Ukraine flag

In the first article of
a  special report on the Ukrainian leasing market, Brendan
Malkin examines the international leasing companies looking to
enter the country’s burgeoning market.

 

Ukrainian market at a glanceForeign leasing companies are once again showing interest
in entering the Ukrainian leasing market, as signs emerge that the
sector will return to full health next year following its battering
over the last two years.

Several foreign banks and a number of
commercial vehicle lessors are looking to enter the market. This is
partly in response to predictions that the leasing market will
begin to grow again at similar levels to those of the finance
sector’s boom years between the end of 2004 and mid-2007.

Ukraine’s low overhead costs, as well as its
large amounts of untapped business and infrastructure investment
opportunities, are attractive to foreign lessors.

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By GlobalData

Margins in Ukraine are high, reaching up to 8%
on car leases and upwards of 30% on other consumer finance
deals.

Piotr Kaczmarek, head of Alfa-Bank’s Ukrainian
retail arm, said: “Around 37% of bank equity is controlled by
foreign banks.

This is still low compared to other markets,
such as Poland, where the equivalent figure is around 75%.”

Improving GDP, which grew 3% during the first
quarter of 2010 and which is expected to rise by 4% next year, is
also helping to bring in more foreign investment.

Furthermore, the shortage of refinancing
opportunities available to local Ukrainian lessors – given the need
for them to obtain parent company guarantees on such deals and the
unwillingness by development banks to take lessors’ credit risks –
might also mean foreign lessors will be less threatened by local
competition.

Nonetheless, it is likely that the advance by
foreign lessors into Ukraine will be slow given the country’s
corruption problems, and its challenging legal and tax
environments.

 

Uncertain times

Political uncertainty, partly sparked
by the recent arrival of pro-Russian Viktor Yanukovych as the
country’s new president, as well as Ukraine’s high external debts
(equivalent to 80% of its GDP), are also grounds for caution.

Several sources said that Fraikin, one of the
largest commercial vehicle fleet specialists in Europe, is
considering launching a Ukraine subsidiary through its Polish
arm.

Artur Nowicki, managing director of Fraikin
Poland, attended the Ukrainian Union of Lessors’ international
conference in Kiev last month.

Another company also scouring the Ukraine
market for opportunities is the leasing arm of MAN.

Thomas Linghino, who works for the
manufacturing arm’s Russian business, was another attendee at the
Ukrainian Union of Lessors’ conference.

Interest from transport companies in Ukraine is
not surprising given that potential for growth in the transport
market in Ukraine is “huge”, according to Roman Ivanenko, head of
the board of the Ukrainian Union of Lessors and also CEO of Euro
Leasing Ukraine, a car and truck leasing specialist.

Whereas average transport leasing penetration
across Leaseurope member countries totals about 40%, in Ukraine it
is 2.7%.

The arrival of new players in the market will
also mean more competition for existing players in this segment,
including Volvo Financial Services, Scania Financial Services, and
ALD Automotive, the operational leasing and fleet management
business line of the Société Générale group.

Several local bank-owned leasing companies,
including Raiffeisen Leasing Aval and UniCredit Leasing, are also
in the transport leasing space.

All of these companies have been adversely
affected by high writedown levels during the recession.

On this point, Krzysztof Bielecki, managing
director of ING Lease Holdings in the Netherlands, and a specialist
in the CEE region, commented: “Over 60% of assets in the CEE are
vehicles. Most go to SMEs, and this explains why we lost market
share during the banking crisis, as SMEs go bust first.”

 

Gaining a foothold

Meanwhile, several foreign leasing
companies are also looking to enter Ukraine, including Polish
lessor BRE Leasing, run by Mieczysław Groszek. BRE Leasing’s
ultimate parent, Commerzbank, has a presence in Ukraine through
Bank Forum, in which the German banking giant acquired a 60% stake
in 2007.

In Poland, BRE Leasing specialises in general
asset finance but recently gained a foothold in the rolling stock
sector, winning a PLN24m (€5.8m) five-year contract to lease PESA
brand model 218MC twin diesel rail buses for the Warmia and Mazury
railway line in Poland.

