LEASING-COURIER (September - October 1999, Issue 5 (5))

Published by the Leasing Development Group of the International Finance Corporation (IFC), a Member of the World Bank Group, with financial support from the British Know-How Fund and the Canadian International Development Agency 39575

C O N T E N T S : Public Disclosure Authorized September - October 1999, Issue 5 (5) THEORY & PRACTICE IFC AND GRUPPE DEUTSCHE LEASING MAKE Legal Conflicts and Leasing Company THEIR FIRST INVESTMENT IN THE RUSSIAN Practice LEASING SECTOR Municipal Transport and Leasing. Leasing Ford Automobiles 18 October 1999, Moscow. The International Finance Corporation (IFC), one of the largest private-sector investors in emerging markets, and Gruppe EXPERT OPINION Deutsche Leasing (DL), the fourth largest leasing company in Germany, have Licensing Leasing Activities. Leasing agreed to invest in Deutsche Leasing Vostok, a leasing company to be Statistics.

Public Disclosure Authorized established in the Russian Federation. Deutsche Leasing Vostok will be the first universal leasing company in Russia with a substantial share of foreign SMALL BUSINESS capital. It will also be the first investment project of the International Finance Limited Partnership “Anons”, St. Corporation and Deutsche Leasing in the Russian leasing sector. Petersburg Under the agreement, the charter capital of Deutsche Leasing Vostok joint- LEASING IN THE REGIONS stock company will consist of $US3m. Eighty percent of the shares will belong Irkutsk. Krasnodar to DL, and 20% to the IFC. In addition, the IFC will provide the company with loans of up to $US3m. THE LEASING PROJECT The investment

EventsPublic Disclosure Authorized in the Group. Investment. project is a result of the IFC’s NEWS technical assistance LEGISLATION programs for the Insurance Agreements development of the Russian leasing sector. TAXATION This work began Changes in the Tax Code in 1997 with the founding of the QUESTIONS & ANSWERS Leasing

Public Disclosure Authorized Development Group. This IFC IFC and Deutsche Leasing sign the investment agreement. In the project is one of photograph: Mr. Edward Nassim (left), Director of the IFC Europe many examples of II Department, and Mr. Horst Figge, Chairman of DL’s Board of how the Directors Corporation’s technical assistance programs and its investment activities complement each

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other.

Edward Nassim, director of the IFC Europe II Department, notes that the investment in Deutsche Leasing Vostok will promote the development of leasing as an effective and viable means of financing the acquisition of new assets. He also notes that the IFC will continue its technical assistance program for the development of the Russian leasing sector. (continued)

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THEORY AND PRACTICE

September - October 1999, Issue 5 (5)

● LEGAL CONFLICTS AND LEASING COMPANY PRACTICE

● AUTOMOBILE LEASING AND MUNICIPAL TRANSPORT IN ST. PETERSBURG

● A New Partnership Between Ford Motor Company, Ford Credit Europe and RUST Leasing Company

● Sample calculation for the acquisition of equipment by four different methods

LEGAL CONFLICTS AND LEASING COMPANY PRACTICE

N.A. Kaliush, Attorney, Closed Joint-Stock Company —Irkutsk Business Park Olga Shishlyannikova, an attorney with the IFC Leasing Development Group, comments on the experiences of Irkutsk Business Park.

ISC — Irkutsk Business Park has been in the leasing business since 1995. Over the last period, the company concluded several dozen lease agreements. Irkutsk Business Park’s clients include small businesses and individual entrepreneurs. The leasing company runs into a lot of problems in its work, most of which arise from the vagueness, inconsistency and instability of the leasing legal base in Russia. This article will examine some of the legal problems that Irkutsk Business Park encounters in its leasing business and how it attempts to solve them.

According to the Civil Code of the Russian Federation (CC RF), a lessor may only acquire leased assets under a purchase agreement, in which it must be stated that the assets will be leased to a specified lessee. Irkutsk Business Park has often needed to sign Nina Kaliush, whole series of intermediate deals to ensure that the lease agreement would conform to attorney, Irkutsk Bussiness Park. these legal norms. For example, one client paid off his lease payment arrears by sending the leasing company a computer. Irkutsk Business Park first had to sell this computer to a third party, then buy it back, and only then could we proceed to lease it. We did find a solution, but having paid VAT on the purchase agreement we also suffered some losses. This shows that restrictions on the means of acquiring leased assets, as specified by law, interfere with leasing companies’ business and lead to unjustified expenses.

Commentary

It follows from Paragraph 6, Chapter 34 of the CC RF that the leased assets in a lease agreement can only be acquired under a purchase agreement. This excludes the possibility of acquiring leased assets under a barter agreement, for example, or of gaining property rights to assets via their creation. From this it follows that leasing companies may not acquire property through barter, nor may they participate in the creation of the leased assets, for example through construction.

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rkutsk Business Park is forced to purchase leased assets through Russian intermediaries, since the preferential customs duties stipulated in the RF Federal Law on Leasing contradict existing legislation and cannot be applied in practice, and Irkutsk Business Park does not have enough funds to purchase the leased assets and pay customs and taxes. Going through Russian intermediaries raises the cost of assets by 50% or more. Furthermore, Irkutsk Business Park has no guarantee that the assets acquired through Russian intermediaries will be delivered on time. In June 1997 the company signed a purchase agreement for some hairdressing equipment with a Moscow firm representing the Italian manufacturer. The delivery took six months. The equipment had to be delivered three times, because the first time there were serious problems with the quality, and the second time they bungled the order. All these problems could be avoided if only Irkutsk Business Park were able to work directly with the manufacturer.

Commentary

Article 34 of the RF Federal Law on Leasing stipulates new regulations for the shipment of leased assets across the Russian customs border under an international leasing agreement. It establishes that customs duties must be paid simultaneously with lease payments. Legislative practice, however, presupposes that these regulations be reflected in special legislation. The State Customs Committee of the Russian Federation explained in a letter of 24.05.99 that Article 34 could not be applied in practice because it does not conform to Part 1 of the Tax Code. Therefore, leasing companies, unfortunately, cannot make use of the benefits set forth in the Federal Law “On Leasing”.

e also run into problems with the provisions of the federal law concerning operational leasing. Even though operational leasing is established by law, leasing companies do not currently have the right to make operational lease agreements, but rather they are forced to work under ordinary lease (rent) agreements, since the tax authorities clearly define “operational leasing” as “rent”; consequently, they don’t allow us to apply the benefits that are established for leasing transactions.

Commentary

It follows from Article 665 of the CC RF that a necessary component of financial leasing is that a seller must acquire the leased assets specifically for leasing. According to this same Article, “the lessor, when obtaining property for the lessee, must notify the seller that the property will be leased to a specified party.” Consequently, property can only be acquired for a specific lessee. According to Clause 3, Article 7 of the RF Federal Law on Leasing, under operational leasing the leased assets may be leased more than once over their period of depreciation. If we analyze this definition we see that the concept of “operational leasing” does not include the distinguishing characteristics of financial leasing as defined in the CC RF (the intentional acquisition of leased assets and the acquisition of property for a specific lessee). From all of this it follows that “operational leasing,” as defined by law, is nothing but ordinary leasing (rent), subject to Articles 606-625 of the CC RF.

ne of the most relevant and problematic issues for lessors is repossessing leased assets from the lessee when a lease agreement has been annulled. The RF Federal Law on Leasing gives lessors the indisputable right to confiscate leased assets and stipulates that lessees must return the assets in the event that the lease agreement is annulled. These regulations do not, however, work in practice. The lessee usually refuses to return the leased assets, and for a wide variety of reasons the lessor cannot repossess them. So when lessees refuse to give back the leased assets, the only way for a leasing company to defend its property rights is through the courts, by suing to get the assets back. The case usually takes two or three months to review, since often the lessee does not appear in court and the judge continues to postpone the hearing.

Commentary

The RF Federal Law on Leasing gives lessees the indisputable right to repossess leased assets. But this regulation contradicts Article 619 of the

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CC RF, which does not provide for indisputable repossession of leased assets in these cases, but rather for annulment of the contract through the courts. In order to reduce the length of court proceedings in cases of repossession of leased assets, the parties to the lease agreement can include a clause within the agreement concerning repossession of the assets from the lessee in the event of certain circumstances; they can also have the agreement notarized. Notarizing the lease agreement will allow the lessor to confiscate the leased assets by obtaining a writ of execution

hen the long-awaited writ of execution finally arrives, the lessor encounters yet another problem: carrying it out. In 1997, for example, Irkutsk Business Park leased equipment for saw-timber production to “Istok” Enterprise. When the latter failed to make its lease payments on time, the leasing agreement was annulled in court. When the lessee refused to give back the equipment, the leasing company filed suit with the arbitration courts at the beginning of this year for the return of the property. The property was put under sequester. The judge postponed the case twice because the defendant had failed to appear in court or give notification. The hearing finally took place at the beginning of June. Irkutsk Business Park could not receive the writ of execution until mid July. A query addressed to the bailiff revealed that “Istok” had mortgaged the lessor’s equipment to a certain bank without the lessor’s permission. The lessee had not returned the credit, so the bank had foreclosed on the mortgage. Then the bailiff proceeded to sell the equipment, even though he himself had sequestered it, and announced that the leasing company had waited too long to use its writ of execution. Irkutsk Business Park now has no choice but to lodge a complaint against the bailiff. This whole episode goes to show that current leasing legislation completely fails to protect lessors in these matters.

