The Greek operation Piraeus Leasing is holding up well during
the credit crunch. However, is it performing well compared with its
foreign subsidiaries?
Credit crunch. What credit crunch? For Piraeus Leasing, the
second largest lessor in Greece and a major international player,
there appears to have been almost no let up in its deal breaking.
In recent weeks, for instance, it signed its biggest deal ever, a
€100 million ($147.4 million), full payout 20-year real estate
lease of several Greek supermarkets.
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In Greece’s hyper-competitive marketplace, where a
small number of players vie for top spot, winning a deal of this
size represents a considerable coup. Particularly when the lessor
which is ranked first, EFG Eurobank, has a portfolio worth €1.4
billion, just a touch larger than Piraeus Leasing’s €1.3 billion
book. Hard on Piraeus Leasing’s heels is Cyprus Leasing with leased
assets worth €1.25 billion, and then Alfa Leasing, with €1.2
billion.
There is no doubt, however, that times have got tougher for
Piraeus Leasing – Greece’s only listed leasing company – as well as
its competitors.
Interbank lending is at 5 percent – considerably above European
Central Bank levels – and Piraeus Leasing lends to customers at 7
percent.
“The increase cost of money has had real constraints,” remarks
Yiannis Mavrelos, who has been the company’s managing director
since 1999. “It has cut some of our growth and some of our
profits.”
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By GlobalDataNonetheless, it is comfortably keeping its head above water –
not least in the real estate sector – thanks, perhaps, to the
continued demand from a lot of its customers. Half-year 2008
figures reveal that year-on-year profits before taxes have risen
7.2 percent to €10.3 million, net interest income grew 3.1 percent
to €15.9 million, and, most impressive of all, its volume of leased
assets during this period has risen by an impressive 17.9
percent.
However, Piraeus Leasing’s competitors are also not reporting
losses, and as reported in our deals section in this issue (see
page 15), the recent going to tender of a €65 million shows Piraeus
Leasing is not alone in signing large real estate transactions.
Demand for such deals remains strong as customer demand remains
high, largely because of tax benefits they receive on sale and
leaseback deals. However, this has to be balanced with the fact
that in the current economic climate, such deals take a long time
to come to fruition as the general lack of cash throws up
uncertainties over risk and pricing. Mavrelos reports spending over
a year negotiating his recently signed €100 million deal.
Most of the structures needed to survive during a downturn are
in place at Piraeus Leasing. It originates half of its business
from branches belonging to its parent bank – with which it is,
comparatively speaking, heavily integrated. For instance, Mavrelos
says “regarding recruitment the banks gets the proper staff and
does the interviews”.
He adds: “It also approves remuneration packages and when we
have legal issues we go to the bank.”
Its strong parent relationships have helped in other parts of
the business – including Basel II, an area where some lessors
outside Greece continue to struggle with.
“We have a direct line with the parent regarding implementation
of Basel II,” remarks Mavrelos. “This is all managed by the parent
which works on the data and guides us and monitors us.”
“We have a direct line with the parent regarding implementation
of Basel II. This is all managed by the parent which works on the
data and guides us and monitors us”
However, for the parent, Basel II has caused some headaches.
“During the last three years three heads of [Basel II
implementation] have lost their jobs,” Mavrelos adds.
Another structural success story has been Piraeus Leasing’s
sources of business. Besides bank branches – “an old and powerful
source of business,” according to Mavrelos – it has some strong
vendor finance relationships with large manufacturers, some of
which, such as Caterpillar and MAN, outside Greece ordinarily have
their own captive finance arrangements.
The one structural problem area for Piraeus Leasing – although,
to be fair, this affects most lessors in Greece – has been IT
systems. Like many of its competitors, it has been reliant on one
system, Singular Logic, for many years. Several lessors recently
looked around for a replacement system, could not find a viable
alternative, and thus stuck with Singular. However, the lack of
competition is not altogether healthy.
Things might be changing, though, as international systems
company, NetSol Technologies, has recently begun to make inroads
into Greece. Meanwhile, Piraeus Leasing’s foreign subsidiaries –
which are not managed by Mavrelos – opted for local systems.
Interestingly, across the Greek leasing market it is generally
considered that it is these subsidiaries which are holding up the
marketplace, while business in the homeland of Greece flattens
out.
Certainly, Piraeus Leasing is beginning to make its mark outside
Greece – it now has presences in Bulgaria, Romania, Serbia, Albania
and Egypt (it is not as yet in Turkey, unlike two close rivals EFG
Eurobank Leasing and National). However, in the case of Piraeus
Leasing, its Greek operation, too, appears to be seeing ongoing
growth.
Nonetheless, for Mavrelos, who has been in the leasing sector
for 20 years – he began his professional life as an account manager
at ETBA Leasing in 1988 – the environment today is “very
difficult”.
Competition, he says, is “much harder”, and also “the market is
much better educated so opportunities for profits have been
minimised”. However, as his market goes through change – not least,
the possible launch of operating leasing as a finance facility –
the future is still very much in his own hands.
