Italian mini-renaissance

Although Italian lessors are still largely
cautious about their future prospects, as of the start of this year
there are some signs of a possible recovery within the
industry.

It might not be the year of a full resurgence,
but leasing experts believe that it should be at least slightly
better than 2009, when new business collapsed by one-third and bad
debt charges soared to unprecedented levels.

Part of the optimism is attributable to
benefits expected from a payment holiday scheme introduced in
August 2009.

Italy’s leasing moratorium statistics
(to 31 December, 2009)

The government-backed initiative, agreed
between Italy’s employers’ federation Confindustria and banks and
their leasing subsidiaries, is offering a payment suspension to
those small and medium-sized enterprises (SMEs) which are in
“temporary financial difficulties”.

Leasing payments can be postponed by 6 or 12
months – depending on whether it is equipment or property that is
being leased.

Other conditions for Italian SMEs to be deemed
admissible to the scheme include that they ask to postpone a
finance leasing agreement (operating leases are not considered),
and that they were not in arrears when filing the application.

Around 35 major Italian leasing companies –
representing 84 percent of Italy’s leasing portfolio and including
the likes of UniCredit Leasing, UBI Leasing and Leasint – have
joined the moratorium.

By 31 December 2009, lessors had received over
35,000 applications (28,000 for equipment leasing agreements and
7,000 for real estate leasing agreements) and approved almost
two-thirds of them (see table).

“Joining the scheme has represented for
lessors – even more than for banks – a real investment in their
relationship with a customer base which is having a hard time, but
which shows a potential for overtaking the current crisis,” said
Rosario Corso, head of Italian leasing association Assilea.

He added that although Italian lessors will
bear the financial costs of longer contracts, as well as a
potentially worsened risk profile of some customers, they will also
benefit from “standardised procedures” to support customers,
therefore reducing legal arguments and only focusing their efforts
on those firms “with no prospects to overcome the crisis”.

But Corso highlighted that firms should not
see the payment holiday scheme as a “mere postponement of their
problems”.

“In this sense, the requirements to access the
moratorium, and the reduction from 12 to six months for equipment
leasing agreements, represent a barrier to an improper use of this
tool,” he said.

But a positive note for Italian lessors also
comes from new business opportunities.

Assilea expects that 2010 volumes will recover
– in fact, for the first time in 18 months, December figures
recorded by the association showed an increase in new business.

“However, from the information we have at
present, it is still possible that in January the market might see
a drop again. The road to recovery is still long and complex,”
Corso said.

The association also believes that equipment
leasing will be the first sector to rebound, reflecting an
improvement in exports and in industrial production.

Public sector
possibilities

Expectations are also high for leasing within
the public sector – new business was 4.5 percent up last year, but
could be much higher this year as a number of big-ticket
transactions are planned – and also for the renewable energy
sector, with the photovoltaic business leading the way with a
stunning 60 percent increase in 2009.

Italy’s second-largest lessor, Leasint, for
instance, has literally seen a boom in renewable energy financing.
The company introduced a product called Leasenergy back in 2007,
and currently has over 250 renewable energy plants, producing
around 600 megawatts (MW), under its umbrella.

Alberto Lincetti, who is responsible for
renewable energy leasing at Leasint, said: “Demand for renewable
energy leasing is still increasing, and in general we expect that
in 2010 the amount of energy investments will go up both in our own
portfolio and in the country.”

Lincetti explained that SMEs choosing
Leasenergy – which include both businesses specialised in selling
energy and other types of businesses looking at energy production
for their own consumption – have mostly used it for small
photovoltaic plants installed on roofs.

Recent deals for Leasint have included a
photovoltaic plant in Lazio, the region surrounding Rome – a deal
worth €14 million, with panels installed on the roof of a large
greenhouse and with a power of 2.8 MW – and a large plant in Lecce,
in the Puglia region, where photovoltaic panels were built within
wind turbine blades.

Lincetti added that biomass plants, such as a
recent one built in the Venice area costing around €4 million for a
farming business, and another innovative one currently under
discussion where biomass is combined with waste disposal, are also
on the rise at the company.

Vendor finance hopeful

Vendor finance should be another sector which
might give some hopes to Italy’s lessors, it has emerged.

However, unlike larger European lessors
specialising in vendor programmes – the likes of DLL or BPLG, which
has just announced a vendor finance agreement with Microsoft
covering a number of countries, including Italy – Italian lessors
will have to use a different model to gain new business in this
area.

BCC Lease, a Banca Agrileasing subsidiary
specialising in equipment, was recently formed to focus on small
suppliers.

BCC Lease managing director Piero Biagi
explained how his company’s different model would operate: “Because
we are a local company, we have a supplier-oriented approach,
rather than one that focuses on vendors in the traditional way our
European counterparts do.”

BCC Lease rarely relies on direct agreements
with manufacturers – except in the case of small manufacturers in
specific niches such as medical equipment and vending machines.

It mostly deals with dealers and suppliers in
the IT and telecom sector – having over 1,800 agreements in place
with small suppliers – a pattern which, according to Biagi, more
closely resembles Spanish leasing than leasing in central Europe
and the UK. Despite this notable difference, Biagi agrees that
Italy’s vendor finance could see an increase in 2010.

He said: “Vendor finance – from large
manufacturers to small dealers – is now more necessary than ever,
because everyone is having problems in placing their products.
Dealers have difficulties in providing finance themselves now – in
the past, some dealers would directly finance their clients’
purchases, but they no longer do this because simply they don’t
have liquidity.

“This means more opportunities for us,
although we need to be selective. Sometimes, dealers do not have
the same perception of risk of their clients as we do, they might
underestimate it.”

Biagi said that the demand is high, but
because suppliers tend to be small in the Italian landscape, there
is a lot of “fragmentation. Opportunities are there, it is just a
difficult market to penetrate, because of this fragmentation and of
the risk management”.

But Biagi is still very cautious about what
will happen in 2010.

He said: “Most Italian lessors had a worsened
performance last year, and it’s crystal clear that everyone’s first
concern now is risk. There is not just an issue about extending
existing contracts, which in itself is quite easy, but about
writing new business. That’s why 2010 is still going to be a
challenging year.”

He expects the heavy machinery and the HGV
sector to continue to be difficult, while the IT and telecom
business and the food industry could be less troubled.