Commentary

In our opinion, repossession of the leased assets from the lessee could be included in the list of measures for securing claims stipulated under Article 76 of the Arbitration Code Procedural of the Russian Federation and could be applied, upon the request of the lessor, when suing for early annulment of the contract.

e would also like to focus on the problem of non-payment. A significant number of Irkutsk Business Park’s clients became insolvent after the August Crisis. Arbitration court judges have been guided by the provisions of the CC RF when reviewing petitions for debt collection or contract annulment due to lessee default. These regulations provide for the defense of lessor rights through the recovery of payment for two periods and annulment of the contract, as well as compensation for losses. Based on several examples of arbitration proceedings, it seems that the courts are very unwilling to exact penalties from lessee defaulters, and even less willing to exact lost profit. Here’s a concrete example:

Irkutsk Business Park filed suit against “Vorozhej”, Ltd. for the collection of lease payment arrears and fines for violating the payment schedule, as well as annulment of the contract, on the grounds that the lessee grossly violated its obligation to make timely lease payments. The court granted the plaintiff’s demand for payment of arrears for the preceding period and ruled the contract void. It reduced by half, however, the amount of the fine, which had been calculated in accordance with the terms of the contract, for the simple reason that “leasing companies are too rich, while poor lessees have no money”. As if that weren’t enough, the rich lessor even wanted to take his equipment back. The judge genuinely believed that Irkutsk Business Park was trying to make “excessive” profit. But as a matter of fact, the leasing company suffered huge losses due to the non-payment, since it had used credit to finance the leasing deal.

Commentary

The judge’s decision is unlawful, since, according to Article 333 of the CC RF, the courts may only reduce the amount of the penalty if it is clearly disproportionate to the consequences of the default.

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ere’s another point. In the event that the equipment is returned, leasing companies still run into problems with its subsequent exploitation or resale. Secondary leasing, unfortunately, is not allowed. The selling process is long and complicated, because the equipment is no longer new. The situation is further aggravated by the fact that there is often no secondary market for equipment in the regions. In the end lessors suffer big losses.

Commentary

Vendor guarantees can solve this problem, as explained in detail in LC #4, pp. 2-5.

ast year Irkutsk Business Park came to the conclusion that leasing companies have absolutely no protection even in the case of lessee bankruptcy. “Food Production Equipment”, Ltd. was leasing out some expensive machinery for the production of chips. After not receiving payments on time and having grown convinced of the company’s insolvency, the lessor filed suit to recover the arrears, annul the contract and repossess the equipment. In response to the leasing company’s petition the court sequestered the equipment. At the same time bankruptcy proceedings were initiated against the debtor-company. If the equipment had not been sequestered, there would have been no one to guarantee its safekeeping. In such cases there is another risk. When a contract is annulled, the lessee must return the property in good condition, except for normal wear and tear. But if a bankrupted lessee returns the equipment in an unusable condition, there is no way to appeal. Fortunately, Irkutsk Business Park has recovered its equipment in good condition. But it seems unlikely that it will ever recover the debt. Firstly, because it is last on a long list of creditors. Second, because the lessee managed, even before the bankruptcy proceedings began, to remove nearly all of its assets.

Here’s yet another example of the RF Federal Law “On Leasing’s” negative effects on Irkutsk Business Park’s business. In 1998 the company issued some additional shares in order to attract strategic partners (particularly a large local bank). It had already reached agreements with several other banks. The leasing company was mostly interested in issuing the shares since a controlling block would allow the banks to give fairly high credit at no risk and, most important, to act as lessees. One of the banks needed armored vehicles, while another needed some other equipment. In return, Irkutsk Business Park would receive not only credit funds, but also some reliable lessees. At that moment the RF Federal Law “On Leasing” went into effect. Article 9 prohibited entities from assuming the combined responsibilities of creditor and lessee. The banks immediately canceled their plans. By the most conservative estimate, the leasing company lost at least 5 million rubles.

In conclusion we would like to emphasize that all of the problems described above could have been avoided if the legal base had not contained so many contradictions and omissions. We can only hope that this is a temporary phenomenon and that the legislation will soon change for the better.

AUTOMOBILE LEASING AND MUNICIPAL TRANSPORT IN ST. PETERSBURG

Irina Likhachova

he maintenance and development of municipal transport is a big problem for most Russian regions. Authorities rack their brains trying to figure out how to provide uninterrupted passenger service without using government funds to subsidize

http://www2.ifc.org/russianleasing/eng/lc/5/1.htm (4 of 12)04/18/2007 5:05:24 PM LEASING-COURIER (September - October 1999, Issue 5 (5)) unprofitable companies. In St. Petersburg the problem of inadequate municipal transport has largely been solved through the development of a network of marshrutnye taxi (minibuses that service the bus routes). In this article we will take a look at the experience of one of the city’s largest minibus taxi companies, Limited Liability Company “Tretii Park” (Third Fleet) and how it used leasing to develop its business.

“Tretii Park” had existed for many years as a taxi company. In 1994 the company began to reexamine its position in the auto transportation market and decided to completely change its business orientation to specialize in minibus taxi service. The company bought its first 20 “RAF” vans with its funds and immediately began a systematic study of passenger flow, in spite of conditions of wild growth in the minibus taxi market. The company determined how much profit it was actually earning, how much it could potentially earn, how many passengers it was serving compared to its competitors, and which routes were in demand. The fleet was gradually expanded to 100 vans. Oleg Sidorov, In May 1997, “Tretii Park” leased 100 Ford Transit minibuses from the St. Petersburg Financial Director of “Tretii Park” leasing company RUST. This was the very first auto leasing deal in St. Petersburg and the largest such deal in Russia at the time. The lease contract, valued at US$2.5 million, was signed for 3 years. RUST leasing company financed the deal on loans from its founder, Sberbank RF, which gave hard-currency credit at 18% APR. The leasing company’s interest rate was 5% APR. But since part of the debt was paid off every month, the interest on the deal actually came to 8-9% APR.

During the ceremonial transfer of leased vehicles to the lessee, attended by the governor of St. Petersburg, the chairman of Sberbank expressed the bank’s readiness and desire to finance the leasing of yet another 100 minibuses, if the city ever needed to expand its minibus taxi service. When the first leasing deal was calculated, the managers of Tretii Park realized the advantages of leasing and immediately started laying the groundwork for a second leasing project. As a result, another 100 “Ford” minibuses were added to the fleet by mid November 1997, leased under an agreement similar to the first deal.

These two large leasing deals allowed “Tretii Park” to enter a new phase of growth. Within a year, this fairly ordinary taxi fleet had developed into the largest private passenger carrier in St. Petersburg and the entire northwestern region. Ford minibuses obtained by “Tretii Park” through leasing Working together under these lease agreements, “Tretii Park” and RUST have developed a strong partnership. After the 1998 Crisis, “Tretii Park” had some problems making its lease payments. In order to help its lessee, RUST reconsidered the lease payment schedule and restructured “Tretii Park’s” debt. Sberbank, in turn, made some concessions. “The estimates in “Tretii Park’s” business plan showed that it could withstand a sudden jump in the dollar exchange rate of up to 60%. But nobody, not even conservative Sberbank, could have foreseen that it would go up by 400%,” explains Oleg Sidorov, financial director of “Tretii Park”. Now, just one year later, not only is “Tretii Park” paying off the interest on its loans, it is even starting to pay off the main part of its debt.

A telling sign of the partnership between RUST and “Tretii Park” was their decision to sign yet another lease agreement in March 1999.

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“When the economic situation got tough, the most reasonable decision (but at the same time the riskiest) was to seek additional investment. Many people would rather avoid additional investment in a financially ailing company, but Sberbank and RUST, once they’ve start working with a client, don’t just abandon him. That tells you something about having trust in a client, and understanding,” explains the general director of RUST leasing company, Mikhail Rybakov. One hundred “Gazel” automobiles were leased under the new contract, which was valued at US$500,000 and signed for two years. Sberbank financed the deal with rouble credit at 50% APR. The The partnership between “Tretii Park” and RUST leasing company’s spread was 8%. The decision to lease more vans Leasing Company might be called ideal. When problems helped “Tretii Park” develop its business considerably in the difficult arise, the lessor and the lessee search for solutions together, since both have a vested interest in each post-crisis period. other’s success. In the photograph: Oleg Sidorov, Financial Director of “Tretii Park” (left) and Mikhail “Tretii Park’s" rapid growth (its fleet has doubled every year since Rybakov, General Director of RUST Leasing Company. 1994 and already comprises 400 vans) demonstrated the great demand for services in the public transportation market and the seriousness of the city’s transportation problem. When deciding to restructure their company in 1994, the management of “Tretii Park” were able to see opportunities for expanding their business through solving the city’s problem.

Though it has helped the city solve its transportation problem, “Tretii Park” has not, unfortunately, seen much support from the local authorities. The city has not given them any concessions, neither for operation nor for leasing of automobiles, and it has imposed strict price controls on minibus fares. The cost of the service is determined by multiplying the length of a route by whatever fare the government sets. Since it was introduced last January, the city’s 5% sales tax has also been levied on the company. But the company is not allowed to raise its fares. In this difficult situation the company appealed to the courts and won in a court of first instance. It was able to prove that it provided a public service, i.e. that it was a public transportation service and should therefore enjoy certain benefits, particularly regarding sales tax. This was a preliminary victory. But it is not clear what the courts of higher instance will decide.

The situation is further complicated by the fact that the rules of competition are not the same for every company in the municipal minibus market. There is one subsidized company, “Passazhiravtotrans”, which also does business in public transportation. State subsidies allow the company to offer lower fares.

“Tretii Park” and the newly formed St. Petersburg Organization for Professional Automobile Passenger Carriers are working on a proposal for the development of commercial public transportation in the city, which they plan to present to the local authorities. The company believes that this proposal will help solve some of the city’s transportation problems, organize a more civilized minibus market and define the conditions of its further development.

Part of the proposal is to convert the state-supported "Passazhiravtotrans" into a private company. According to Oleg Sidorov, “As long as that company gets state subsidies and earns income through commercial activity, the municipal budget will continue to be deprived of significant revenue.” “Tretii Park” also suggests creating an authorized passenger transportation company that would unite commercial carriers. Half the shares of this company would belong to the city government. “If they were to create such a private carrier, which would be easy to control fiscally -- if only because its finances wouldn’t be mixed up with the city’s --, then we would even be willing to give the government half of the profit. Because that way at least we would all be doing business on equal terms. We’re willing to share our profit with the city, but before we can share it, we have to be allowed to earn it. Certain conditions have to be in place for us to do it,” explains Mr. Sidorov.

