Deutsche Leasing Vostok

AVERAGE DURATION OF LEASE IN RUSSIA

2007 2008 2009 2010 20110

10

20

30

40

50

60

70

80

90

Series 1

Avg. Lease Terms ( in moths)

CAPTIAL LEVERAGE IN RUSSIA The average debt-to equity ratios (Capital

Leverage) per Russian Leasing company in1. 2007 – 12.4 : 1, 2. 2008 - 7,9 : 1 3. 2009 – 7.8 : 1 4. 2010 – 8.5 : 15. 2011 – 10.7 : 1.

DEVELOPMENT OF LEASING PORTFOLIO

2008 2009 2010 2011 20120

5

10

15

20

25

30

35

40

Series 1

Euro ( In Billions)

16

Trends in Leasing Industry in Russia

Customers:SmarterDiverseSeek more AlternativesService ConscienceUnderstand Asset

ManagementTrending to Technology

Products:Assume/Manage more

RiskSolution PackagesLeases with Other

Financing PackagesVenture Leasing

Leasing Companies:SpecializationDiversificationConsolidationGlobalizationBranding,

Relationship, Image Building

Rules and RegulationsDistinction Between

Lease and LoansExpanded Public

Official UnderstandingGlobal Harmonization

of Accounting

PROSPECTS AND OPPORTUNITIES

IN RUSSIA

LEASING REMAINS AN INTERSTING FINANCIAL INSTRUMENT

1. Full deductibility of lease payments for tax purposes

2. Accelerated triple (x3) depreciation3. Long-term financing4. Ownership of the leased asset

THE FUTURE OF LEASING INDUSTRY IS PROSPEROUS IN

RUSSIAFocus on modernization of Russian

industryDevelopment of infrastructural projectsNeed for residential constructionDevelopment of Russian regionsReal-estate leasing – still underdeveloped

THANK YOU !QUESTIONS,

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