Russian leasing companies are also expected to
become more visible in Ukraine at the same time as their parents
focus more of their attention on retail opportunities in the
country.

State-owned VTB, ranked ninth in Ukraine’s
banking sector, is understood to be reinforcing its position in the
country’s leasing sector.

Currently VTB Leasing is ranked number one in
Ukraine and focuses largely on the leasing of railway wagons for
the Ukrainian State Railways.

Commenting on VTB’s ambitions, Peter Oberauer,
managing director of Raiffeisen Leasing Aval, said: “State-owned
VTB has only small [banking] subsidiaries in Ukraine and
understandably want to increase their presence now. This also
includes the leasing market.”

 

Sberbank logoRussian
interest

Similarly, Russia’s Sberbank is also
believed to be looking to scale up its Ukrainian banking arm, which
is currently ranked 24th in Ukraine in terms of total assets.

According to Oberauer: “Sberbank is likely to
follow this example through leasing subsidiaries in Ukraine.”

Rumours appeared in the media last month that
Moscow-based Sberbank was about to acquire Raiffeisen’s Ukrainian
subsidiary.

 “Sberbank has been looking at Raiffeisen
Bank Aval for a couple of years already, because this bank is the
second-largest in the country, has an extensive customer base in
all segments including retail, and a network with over 1,000
branches. Accordingly, it would be an ideal target for Sberbank,
which is trying to expand internationally, and in particular in CIS
countries,” said Oberauer.

The rumours, however, were dismissed by
Raiffeisen. Meanwhile, Oberauer said, Raiffeisen itself is looking
to “strengthen its position as the leading banking group in Central
& Eastern Europe”, and also “has survived the crisis well and
is sufficiently capitalised”.

Another Russian company, Alfa-Bank, which is
ranked 10th in Ukraine by total equity capital, is due to start
offering car leasing through its retail arm. This is run by Piotr
Kaczmarek, who previously headed up Crédit Agricole’s Polish
leasing business, Europejski Fundusz Leasingowy.

Whereas before the economic crisis Kaczmarek
offered auto loans to customers, he has recently turned to car
leasing because it requires “very strict risk approval, high
downpayment and tons of documents”, he said.

Another Russian bank with ambitions to expand
in Ukraine is state-owned Vnesheconombank. Last year it gained a
foothold in Ukraine through its acquisition of Prominvestbank, and
is currently Ukraine’s seventh-largest bank.

These new entrants represent the next wave of
foreign leasing players in Ukraine following the arrival of
international lessors at the crest of the upsurge in the country’s
economy in 2006.

During this time SG Equipment Finance, BA-CA
Leasing – now UniCredit Leasing – and Immorent, part of Erste Bank,
all set up local subsidiaries, while ING Lease did so in 2007.

VAB Leasing, which was founded in 2005 by Dutch
company TBIH Financial Services BV, is also in the market.
Meanwhile, Hypo-Alpe-Adria Leasing’s Ukraine subsidiary, according
to the Austrian bank’s CEO Gottwald Kranebitter, is up for sale
(see p24).

 

Excerpt from articleTaking their time

Due to the impact of the recession on
Ukraine’s leasing market, lending by foreign and domestic players
almost dwindled to zero during the crisis. The new players are
unlikely to enter Ukraine until 2011 at the earliest.

“We are looking forward to new opportunities
and most likely they will start to materialise as early as 2011,”
said Tanya Kantor, Ukraine country manager for Volvo Financial
Services, which has been providing cross-border financing from
Sweden to Ukrainian customers since 1998 and is now in the “process
of establishing local operations”.

Other attractions of Ukraine for foreign
lessors are its cheaper labour costs and the country’s proximity to
the European Union.

Notwithstanding this, in recent weeks local
English language newspaper, theKyiv Post, reported that
Ikea, agricultural giant Cargill and Hewlett Packard had scaled
back their investments in Ukraine, citing economic and political
reasons.