The city authorities accept the proposal or not, “Tretii Park” plans to expand its business with the active support of

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RUST and the St. Petersburg branch of Sberbank. Even today, if you step out onto the street in St. Petersburg, you are sure to see the white minibuses emblazoned with the black letters “Tretii Park” and the company’s logo.

AOOT Tretii Park can be reached by email: [email protected]

Leasing Ford Automobiles

A New Partnership Between Ford Motor Company, Ford Credit Europe and RUST Leasing Company

Irina Likhachova

wo large leasing deals for Ford Transit minibuses in St. Petersburg in 1997 not only established a basis for close cooperation between lessor and lessee, but also laid the foundation for a partnership between RUST (owned 100% by Sberbank) and Ford Motors. The result of this cooperation was an agreement, signed by Ford Motor Company, Ford Credit Europe (its banking subsidiary) and RUST Leasing Company on 15 April 1999, to form a partnership in the leasing sector.

The agreement authorizes RUST as Ford Credit Europe’s partner in the Russian leasing market. Ford gives RUST the right under this agreement to sell leasing services through its network of Russian dealers. Sberbank Saint-Petersburg will finance the leasing transactions of Ford automobiles, while Ford Credit Europe will provide its Russian partner with informational support and technical assistance in developing and providing financial services up to Western standards.

Ford Credit is a banking subsidiary of Ford Motor Company. It promotes the sale of both new and used Ford automobiles around the world by offering consumers various forms of financing. Corporate clients are financed through leasing, while private clients are offered various kinds of installment plans and consumer credit. Ford Credit Europe is a regional subsidiary of Ford Credit. It currently leases about 100,000 automobiles throughout Europe and has a 32.5% share of the European leasing market.

Ford Credit sees leasing as an additional way, along with other forms of consumer credit, to promote its products on the market, to increase sales, and to attract more clients. In the case of Russia, Ford Credit Europe prefers leasing to other forms of automobile financing because it is the most attractive and legislatively supported. Moreover, according to Steen S. Sorensen, general manager of Ford Credit Divisions in Russia, “Companies are finally beginning to pay taxes, and the benefits of leasing that are enjoyed in other countries have become a reality for Russian consumers as well.” In Russia, Ford uses leasing primarily to finance its sales to corporate buyers, since the tax benefits for Mikhail Rybakov, leasing transactions provided under current legislation only apply to legal General Director of RUST Leasing Company entities.

What prevents a more active use of leasing In other countries Ford Credit Europe takes part in forming new leasing in Russia? companies and in financing leasing transactions. But in Russia it hasn’t yet “The first and most important problem for acquired enough experience in the leasing market to do that. Therefore it came leasing is that potential clients don’t understand its advantages. The second, but to the conclusion that forming subsidiary companies would not be the best

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no less significant problem, is the lack of strategy for developing its business in Russia. Instead Ford decided to form a clients who run a legal business. In order to partnership with a company that already had experience in the Russian market. profit from the advantages of leasing -- those It had already forged such partnerships and worked successfully with local being primarily the tax benefits -- a client has to legalize his businesses and start leasing companies in Eastern Europe (The Czech Republic, Hungary and paying taxes.” Poland), so it decided to use the same strategy for Russia. This approach will give Ford Credit an opportunity to learn the Russian leasing market and obtain the experience it needs to form its own leasing company in the future.

As for whether Ford Credit Europe will help finance leasing transactions, that decision has been postponed for now. “If the political and economic situation in Russia becomes stable,” comments Mr. Sorensen, “Ford Credit Europe will reconsider the possibility of financing leasing operations. I am even certain that the company will finance leasing directly in Russia. But for now it’s difficult to say whether this will happen in the near or more distant future.”

In choosing a leasing partner, Ford Credit Europe considered the proposals of several different What prevents leasing companies. It chose RUST for a number of reasons. First of all, Ford Credit wanted a partner a more active who could project an image of reliability, and Sberbank is undoubtedly the stablest among Russian use of leasing banks. Second, Ford wanted to sell its products all throughout Russia, and Sberbank has branches in Russia? everywhere, which means that RUST is not limited to any one region. The other leasing companies with whom Ford negotiated were primarily interested in doing business in Moscow and St. “The Petersburg. Third, in the early stages of developing the project, RUST was one of the few leasing promotion of leasing in companies that was already leasing automobiles. Moreover, RUST had already had the experience Russia today of signing two large leasing contracts for Ford automobiles in 1997, each consisting of 100 is largely an minibuses. Finally, RUST offered competitive terms, which played a significant role in its being educational chosen as a partner. process, which means persuading For RUST Leasing Company, its partnership with Ford Credit Europe represents an opportunity to potential study and take advantage of Ford Credit’s worldwide leasing experience. The partnership will also consumers allow RUST to use the Ford Credit name and logo. This makes financing plans look more attractive that leasing is and reliable to the consumer than if they were merely being offered by an independent Russian profitable and interesting. company. Ford offers a manufacturer’s guarantee on all of its products and also guarantees Few people maintenance of leased automobiles for one year regardless of mileage. As noted above, RUST will know about be able to use Ford’s dealer network under the agreement to promote its products on the Russian the additional market. The dealer network will serve as a network of sales agents for leasing services. In order to tax benefits ensure that their dealers would be able to explain competently the advantages of leasing as a form of for leased cars. For investment, the companies paid a great deal of attention to their preparation and training. RUST and example, Ford Credit gave individual seminars on automobile leasing to each Ford dealer. This is especially when you buy important since many consumers still don’t know about leasing mechanisms or fully understand a company their benefits. car you can’t claim reimbursement RUST Leasing Company has several basic requirements, in the context of its partnership with Ford, for the VAT for potential lessees. Legal entities may lease Ford automobiles if they have a stable business with that you’ve an average monthly turnover (as reflected in bank statements) of no less than 10% of the value of the paid to the supplier. acquired automobiles for wholesale buyers (more than 5 cars), or not less than half that value in the Instead, you case of retail buyers. Furthermore, companies must have a positive balance of accounts payable and have to accounts receivable. Clients wishing to lease automobiles from Ford must make an advance payment register it on of no less than 40% of the automobiles’ value (this may be significantly lower for wholesale buyers) your balance and must also pay administrative fees of not less than 2% to the leasing company, as well as and depreciate it insurance and any tax liabilities arising from the acquisition of the automobile. Upon termination of along with the the lease agreement, ownership of the automobile may be transferred to the lessee, or the automobile value of the

http://www2.ifc.org/russianleasing/eng/lc/5/1.htm (8 of 12)04/18/2007 5:05:24 PM LEASING-COURIER (September - October 1999, Issue 5 (5)) may be resold through a dealer. The company offers both passenger cars and trucks. fixed assets. Tax laws do, however, RUST’s contact tel.: (812) 329-8630 allow leasing companies to account any VAT paid on the car In order to demonstrate more clearly the advantages of leasing over other means of obtaining towards their equipment, we will look at four calculations for different methods of equipment purchase. These tax payments, which in turn calculations were prepared and kindly presented to the LC by RUST Leasing Company, St. enables them Petersburg. to reduce the cost to the Sample calculation for the acquisition of equipment by four different methods: 1) purchase with consumer by 20%. And internal funds, 2) on credit, 3) by installment, and 4) through leasing. this is not the only pleasant The interest rates for this example are based on the current practices of Sberbank. Taxes that do not surprise that awaits the pertain to the acquisition of fixed assets, or that are the same for each of the plans below, were not lessee. factored into the calculations. Nor was the currency of payment. We have to Initial data for each method of equipment purchase are the following: explain to potential clients that Cost of Equipment:100,000 even though the lessee has Total Credit for Three-year Period:100,000 to pay interest on borrowed assets as part Interest Rate:13% APR of his lease payments, leasing is still Proceeds from Sale of Products Made with more profitable in New Equipment:30,000 annually most cases than buying on credit or Depreciation Rate:10% APR with internal funds.”

Evgeniy Astashkin, Equipment Purchase with Internal Funds Leasing Manager, Ford Credit Before purchasing the equipment, the company must pay 42,857 in profit tax (100,000 ÷ 0.71 * Divisions 0.30). Russia.

Then it must pay 100,000 for the equipment.

10,000 depreciation will be included in expenses annually.

Calculation for the first year:

Profit tax (30%): (29,000 – 10,000) * 0.30 = 5,700

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Property tax (2%): (100,000 + 90,000) / 2 * 0.02 = 1,900

Expenditures for Equipment Purchase with Internal Funds

Designation of expenditures 1st Year 2nd Year 3rd Year Total Profit tax 5,700 5,700 5,700 17,100 Property tax 1,900 1,700 1,500 5,100 Cost of equipment plus profit tax 142,857 TOTAL: 165,057

In sum, the company must pay 165,057 for the equipment over three years, as well as paying property tax for another seven years (for a total of 4,900).

Moreover, 142,857 in expenses will be paid out of the company’s internal funds at the beginning of the first year, when the equipment is only beginning to be exploited.

Equipment Purchase on Credit

Calculation for the first year:

Interest on credit (interest on credit used to obtain fixed assets is not included in expenses) 13,000.

Profit tax on production 5,700 (29,000 – 10,000) * 0.30

Moreover, since the interest is paid out of net profit, the company must pay 5,571.4 in profit tax (13,000 ÷ .70 * 0.30)

Total profit tax 11,271.4

Property tax 1,900

Expenditures for Equipment Purchase on Credit

Designation of expenditures 1st Year 2nd Year 3rd Year Total Interest 13,000 13,000 13,000 39,000 Profit tax 11,271.4 11,271.4 11,271.4 33,814.2 Property tax 1,900 1,700 1,500 5,100 Principal debt 100,000 100,000 TOTAL 177,914.2

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In sum, the company must pay 177,914.2 over three years, as well as paying property tax for an additional seven years (for a total of 4,900).

