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June 28, 2011updated 12 Apr 2017 4:13pm

Ukranian leasing recovers

The Ukrainian leasing market is on the road to recovery in 2011, and optimism is certainly returning, said Roman Ivanenko, deputy head of the board at the Ukrainian Union of Lessors (UUL) and chairman of the board of Euro Leasing.

By Claire Hack

Claire Hack reports from the Ukrainian Union of Lessors’ annual conference in Kiev.

 

The Ukrainian leasing market is on the road to recovery in 2011, and optimism is certainly returning, said Roman Ivanenko, deputy head of the board at the Ukrainian Union of Lessors (UUL) and chairman of the board of Euro Leasing.

Speaking at UUL’s second annual conference in May, Ivanenko said he expects leasing in the Ukraine to increase to 5% of total financial activity.

“We think it will be worth between UAH36bn and UAH37bn [€3.2bn and €3.3bn] in the next year,” Ivanenko said.

“We also see significant interest from leasing companies in Russia aimed at our market. This will prevail in the current year.”

The market also continues to present opportunities for foreign lessors, Ivanenko said. Companies including Société Générale Equipment Finance, UniCredit Leasing and Raiffeisen Leasing all rank among the largest players in the country.

Ivanenko added: “[Leasing] is number two after the insurance market, according to the Commission for Regulation of Financial Services Markets.”

The UUL has also been successful in lobbying the Ukrainian government and, in December 2010, amendments were made to tax legislation at the request of its board members.

“We managed to convince legislators about the opportunities and possibilities available to the market,” Ivanenko said.

“Right now, there is no VAT for financial leasing commissions. Financial intermediaries don’t create any added value, financial intermediaries distribute value, so if no added value – no tax on it. This discriminatory rule for leasing companies has been abolished.”

It is also expected that the infrastructure in place for leasing activities in Ukraine is to be enhanced, including adjustments to the legal system with a view to enforcing court decisions more stringently.

Ivanenko said: “We have a new possibility to chase customers if they have lost items. As far as development is concerned, there are no other strands with prospects for the next year.”

Photo of delegates at the Ukrainian Union of Lessors’ annual conference in Kiev

 

 

Master’s degree course launched

The UUL, in association with the Kiev University of Economics and Trade, launched a master’s degree in leasing in April this year.

Ivanenko said: “We wanted to launch a training programme so we initiated the masters’ degree course. It is another opportunity to popularise and promote leasing in Ukraine.”

 

Agriculture financing

Agriculture is among the Ukraine’s most highly-developed industries, contributing about 8% of the country’s GDP, yet it remains relatively under-developed in terms of technology. This brings opportunities for lessors.

Peter Krimm, country manager for Ukraine at John Deere Financial, said: “Ukraine is the leader in sunflower export and it is also number three in grain export.

“It is important, if you want to produce high-quality crops, that you have high-quality machinery. Ukraine is definitely in deficit when it comes to tractors and combine harvesters.”

The need for a high level of investment opens the door for leasing companies to offer comprehensive solutions to farm owners.

Krimm said technological advancements include tractors fitted with satellite receivers, aimed at further increasing efficiency by allowing farm owners to keep track of location, fuel usage and even how much labour was required during a given time period.

“The limitation has been the unavailability of financing – farmers would invest in equipment much more, if there were financing,” Krimm said.

“They need the technology to produce more and better crops. They also want to save fuel. It is becoming more and more of an issue.”

In the Ukraine currently, Krimm said, there are just 13 tractors in use per hectare of arable land, while in France and Germany, the figure is between 70 and 90.

Ukraine produces about 41m tons of grain. About 30% of that is lost during harvest, transport, processing, and storage, he added.

“This means about $1 billon [€705m] in lost revenue and about 1,000 jobs that cannot be created. We need to bring in more machines to make agriculture in Ukraine more efficient and effective,” Krimm said.

There are drawbacks, however, as creditworthiness remains an issue, and there are concerns over farmers’ ability to provide sufficiently transparent information for analysis.

“This is really limiting the availability of financing,” Krimm said.

“The other big thing, if you look at the broader picture, comparing Ukraine to other markets, is that government support is missing.

“What would help a lot would be an agricultural bank, managed by the government, who can then offer subsidies or funding or whatever it might be.”

Photo of (left to right): Raiffeisen’s Dieter Scheidl; Olena Voloshyna of the IFC; Leaseurope chairman Jukka Salonen; and Roman Ivanenko of the Ukrainian Union of Lessors

 

 

Renewable energy financing in CEE

As the necessity of cutting carbon emissions and conserving fossil fuels continues to climb up the international agenda, renewable energy is becoming increasingly popular across Europe.