Equipment Purchase by Installment

Let’s imagine that a foreign supplier supplies equipment on a 3-year installment plan at 7% APR. The terms look fairly attractive, but installment buying does not exempt the buyer from paying profit tax. In this case a form of commercial credit is used which does not allow the buyer to include interest in the cost of the equipment.

Under an installment plan one usually pays a third of the cost of equipment plus an annual percentage rate on the remaining sum of the debt.

Calculation for the first year:

Interest on credit: 7,000

Furthermore, since the company will act as a source of revenue received on Russian territory by the foreign supplier, it will have to pay a 20% VAT and 20% income tax on the supplier’s behalf, in accordance with current legislation. Therefore, in order to maintain the interest paid by the Russian company to the foreign supplier at a level of 7%, the company will have to increase the amount of its payments for the above-mentioned expenses, which leads to a further contribution of 3,500 to the budget.

((7,000 ÷ 0.8 * 100%) *1.2 – 7,000)

One third of the cost of equipment 33,333

Depreciation (included in expenses) 10,000

Profit tax 5,700

Expenditures for Equipment Purchase by Installment

Designation of expenditures 1st Year 2nd Year 3rd Year Total Interest 7,000 4,700 2,333 14,033 Budget payments for seller 3,500 2,350 1,167 7,017 1/3 of cost of equipment 33,333 33,333 33,333 100,000 Profit tax 5,700 5,700 5,700 17,100 Property tax 1,900 1,700 1,500 5,100 TOTAL 143,250

In sum, the company must pay 143,250 over three years, as well as paying property tax for an additional seven years (for

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Looking ahead for a moment, it is worth noting that in order for installment buying to equal leasing in terms of profitability, the interest rate must be lower than 7% APR, which does not occur with foreign suppliers in practice. Possible exceptions are government programs and “projects of the century.” Installment over a three-year period is quite unusual and generally requires a bank guarantee (at cost of 5-10% of the amount of the transaction).

Equipment Purchase Through Leasing

The following is a real calculation based on the methods of Closed Joint-Stock Company RUST. The leased equipment remains on the balance of the lessor. The example takes into account the advance payment that leasing companies generally (but not always) require: 10% of the amount of the transaction, which is counted as a lease payment.

Calculation for the first year:

Advance lease payment 12,450

Twelve monthly payments of 3,325, thus 39,900 per year

Expenditures for Equipment Purchase Through Leasing

Designation of expenditures 1st Year 2nd Year 3rd Year Total Advance lease payment 12,450 - - 12,450 Lease payments 39,900 39,900 39,900 119,700 TOTAL 132,150

In sum, the company must pay 132,150 over three years. There are no other payments. The lessee does not pay income tax, as leasing payments are included in the cost of production. Property tax is paid by the lessor as according to the set conditions of this example the leased equipment remains on the balance of the lessor. These expenses are incorporated in lease payments. The equipment is fully depreciated (accelerated depreciation) and is transferred to the lessee at its residual value, which equals 0.

An analysis of the data leads us to the conclusion that leasing has unquestionable advantages over other methods of acquiring fixed assets.

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EXPERT OPINION

September - October 1999, Issue 5 (5)

In the "Expert Opinion" section we publish materials sent to the editorial board by participants in the leasing sector. The purpose of this section is to show the diversity of existing opinions. The opinions of the authors published in this section do not necessarily represent the official opinions of the International Finance Corporation. IFC does not guarantee the accuracy or reliability of the information presented in these articles or bear any responsibility for the consequences of its use

LEASING LICENSES Statistical Data on Leasing Companies in the Russian Market, Compiled by the Commission for Licensing of Leasing Operations in the Russian Federation

V.V. Dementiev Deputy Chairman of the RF Ministry of the Economy’s Commission for Licensing of Leasing Operations in the Russian Federation

MAIN PROVISIONS. LEASING LICENSE REGULATION

In Russia, leasing is an activity that requires a license, as established under Federal Law #158 “On the Licensing of Various Kinds of Activity” (25.09.98). The executive Federal agency responsible for issuing leasing licenses is the RF Ministry of the Economy .

The above-mentioned statute also establishes that the RF Ministry of the Economy must keep a combined register of all issued, extended, suspended and annulled licenses.

Furthermore, under an agreement between the RF Ministry of Justice and the RF Ministry of the Economy, the State Chamber of Registration (under the RF Ministry of Justice) is appointed to assist the Commission for Licensing of Leasing Operations (under the RF Ministry of the Economy) with the following tasks:

❍ reviewing the documents of applicant organizations pertaining to the issue, extension, suspension or annulment of a leasing license; ❍ determining the sufficiency, reliability and legality of all documents on the day of their submission, preparatory to their subsequent remission to the licensing agency; ❍ helping prepare the State Register of Organizations Engaging in Leasing on the Territory of the Russian Federation.

The RF Minister of the Economy created the Commission for Licensing of Leasing Operations in the Russian Federation (RF Ministry of the Economy) by Order #91 of 20.06.96. Vladimir Viktorovich Kossov, Deputy Minister of the RF Ministry of the Economy, was appointed as chairman of the commission.

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According to the Statute of the Commission for Licensing of Leasing Operations in the Russian Federation (RF Ministry of the Economy), which was ratified by Order #91, the Commission decides all matters relating to the issue, refusal, extension, re-registration, annulment, suspension or renewal of leasing licenses.

Regulations for Receiving a License. Commentary on Various Provisions.

RF Government Decree #167 “On the Ratification of the Decree on the Licensing of Leasing Operations in the Russian Federation” (26.02.96) established regulations for the issue of leasing licenses to leasing companies and authorized the Ministry of the Economy to issue licenses. A license issued by the Ministry of the Economy is valid throughout Russia for a period of up to five years, but not less than three years, as stipulated by Federal Law #158 “On the Licensing of Various Kinds of Activity” (25.09.98). If a leasing company so desires, however, a license may be issued for a period of one to three years. Before issuing a license, the Ministry of the Economy may require a company to undergo an audit by independent experts.

A significant number of misunderstandings arise from incorrect interpretations of Clause 17 of the above-mentioned Decree on the Licensing of Leasing Operations, which states that: “In order for a leasing license to be valid, a leasing company must meet the following requirements:

a. observance of legislative and other regulatory acts, as well as this Decree; b. realization of leasing activity in the capacity of a lessor (having not less than one active leasing agreement during the term of the license); c. priority of leasing over other forms of economic activity (not less than 40% of total revenue received through leasing per year).”

When preparing their applications, leasing companies generally assume that these requirements are already applicable at the moment when the license application is submitted.

We must make it clear that the issue of a license and its term of validity are completely different things, though they are to some degree related. The regulations indicated in sub-clauses “b” and “c” do not apply at the moment the license is issued, and certainly not when the license application is submitted.

Moreover, the requirements in sub-clauses “b” and “c” cannot be fulfilled by law-abiding leasing subjects until the license is received, since otherwise the subject’s activity would fall under the jurisdiction of Article 171 of the RF Edict on Illegal Enterprise as conducting business without license.

Out of 1,026 currently registered leasing companies, 419 engage exclusively in leasing, i.e. regarding sub-clause “c” they have not 40%, but fully 100%.

For many companies it is extremely difficult to meet this requirement over the course of several years even when they are doing leasing business in the Russian market. The arbitrariness of the regulation is clear: 39.7% is still not 40%, while the volume itself might consist of tens of millions of dollars, and not to consider this as adequate fulfillment of the leasing activity requirement seems odd, to say the least.

In our opinion this regulation tells nothing about a leasing company’s economic activity and is extremely arbitrary and subjective. Over a three-year period it has only found practical application in the matter of deciding whether to extend a

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This is confirmed by the fact that the 1998 Federal Law “On Leasing” did not reflect the regulation at all. From the moment it was passed, the Law has been subjected to heavy criticism. But working directly with leasing companies on a daily basis, one has to conclude that the Law was nevertheless a major step forward in the development of leasing in Russia. Having a basic, fundamental legal document, it will be easier in future to introduce necessary clarifications and amendments as they are called for by leasing practice.

In our opinion the Law unambiguously states that the main forms of leasing are financial leasing, lease buy back and operational leasing, whereas the Federal Law “On the Licensing of Various Kinds of Activity” stipulates that a license is required in order to engage in “leasing”, i.e. a broader definition which includes the above-mentioned, more private definitions. A similar situation exists in the case of subleasing. Under subleasing, the person engaging in subleasing leases an asset to a lessee for temporary use according to a subleasing contract. Thus the person engaging in subleasing is a lessor in relation to the lessee and is engaging in leasing activity, which, according to the law, requires a license.

One should bear in mind that the legislative act currently regulating licensing in the Russian Federation is Federal Law #158 “On the Licensing of Various Kinds of Activity” (25.09.98), while the Statute for Licensing of Leasing Operations in the Russian Federation, ratified under RF Government Decree #167 of 26.02.96, also applies where it does not contradict Federal Law #158. The Law limits the term of leasing licenses to five years, yet some leasing companies sign lease agreements for periods of 7 to 8 years. These companies suggest extending the term of validity of licenses accordingly, but the licensing agency does not have the right to do this: the law is the law. Meanwhile the Commission for Licensing of Leasing Operations in the Russian Federation is taking measures to resolve this conflict.

Licensing Commission’s Statistical Data on Leasing Companies in the Russian Market.

The main advantage of leasing is that it allows companies to modernize or augment their assets without requiring a lump- sum investment either out of their internal funds or through loans. Moreover, the flexible terms of leasing contracts, their varying duration depending on the type of leased assets, the variety of forms and methods of making lease payments, the low level of commercial risk and the right to acquire the leased property upon termination of the contract all make leasing extremely attractive to lessees, whose appearance on the Russian market led to the emergence of lessors (leasing companies).

In the process of issuing leasing licenses, the Ministry of the Economy’s Licensing Commission gathers certain statistics on leasing companies in the Russian market. We now present these statistics to you.

Number of Licenses Issued As of September 20 of this year, the Commission for Licensing of Leasing Operations in the Russian Federation (RF Ministry of the Economy) issued licenses (and registered them with the State Registration Chamber of the Ministry of Justice) to 1,026 companies, including 937 resident companies and 89 non-residents of the Russian Federation.

Also as of September 20 of this year, licenses had been extended for 249 companies.

The following graph shows the growth in the number of resident leasing companies in the Russian leasing market (according to the number of licenses issued).

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Classification of Leasing Companies Russian resident leasing companies can be divided into five groups depending on their sources of financing and types of operations.

This classification reveals the principal founders of lessors, i.e.: 1. banks; 2. regional governments; 3. foreign investors; 4. physical persons; 5. legal persons or combination of legal and physical persons. The following table presents the composite statistics for the emergence of lessors in the Russian market between September 1997 and September 1999:

Founder Number of Leasing Companies (Lessors) September January July April September 1997 1997 1998 1999 1999

Bank 77 103 135 179 193 Regional Government 37 57 114 156 188 Foreign Investor 13 18 20 28 32 Individuals 44 69 111 141 140 Legal entities or 102 161 240 320 384 combination of legal and physical persons TOTAL: 273 408 620 824 937

One must not draw the conclusion from this table that a bank or government (or its authorized agency) is always the sole founder of a leasing company, as this is actually very rarely the case. Companies that count a bank, a government and a foreign investor among their founders always have enough funds at their disposal to actively engage in leasing as a lessor.

The Geography of Leasing Companies

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The following table shows the growth in the number of leasing companies by region since September 1997:

Dates Number of Resident Leasing Companies Total for all of Including: Russia European Russia Urals & Western Eastern Siberia & Far Eastern Siberia Economic Region September 1997 273 219 40 14 January 1998 408 317 69 22 July 1998 620 485 89 46 April 1999 824 635 130 59 August 1999 937 710 147 80

Types of Equipment Leased The Russian leasing market hardly differs from the world market in terms of the types of equipment that are leased to manufacturers.

Types of equipment leased:

Number of Companies by Type of Equipment

Industrial Computers Airplanes, Agricultural Construc- Financial Equipment & Office Rail Production tion & & Leasing Equipment Cars, Road Operations Cisterns Construc- & tion Rolling Equipment # Stock Total

1. 25 69 22 62 35 195 408

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2. 26 97 26 123 37 227 536

3. 40 149 50 144 45 312 740

4. 47 166 58 158 53 342 824

5. 53 189 66 179 60 390 937

Leasing Companies’ Number of Years in Business and Terms of Validity of Licenses In spite of the youth of the Russian leasing market, we believe the reader will find its features interesting. An analysis of leasing companies’ number of years in the market is given in the following table:

Number of Leasing Companies Years in Business Total # of Less Than 1 1-3 Years 3-5 Years More Than 5 # Date Leasing Co.’s Year Years 1 20.09.99 937 173 165 255 344

Leasing companies express a lot of interest in the term of validity of licenses. The following table breaks down leasing companies according to the term of validity of their licenses.

Date Total Number Term of Validity of Licenses of Companies 1 Year 2 Years 3 Years 4 Years 5 Years 20.09.99 937 415 242 257 7 16

Non-Resident Leasing Companies As of September 20 of this year, 89 non-resident companies representing 21 countries held leasing licenses in Russia: 75 European (including 13 Eastern European) and 14 American. Australia and Africa were not represented by any companies.

Over the last three years, analysis has shown that the ratio of resident leasing companies to non-resident ones remains constant and consists of 10:1 (about 10%).

These statistics demonstrate that in spite of Russia’s unstable political and economic situation, the leasing market is stable and continues to grow.

One has to keep in mind that the environment in which Russian leasing companies do business is very dynamic and hard to predict. Nevertheless, many leasing companies managed to get through the difficult period when the Central Bank’s refinancing rate reached 120% and survived the crisis of August 1998.

The experience of the Ministry of the Economy and the State Registration Chamber of the Ministry of Justice shows that leasing is developing in Russia and will continue to develop, because it gives Russian manufacturers an effective and accessible financial means to modernize and restructure their businesses – a token of economic development.

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According to RF Government Decree #1418 "On the Licensing of Various Kinds of Activity" (24.12.94) and the Statute for Licensing of Leasing Operations in the Russian Federation, ratified under RF Government Decree #167 of 26.02.96.

This category includes companies formed with federal government support, such as Rosagrosnab, Lizingugol', etc.

The services of companies who, although possessing a leasing license, do not actually lease equipment, but rather offer their clients consulting on financial leasing.

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SMALL BUSINESS

September - October 1999, Issue 5 (5)

“ANONS” PRINTING COMPANY, ST. PETERSBURG

Irina Likhachova

The small business Limited Partnership “Anons” (St. Petersburg) was established in 1995 as an intermediary printing company. Today it has grown into mini printing house, offering its clients pre-printing services and “Riso” printing in three colors. This qualitative change in the development of “Anons”’s business was largely made possible through leasing.

Andrei Leonidovich Khinyeiko, the founder and general director of “Anons”, entered the printing industry by chance. While working as a mathematics teacher in an elementary school, Mr. Khinyeiko used his spare time to help his friends find money to support their amateur theater. In order to raise additional funds, the theater group opened a new company providing intermediary printing service. At that time, in 1993, this was a very profitable business. Printers couldn’t cope with the amount of work they had, and customers often had to wait whole months to see their orders filled. Intermediaries knew the printers’ capacities and their backlogs, so they could distribute clients’ orders in such a way that they would be filled within a reasonable amount of time and at reasonable cost.

By 1995 Andrei Khinyeiko had decided to become independent. “I The had always wanted to test my abilities,” says the director of Anons. Center for “So as soon as I had saved up enough money I opened my own Citizen Andrei Khinyeiko, founder and business – another intermediary firm for small printing companies.” Initiatives general director of “Anons” Working as an intermediary, Mr. Khinyeiko became thoroughly acquainted with the city’s printing market and noticed when the The Center market began to change. New printing houses were beginning to appear, while old ones had for Citizen upgraded their equipment and expanded their production capacity. It was becoming more and more Initiatives — difficult for intermediaries to compete in the market. So Mr. Khinyeiko decided that he must buy USA (CCI- some equipment and open his own printing house in order to strengthen his position in the changing USA), a non- market. governmental public organization, His company’s turnover at the time only provided him with was founded enough funds to buy a Riso printing machine. He could 13 years ago. Its task is to neither afford to rent the necessary premises nor to buy assist people office furniture. Even buying a Riso printing machine and would also be risky, since “Anons” was chronically short organizations of spare cash. But Mr. Khinyeiko was able to get around that are this problem and acquire the equipment he needed through trying to improve the leasing. The Center for Citizen Initiatives, a non- social and governmental public organization, acted as the lessor. economic structure of Andrei Khinyeiko turned to the Center for Citizen Russian society. The

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Initiatives in 1996. There he received business training in Center’s small-business management. In February 1998 he applied programs are to the Center’s loans and leasing program in order to obtain all nonprofit. The Center the equipment he needed through financial leasing. The for Citizen Center’s credit committee approved “Anons”’s application, Initiatives— and Mr. Khinyeiko was able to lease a Riso printing USA operates machine and a computer. The lease agreement was signed in St. for 18 months at 18% APR and was valued at US$6,750. Petersburg through its The lessor met the lessee half way in determining the lease intermediary, payment schedule. Mr. Khinyeiko drew up the schedule the “NGO Training Riso printing machine obtained by “Anons” himself, taking into account the somewhat seasonal nature Center”, of through leasing of the printing business. The Center also rented “Anons” the premises total of 13 square meters. which it is the sole founder. Thus “Anons” evolved from an intermediary company into a mini printing house. “Leasing, of course, saved my skin,” comments Mr. Khinyeiko. “In that situation if I hadn’t acquired the The Center equipment I would have had to go out of the business altogether. As soon as I got my own currently equipment I was able to lower my prices and compete with other companies.” Shortly after “Anons” operates leased the equipment, it received a large order, which enabled it to pay off a big chunk of its debt. successfully two This also enabled Mr. Khinyeiko to expand his production within a short period by acquiring a more programs: the powerful Riso printing machine. Recently he obtained some drums for color printing (red and blue). Production He was also able to take on three new employees. In addition to offering printing services, the Enhancement company has also begun to provide desktop publishing pre-printing services. Program (PEP) and the Russian But as with any business, not everything has gone smoothly. There was a time when Mr. Khinyeiko Initiative for didn’t think he would be able to make all of his lease payments on time. “When I signed the first Self- lease agreement I knew it was risky, considering the company’s turnover,” admits Andrei. “For a Employment Program while there were hardly any orders, and I still had to pay off the debt. Of course it wasn’t easy (RISE). PEP making the lease payments, but there weren’t any delays: I paid it all off on time.” is designed to transfer Andrei Khinyeiko is now thinking of expanding production. “Anons” has already bought a set of American experience in silk-screening equipment and is now beginning to offer full color printing service. In the near future business the company plans to set up an offset machine. Mr. Khinyeiko would like to use leasing once again management to acquire the offset equipment. to Russian entrepreneurs who do not As he finished telling the story of his business, the director of “Anons” explained: “Ever since the speak company started working in the printing business, we always wanted to have a big printing house. English and And we’re going to keep striving for it.” who engage in the production of essential goods; it offers Russian entrepreneurs valuable training on- site with American companies. The RISE program

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provides technical assistance to beginning Russian entrepreneurs. The program consists of three successful divisions: the business training and consulting program, which trains entrepreneurs in the principles of business development; the mini loan and leasing program, which helps small businesses gain access to funds; and the specialized “business incubator”, an innovative center for clothing producers, which enables them to rent mini workshops and to obtain the informational, consulting, marketing and other kinds of assistance they need to develop their businesses.

The Micro Loan and Leasing Program

Note: The

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Micro Loan and Leasing Program is currently suspended. It may be renewed in the near future.

The main goal of the Micro Loan and Leasing Program is to help Russian entrepreneurs gain access to financial resources on reasonable terms. The special feature of this program is that its work differs markedly from that of commercial banks, in favor of developing and supporting Russian small enterprise. The program received its leasing license from the RF Ministry of the Economy in May 1997.