The renewables market in central and Eastern Europe is also growing, and with it, the need for financing, said Dieter Scheidl, managing director of Raiffeisen Leasing International, a major player in the region.

“Renewable energy is a non-cyclical area, with strong arguments in its favour,” Scheidl said.

“Because of the Japanese disaster and the worldwide aim to reduce carbon emissions, governments are encouraged to support this kind of business.”

He added that the increasing scarcity of fuel, coupled with rising prices, have also had a major impact.

Scheidl said: “Using renewable energy is also an important contribution to corporate social responsibility.”

And the CEE area specifically could become more attractive to international investors as the use of subsidies for renewables spreads across the region.

“For example, last year we did a lot of business in the Czech Republic,” Scheidl said.

Nevertheless, lessors must be wary of changes to legislation, and a lack of regulatory guidelines, as well as the possibility of a sudden withdrawal of subsidies.

In the Czech Republic, Scheidl explained, Raiffeisen had just a year to set up projects as a feed-in tariff had been implemented for that period only.

What is more, “classical” leasing has little value in the segment, as it is heavily reliant on project finance, he added.

“The key element is project financing, and underlying cash flow: we base our business model on cash flow,” Scheidl said.

“It is a very expensive source of energy from an economic point of view, which can only really be implemented with very high levels of subsidy.”

Raiffeisen currently has renewable energy projects in countries including the Czech Republic, Slovakia, Bulgaria, Romania and Poland via a new venture known as Raiffeisen Energy and Environment – and there could be potential in Ukraine.

“The Black Sea has very windy conditions. The area is therefore of interest to us,” Scheidl said.

The Ukraine has a number of other attractions for funders looking to work in renewables, he said, such as high energy consumption – nearly as three times as high as in Germany.

Energy is mainly produced by gas, coal and nuclear plants, meaning there are opportunities to bring in other energy sources, such as wind turbines and solar plants.

The Energy Strategy for Ukraine 2030, issued in 2006, also showed major growth and investments in renewables. Feed-in tariffs in Ukraine are guaranteed until 2030.

 

Demand returns in Russia

The Russian leasing market is populated largely by state-owned companies but was still hit relatively hard by the global economic crisis, said Galina Mayer, of the United Leasing Association of Russia (ULA).

“Investments needed for industry and production are very large. Independent [leasing] companies are not able to support such big projects,” Mayer said.

She added that St Petersburg, historically one of the best-performing regions in the country, had suffered particularly badly during the crisis and had seen a major decline from 2007 onwards.

Now, however, demand for leasing is returning to the market, although it is mainly for rolling stock deals, as well as other bigger ticket transactions, Mayer said.

“The fleet of railway carriages is obsolete so there is a vast demand for transport. Trains are low risk,” she said. “Aviation leasing takes a large share – about 13%.”

The total leasing portfolio in Russia comes to about $36 billon, Mayer said, although the aggressive policies of the state-owned companies mean independent players are forced into much more niche deals, and therefore make up a very small part of this figure.

“Competition from prices is therefore transferred to specialisation and quality,” she added.

ULA joined Leaseurope in March in order to benefit from the experience of members from other European countries on issues such as accounting, statistics and legal matters.

 

A ‘new normal’ in Europe

The leasing industry in Europe as a whole is heading towards a “new normal” as growth re-emerges, Leaseurope chairman Jukka Salonen said in his address at the UUL conference.

Salonen told an audience of about 100 delegates from various segments and geographies that recovery had begun – but market conditions have changed considerably.

Both real estate and vehicle leasing performed well during 2010 across Europe, enjoying respective rises in new business volumes of 12.2% and 6.1% year-on-year, Salonen added.

“Vehicles are driving business up,” he said at the conference, which was held at the President Hotel in Kiev. “Those areas are showing the highest growth figures are those with [high levels] of vehicle leasing.”

But even as growth returns, lessors cannot expect to see conditions comparable to the pre-crisis period, Salonen said, and this change must be embraced.

He said: “Recovery is bringing us back to a more normal scene, but we are not getting back to the old normal.

“We are coming to the new normal, where the rules will be different, and changes will be required.”

These changes include the requirement for adequate preparation for the imminent changes to the lease accounting standard, as well as for the implementation of Basel III.

Salonen added: “Basel III is the biggest change in the financial industry. There will be new standards for capital, and that means from the original 2.5% capital ratio for tier 1, it could go up to 10 or 15%.”

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