The program works with the managers and owners of small private businesses and with individual entrepreneurs who are not registered as

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legal persons. Eligible businesses must be located within St. Petersburg and must be manufacturing goods and/or providing services or engaging in trade; they must also have work experience and already be earning revenue.

The leasing transactions offered range in volume from $5,000 to $15,000. Second contracts can reach $25,000. The interest rate is 18% APR. Contracts are signed for two-year terms. The leased equipment serves as collateral. An additional guarantee of 30-40% of the contract or a 10% cash deposit is also required.

So far the program has given more than 90 loans and signed 5 leasing deals for a total value of $246,476.

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More than 830 people have received consulting on issues relating to micro financing. The return rate has been 98%. Women and family businesses have constituted 78% of the program’s clients. Thirty percent have been repeat clients. The program’s clientele can be broken down according to the following categories of business: 24% retail trade, 24% garment production, 20% publishing and small presses, 12% mini dry cleaning, 12% food production.

Contact Tel.: (812) 327- 5597, 327- 5599

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LEASING IN THE REGIONS

September - October 1999, Issue 5 (5)

● IRKUTSK BUSINESS PARK LEASING COMPANY

● LEASING IN THE KUBAN

IRKUTSK BUSINESS PARK LEASING COMPANY An interview with Vladimir Ivanovich Snegiryev, General Director of ZAO Irkutsk Business Park Regional Agency for the Support of Small Business.

Interview by Irina Likhachova

Mr. Snegiryev, please tell us how your company was founded. Irkutsk Business Park Leasing Center was founded in 1995 as part of the Regional Agency for the Support of Small Business. The Center was created immediately after the government passed the “Resolution on the Development of Leasing and Investment.” By the end of 1995 the Center had already signed its first deals. In October 1996, after the introduction of licensing for leasing operations, Irkutsk Business Park obtained license #0032. The Agency’s founder, and therefore the Leasing Center’s as well, was the Committee for Regional Property Management. So the government has a 20% share in the company’s capital. This explains Irkutsk Business Park’s clientele: small and Vladimir Snegiryev, medium businesses, as well as private entrepreneurs. I have to say that this is a General Director of Irkutsk Business Park very complicated and high-risk market for our services; that’s why, in order to work in this market, we need access to affordable funds, as well as certain benefits.

It seems that your company was able to find a source of financing for its leasing operations. Who is the company’s main creditor? Irkutsk Business Park got preferential credit from the Federal Fund for the Support of Entrepneurship. This credit was given under an existing regional program for the development of enterprises, which financed projects in small enterprise through leasing.

In 1995, Irkutsk Business Park received its first loan of 1.5 billion rubles for an 18-month term. The company paid off the debt on time, having paid 930 million rubles in interest. That’s how we earned a reputation for being punctual with our loan payments, which enabled us to obtain a second loan from the Fund in 1997 for 3 billion rubles for a two-year term.

How many projects has Irkutsk Business Park realized since it was created? Our company has realized about 40 leasing transactions, including deals that helped the city obtain its first minibus taxis, open its first dry cleaner along European standards, open its first hairdressing salons with Italian equipment, and start up a potato chip factory. I have to say that the equipment for potato chip production and packaging was one of our

http://www2.ifc.org/russianleasing/eng/lc/5/4.htm (1 of 6)04/18/2007 5:14:40 PM LEASING-COURIER (September - October 1999, Issue 5 (5)) company’s biggest contracts. Irkutsk Business Park has also signed contracts for dentist and beauty parlor equipment, as well as computers and other kinds of office equipment. As you can see, our company leases a very broad range of equipment. This is due to the wide range of our lessees’ activities.

Earlier you characterized Irkutsk Business Park’s clientele (small and medium business and private entrepreneurs) as a complicated and risky market. What are the biggest problems your company has, working in this sector? In spite of the positive aspects of helping to develop enterprise in the region, you run into some big problems when you work with small and medium businesses and private entrepreneurs. In addition to all the problems that stem from leasing legislation and regulation, there are also problems with the development of small business in Russia. These days it is far more difficult to Visiting Irkutsk Business Park control a small business or a private entrepreneur than it is to control a large or even a medium sized business. The lack of information about clients increases the commercial risk. The main risk for a leasing company is lessee default.

What criteria does your company use when selecting clients in order to minimize the risks? Irkutsk Business Park is an instrument for financing projects that foster the growth of enterprise in the region. In this regard our company’s most important task is to promote manufacturing. The program’s goals largely determine the criteria the company uses when selecting clients. Unfortunately, in high-priority sectors our selection criteria sometimes work to the detriment of the more effective projects. In the manufacturing sector our minimum recoupment period is usually two years. But in the past, because of the lack and short-term nature of financing, we had to sign some one-year leasing contracts. Even now there are conflicts between the terms of leasing contracts and terms of financing. For example, the last financing package we got from the Federal Fund was for two years, but we simply can’t sign a leasing deal for such a short term. We try to sign deals for the period, which corresponds as closely as possible with the term of full depreciation of the equipment, i.e. for at least a three-year term. But in order to pay off the loans on time, we need to receive the major part of the lease payments over the first two years of the contract. This means that during these two years the company’s profit is inflated, since it doesn’t correspond to the depreciation of the leased equipment. Consequently we end up paying too much profit tax. In the third year the lease payments hardly amount to anything, even less than the depreciation, so the company incurs a loss on the contract.

Do you often have problems with lessee default? We have only made one bad deal. Let me explain what I mean by “hopeless.” Under one agreement we leased a certain piece of equipment the market value of which fell dramatically over the term of the contract. The lessee wasn’t able to make his lease payments. When Irkutsk Business Park repossessed the equipment, we could only resell it for a pittance.

Our company encounters problems with collecting timely lease payments 50% of the time. In each case we try find solutions to the problems. We were forced to sue some of our clients to get equipment back. Some of our lessees were forced into bankruptcy. Some of our client companies extended the terms of their contracts and restructured their lease payment schedules, often bearing a loss, since the schedule for paying back the credit funds remained unchanged. We have had to work, and still continue to work, under these difficult conditions.

In the event of lessee default and repossession of the leased assets, many companies have problems remarketing the property. How do you solve this problem? Our company cannot lease repossessed equipment, since one of the required features of leasing, by definition, is the purchase of property with intent to lease it to a specified party. Nor can we sell the equipment right away on the secondary market, since a secondary market for equipment basically doesn’t exist right now. If we try to sell the equipment quickly, we can’t get very much for it, so we usually rent it out instead so as not to incur a loss by selling it at

http://www2.ifc.org/russianleasing/eng/lc/5/4.htm (2 of 6)04/18/2007 5:14:40 PM LEASING-COURIER (September - October 1999, Issue 5 (5)) a small price or paying for storage. And while the equipment is being rented, Irkutsk Business Park looks for a buyer. In some cases we can come to an agreement with the lessee to sublease the equipment.

In light of the problems you’ve mentioned, how does Irkutsk Business Park plan to operate in the future? Due to all of the complications I’ve listed, as well as the lack of credit funds, and in light of the significant changes taking place in leasing regulation and legislation, our company has temporarily stopped signing any new leasing contracts. We are currently conducting a thorough study of these regulatory and legislative changes and trying to define our place under these new conditions. Most important, we are trying to develop a business strategy for the future in order to cut losses and assess both the credit market and the leasing market. At the same time we are wrapping up our current lease agreements and looking for sources of financing for future leasing deals. One such source has already been found: the municipal budget of the city of Irkutsk.

Is your company planning to attract non-government funds? In 1997, when we were trying to obtain loans from the Federal Fund, we also looked into the possibility of attracting commercial investment in order to augment our own funds. Irkutsk Business Park announced another issue of its shares in order to attract a strategic investor in the company’s charter capital. Part of the shares were purchased by the Federal Fund for the Support of Enterprise, which is now our main shareholder, owning a controlling block of shares. We also wanted to attract one of the local banks and managed to get it interested in acting as both creditor and lessee. The bank happened to need some very expensive equipment, and naturally it would have been more profitable for the bank to lease it. But soon after we issued the shares, the Law “On Leasing” was passed, clearly prohibiting lessees from playing the role of creditors. This prevented the company from distributing all of its shares. Unfortunately, we were not able to attract a strategic partner. But our company is still actively looking for such a partner to supplement its government financing.

We very much hope you succeed.

Contact tel.: (3952) 34-30-37, 34-05-99 e-mail: [email protected]

LEASING IN THE KUBAN

Andrei Pisarenko, Training Manager, IFC Leasing Development Group

On August 26-27 the Leasing Development Group held a seminar in the city of Krasnodar entitled “The Principles of Leasing” by invitation and with the organizational support of the Krasnodar mayor’s office and the directors of the Kuban Universal Bank. Participants included regional government officials, experts from financial institutions, and entrepreneurs and manufacturers, not only from the city of Krasnodar and the Krasnodar region, but also from other southern regions of Russia. In this article we would like to describe what is being done in the Krasnodar region for the support and development of the leasing market.

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Realizing the benefits of leasing for economic development, many regional governments are looking for ways to stimulate the growth of leasing. With this goal in mind, the governments of the city of Krasnodar and the Krasnodar region have begun to create favorable conditions for the development of leasing. Thus they gave special attention to leasing when they drafted the Law “On Government Stimulation of Investment in the Krasnodar Region”. This law, which was passed in March 1999, provides for certain tax benefits for leasing operations, with the aim of promoting the development of leasing. In particular, “leasing organizations registered in the Krasnodar region that provide investors with resources for investment projects and receive the approval of the executive agency of the Krasnodar regional government are exempted from regional profit tax on all revenues earned through the provision of resources for investment projects.”

Further evidence of the Krasnodar authorities’ interest in leasing is the initiative that the mayor’s office and local business circles displayed in organizing and conducting the “Principles of Leasing Seminar.” But why are the authorities showing such a special interest in leasing, and why are they trying to create conditions to foster its development as a form of investment? This question was fully answered by Sergei Nikolaevich Korzhnev, deputy mayor of the city of Krasnodar, in a speech he gave at the seminar. “One of the regional government’s main goals,” he said, “is to increase the tax base, to fill the municipal budget, and to create jobs, thereby fostering a more favorable social climate. In order to achieve this we have to support local producers, help them modernize their production, and create conditions for the manufacture of products that will be able to compete with products from Europe and around the world. Under current conditions, when everyone suffers from the lack of financing, leasing is the most successful and attractive way to invest in the production sector. And so we intend to develop leasing in any way we can.”

In order to stimulate investment in general, and through leasing in particular, various financial and economic municipal institutions have been created: a bank, an investment company and an insurance company. The Krasnodar mayor’s office is also working on the creation of a municipal leasing company. This company’s main goals will be to lease equipment to local and regional manufacturers and to participate in municipal programs for economic development. In helping the city carry out its economic development programs, the company plans to work with small and medium businesses in the food industry and service sector, as well as motor transportation companies. In order to finance its activities, the company plans to borrow credit from various sources, including Moscow banks and Kuban Universal Bank. The municipal leasing company is already registered, and it is currently working on its joint-stock structure. As soon as this work is finished, the company will apply for a leasing license.

Leasing operations in Krasnodar are currently bearing their first fruits. One of the pioneers to leasing was the agricultural firm Solnechnaya. The equipment for vegetable processing acquired through leasing enables the company to make high-quality products that draw the attention not only of Russian, but also of foreign consumers.

Speaking of Krasnodar’s positive experience with leasing, we should give special attention to the activities of Kuban Universal Bank. Even though the bank only started leasing operations one year ago, it has already realized several successful leasing projects. The most interesting of these projects is the bank’s partnership with the Moscow Leasing Company for truck leasing. This cooperation between a regional bank and a Moscow leasing company enabled more than 20 local companies to obtain the motor transport they needed.

One of Kuban Universal Bank’s biggest lessees is the Krasnodar Meat Processing Plant. The director of the plant, Mikhail Alekseevich Kholodtsov, describes his personal experience with leasing as positive and gave the following arguments for the advantages of leasing: “Meat processing requires a lot of financing. Just to equip the plant with enough vehicles we have to borrow $1.5 million up front,

http://www2.ifc.org/russianleasing/eng/lc/5/4.htm (4 of 6)04/18/2007 5:14:40 PM LEASING-COURIER (September - October 1999, Issue 5 (5)) since we need about 100 vehicles in all. That’s a pretty large sum for just one company. These days a company can’t afford to pay that kind of money out of its pocket just to buy the production equipment it needs. But there’s one great way to do it, and that’s leasing. We sure made use of it. After coming to a mutual understanding with Kuban Universal Bank and the Moscow Leasing Company, we signed the contracts and worked out schedules for the delivery of the vehicles and the lease payments. It worked well. Now that we understand the effectiveness of leasing we intend to continue to use leasing with assistance from the bank and the Moscow Leasing Company. Through leasing we saved our working capital and kept it at our disposal. Sergei Korzhnev, deputy mayor of Krasnodar, and Vladimir Leasing enabled us to extend payment on the vehicles for a Kolomeytsev, director of the Moscow Leasing Company, sign an agreement for further partnership in the leasing sector. fairly long time. All of this had the positive effect on our Krasnodar, 16 August 1999. production costs. Now the company has a chance to be competitive in the meat production market. The result for our company has been dynamic growth, high salaries and financial success.”

In 1996, after The seminar coincided with yet another important event in the leasing sector of Krasnodar. On the Moscow August 27, the Moscow Leasing Company signed a partnership agreement with the Krasnodar City mayor’s office. On the day they signed the agreement they also gave a press briefing entitled Government “Leasing: New Opportunities for Developing Enterprise in Southern Russia.” Both parties highly initiated a special evaluated the experience they had had so far with joint leasing projects and expressed the hope that program to the new agreement will be mutually beneficial. The general director of the Moscow Leasing help the Company, Vladimir Aleksandrovich Kolomeytsev, also emphasized this point during his speech. Likhachev “We came to this region just one year ago, and already we have worked out the first stage of our Automobile cooperation with the regional government, with the local agent we selected, and with regional Factory though the lessees. The deals we’ve signed are profitable to all the parties involved. On the one hand, regional Crisis, the producers now have more than 70 new trucks at their disposal. On the other, these deals were Moscow profitable for Moscow, since most of the vehicles were built on ZiL frames produced in Moscow. Leasing Thus leasing helps manufacturers in both Krasnodar and Moscow. It helps create jobs and develop Company industry in both the Krasnodar region and the capital. With the signing of this agreement we have began leasing trucks entered a new phase in our relations. I hope it will be no less fruitful than the last one and that we produced at will be able to expand the range of equipment leased.” the factory. Its main task was In this survey of leasing in the Krasnodar region we have only seen the first steps that the regional to expand the market and government is taking to promote this sphere of financial services. But the experience gained so far increase sales during this period clearly demonstrates the advantages of leasing; regional manufacturers should in the regions make use of them. The regional government’s interest gives reason to hope for the further successful for Moscow development of the leasing market in Krasnodar. auto manufacturers. In order to achieve this, the Moscow Leasing Company signed a series of agency agreements with regional

http://www2.ifc.org/russianleasing/eng/lc/5/4.htm (5 of 6)04/18/2007 5:14:40 PM LEASING-COURIER (September - October 1999, Issue 5 (5)) companies that held leasing licenses. Under this agreement, the leasing company’s regional agents conduct searches for lessees, assess the solvency and financial indicators of potential clients, and determine whether additional guarantees will be needed before signing a lease agreement. MLC, in turn, provides its regional agents with all the methodological materials and forms of documentation they need. MLC currently has agents in St. Petersburg, Tula, Krasnodar, Irkutsk, Smolensk, the Moscow region, Syktyvkar and other regions of Russia.

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THE LEASING PROJECT September - October 1999, Issue 5 (5)

● IFC AND GRUPPE DEUTSCHE LEASING MAKE THEIR FIRST INVESTMENT IN THE RUSSIAN LEASING SECTOR

● NEWS IN THE GROUP

IFC AND GRUPPE DEUTSCHE LEASING MAKE THEIR FIRST INVESTMENT IN THE RUSSIAN LEASING SECTOR (continued)

he newly established Deutsche Leasing Company, which will open for business within 3-6 months, will offer joint- stock companies and Russian private companies leasing products such as financial leasing, automobile fleet leasing, and other leasing programs. The company will give German auto and equipment exporters the ability to offer their Russian clients a wide selection of leasing products tailored to their individual needs. For Russian companies, Deutsche Leasing Vostok will provide access to DL Group products in Germany and other European countries where DL’s subsidiaries do business: France, Italy, Poland, the Czech Republic, Austria and Hungary. This project will also give Press conference on the signing of an investment agreement Russian companies access to medium-term credit while other between the IFC and DL for the establishment of a new Russian alternative sources of financing are quite limited after the leasing company. August 1998 crisis. 18 October 1999, Moscow.

Gruppe Deutsche Leasing was founded in 1962. It was the first leasing company in Germany and one of the first in Europe. Over the years the company, which began as a universal leasing company, grew into a multi-profile finance company. Through its subsidiaries and partners, DL now offers financial leasing of movable property, automobile fleet leasing, insurance, equipment supplier service, and other services.

The main office of Gruppe Deutsche Leasing is located in the city of Bad Homburg, not far from Frankfurt am Main, the financial center of Germany. Its 19 branches and offices, together with its representative offices in 7 European countries, allow DL to serve its clients efficiently. With a new business volume worth 4.8 DM billion, Deutsche Leasing ranks among the top ten European leasing companies.

Since 1993 DL has been accompanying its clients into the most important export markets of Central and Eastern Europe. DL is the first German leasing company to serve German clients through a European network composed of seven foreign subsidiaries: Deutsche Leasing France (Paris), Deutsche Leasing Italy (Milan), Deutsche Leasing

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Hungaria (Budapest), Polski Leasing Przemyslowy (Warsaw and Poznan), Ceský Leasing (Prague and Brno). It also has two foreign subsidiaries in Austria and the Czech Republic, which specialize in automobile fleet management: Ceský Auto Leasing in Prague and Bank Austria Fuhrparkmanagement in Vienna.

Horst Figge, chairman of DL’s board of directors, sees DL and the IFC’s partnership in this project as ideal: the World Bank Group can offer financing and experience in the Russian market, while DL offers leasing know-how and personnel.

In spite of positive developments in the Russian leasing market, Deutsche Leasing Vostok’s entry into the market has to be weighed carefully and accompanied by adequate risk assessment policies. The volume of transactions in the company’s first year is expected to reach DM20m.

Deutsche Leasing Vostok will promote the development of a healthy leasing market in Russia. The main problems in the leasing sector today are the weak financial base, the lack of funds for refinancing, and the lack of knowledge about risk management. There is also a lack of experience in working with new medium-sized businesses. Similar problems have been observed in Hungary, the Czech Republic and Poland. But the DL Group’s experience and financial potential are a solid foundation for success even during its first year in the Russian market.

THE LEASING SECTOR: IFC INVESTMENT CRITERIA

IFC Experience in Leasing Development

An important component of IFC’s activities worldwide is the promotion of leasing industries and leasing companies. Leasing is considered to be an effective means of financing new investment in small and mid-size companies (SMEs), a crucial and sometimes difficult-to-reach segment of a developing economy.

Recognizing leasing’s developmental value, IFC began supporting leasing companies nearly twenty years ago. Between 1977 and 1995 IFC has provided over $500 million to about 70 leasing companies in more than 40 countries and has completed more than 50 technical assistance projects on leasing for its member governments. These technical assistance projects have often led to direct investments into leasing companies and have assisted in the development of legislation and regulations promoting the industry.

The purpose of IFC’s involvement in leasing development is to help to create and strengthen leasing companies around the world. IFC seeks to promote the establishment of leasing companies in emerging leasing markets and provide support to competitive companies in the countries with a developed leasing sector. To achieve this goal IFC combines technical assistance to governments in the area of leasing legislation and regulations with a search for investors and technical partners as well as investing into newly formed leasing companies.

Drawing on IFC’s global experience, in 1997, the Russian Government invited IFC to conduct a leasing technical assistance project. The goal of the project, IFC Leasing Development Group, is to strengthen the Russian economy by improving the regulatory and legal environment for the financial leasing industry, stimulate the growth of financial leasing companies, and improve access of SMEs to investment capital. The project is funded by the UK Know How Fund and the Canadian International Development Agency.

IFC’s Investment Criteria

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Majority of IFC investment projects into leasing sector are implemented in sequential steps. Once the legal base for leasing development is in place, IFC researches potential market for investment and chooses the optimal mechanism for realizing investment project. The choice of a mechanism of carrying out investment projects depends on the development level of the leasing market. If the leasing industry is in its nascent stage, IFC usually takes the approach of structuring a joint venture – a new independent leasing company. IFC’s partners in this joint venture are foreign sponsors, a technical partner which is usually a major foreign share holder, and local organizations. As soon as the company becomes operational, IFC takes the position of a passive investor. Sometimes IFC provides loan financing. If the leasing industry is more developed, IFC supports already existing leasing companies and promotes the establishment of leasing companies by local investors.

A typical shareholding structure of a joint venture would be 20% IFC capital, 40% of a local partner, and 40% of a foreign technical partner. Thus IFC takes minority participation and does not provide management. Each of the parties of a joint venture performs certain functions. While IFC sometimes responds to initiatives of others, frequently it initiates the project and brings the original parties together. IFC is involved in market analysis, in preparing the business plan, drafting shareholders agreements and other legal documents, and recruiting management. Usually IFC starts by investing into shareholding capital and later provides loan financing. One of the key constraints to the expansion of a newly formed leasing company is mobilizing debt. To help support the new company IFC is prepared to provide loan financing, but only on the basis that the other shareholders also provide loans.

In the majority of developing leasing markets it is important to have an active and experienced foreign technical partner. To actively participate in the creation of a joint venture the foreign technical partner should have a sufficient share in the venture’s capital. The main role of the foreign technical partner is to approve the company’s operational procedures, train local personnel and transfer technology. Since IFC’s goal is to promote the creation of local leasing companies, the installation of operating manuals and of accounting and information systems, as well as the training and the development of staff are crucial to the success of the project. Additionally the foreign partner provides loan financing.

The local partner usually provides logistical support and helps to recruit staff. The local partner also provides funding and marketing support through its branch network, if it is a bank, or its client base, if it is an operating company

Operating Guidelines for a Leasing Company in Which IFC Has a Share

IFC advises leasing companies to implement prudent operating and financial policies. These guidelines include high standard of credit appraisal, portfolio supervision, exposure limits to any one lessee, industry and class of equipment. Financial policies include limits on leverage and guidelines to avoid maturity mismatches. IFC follows the following requirements:

❍ Limiting debt-equity ratios (for example to 10:1)

❍ Limiting foreign currency liabilities in relation to total debt (this requirement varies depending on each specific project)

❍ Limiting the leasing company’s exposure to any single lessee or to a sector

❍ Limiting the leasing company's mis-matches in terms of maturity, i.e. average life of its leases versus its borrowings

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NEWS IN THE GROUP

TRAINING

Andrei Pisarenko, Training Manager

he Leasing Development Group continues to conduct seminars on the “Principles of Leasing” in the Russian regions. In September and October the Group held seminars in three major Siberian cities: in Irkutsk and Novosibirsk on September 20-24 and Kemerovo on October 18-19. These seminars provoked a lot of interest from representatives of the regional and municipal governments, regional leasing company specialists, manufacturers, and officials from financial and credit institutions. In all, more than 150 people attended the seminars.

In the process of preparing for the seminars in Irkutsk and Novosibirsk, the Group’s experts worked out a new topic, “Cross-Border Leasing,” and incorporated it into the seminar materials. This new material examines issues such as applicable law, customs and hard-currency regulation, and taxation on cross-border leasing operations.

The seminar in Kemerovo was organized with help from the Russian-British Consulting Center. The Center was established in Kemerovo as part of the British Know How Fund’s Project for the Support of Small and Medium Enterprise. Most of those who attended the seminar were representatives of small and medium businesses in the Kemerovo region with whom the Russian-British Consulting Center has been working. The Group’s experts developed the topic “Small Businesses: Specifics of Accounting and Taxation for Leasing Operations” specially for this seminar.

As of 1 November 1999, the Leasing Development Group had conducted 16 seminars on the “Principles of Leasing” in 13 regions of Russia. By the end of 1999 the Group plans to hold two more seminars: one in Ekaterinburg in mid November and one in Rostov-on-Don during the first half of December. The Russian-British Consulting Center, which is active in these regions, will also participate in the seminar.

Canadian Exhibition-Seminar on Food Products and Equipment for the Food Industry

St. Petersburg

Gail Bowkett, Deputy Project Manager IFC Leasing Development Group

Upon invitation of the Canadian Consulate in St. Petersburg, the Leasing Development Group took part in the Canadian Exhibition-Seminar on Food Products and Equipment for the Food Industry. The goal of the seminar was to bring food purchasers and food processing companies from St. Petersburg and the Leningrad Oblast together with Canadian companies interested in selling their product on the Russian market. The focus of activity within the food sector in these regions is changing from that of importing ready-made products to domestic food processing industries. This offers Canadian companies the opportunity to sell their food-processing equipment to Russian enterprises. Currently, Canadian imports to the region include bread-making and meat-processing equipment. The LDG made a presentation on the fundamentals of leasing and its potential benefits to the food processing industry. Approximately 30 business were represented at the exhibition.

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1999 IFC Market Survey of the Leasing Sector in Russia

Gail Bowkett, Deputy Project Manager IFC Leasing Development Group

The LDG has conducted its annual research on the state of the Russian leasing market. The study will examine the leasing sector from the point of view of each of the parties to a leasing contract; leasing companies, vendors and lessees. The findings in the report are based largely on primary research conducted directly with companies belonging to each of these groups. The next issue of the Leasing Courier will include a brief summary of the findings of this annual research.

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NEWS

September - October 1999, Issue 5 (5)

PRESS SURVEY

EVENTS IN THE RUSSIAN LEASING MARKET

The Voronezh Regional Duma has passed a Law “On Measures to Promote the Leasing of Aviation Technology in the Voronezh Region”. The law applies to legal entities engaging in the leasing of aviation equipment, having valid registration in the Voronezh region, and including regional aviation manufacturers among their founders. The law provides for full exemption from regional taxation and fees for the first five years and a 50% deduction for the following five years.

Interfax, Vremya MN, 19 October 1999

Wimm-Bill-Dann Holding Company plans to increase is presence in the dairy market. As announced on 12 October 1999, WBD and its Swiss partner, Alfa Laval Agri, intend to invest US$6 million in the Russian dairy sector. This investment will be given directly to dairy producers through leasing. As part of this investment project, called the “Moscow-Area Rivers of Milk,” the companies will re-equip the milking and refrigeration units of 20 Moscow-area farms that supply WBD with their products. The re-equipment will take place through leasing: WBD will purchase the equipment and lease it to the farms for eight years, after which the ownership rights will be transferred to the farms. In the meantime the farms will make their lease payments to WBD in kind at medium market prices. The first production line to be leased under this project was set up at a breeding farm in Barybino. The first phase of the project is expected to be completed by the end of the winter.

Based on materials published in “Kommersant”, 13 October 1999, Anna Kaledina, “Moscow-Area Rivers of Milk.”

Siberia Aviation Company plans to lease three Tu-214 airplanes. The company’s general director, Vladimir Filev, made this announcement at a press conference. The aviation company and the governments of the Perm and Novosibirsk regions and the Republic of Tatarstan are preparing to sign an agreement for the use of the Tu-214 airplanes, manufactured by the Gorbunov Production Association of Kazan. The planes will be fitted with Perm Motors PS90A engines. One plane is ready for use already. According to the general director of Siberia Aviation, a lease agreement will be signed with the Avialeasing Corporation of Perm.

RBC, 5 October 1999

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Over the past five years of development in the Russian leasing market, the number of companies holding leasing licenses has grown from 20 in 1994 to 1,026 in 1999, announced Elena Skrynnik, chair of the Russian Association of Leasing Companies (Rosleasing), at a press conference dedicated to the Association’s fifth anniversary. For the Association’s member companies, the share of leasing in total investment into capital assets has grown 12 times since 1996 and now comprises 2.7%. Investment through leasing has grown significantly, from $2.6m in 1994 to more than $500m in 1998. Ms. Skrynnik noted that, according to surveys conducted by the Association, 68% of the equipment leased was machine-building equipment, 26% telecommunications and medical equipment, 3% automobiles and highway equipment, and 1% computers and office equipment. 49% of the leasing company’s Russian clients were in industry and 20.5% in agriculture.

RBC , 5 October 1999

Perm Motors Plant (PMZ), Gazprom, and America’s Pratt&Whitney plan to create a new company to lease gas pipeline installations (GPIs) for GPA-16 gas pumps. The leasing company has held financial negotiations with various Russian and Western banks, particularly EBRD and Deutsche Bank. The company is considering various forms of guarantee for the investment, such as gas deliveries or already-constructed GPIs. Pratt&Whitney, PMZ’s partner and joint-stock holder with a 25% share in PMZ through charter capital, will negotiate with Western investors and banks. First to be leased may be a compressor station in the city of Chaikovsky in the Perm district, where 30 obsolete GPA-16s are to be replaced by modern GPI-16s.

Vremya MN, RBC, 4 October 1999

The Federal Program for Government Support of Small Enterprise for the Years 2000-2001 will be submitted to the federal government for ratification once it is approved at the Second Congress of Entrepreneurs at the end of October, announced Deputy Antitrust Minister Aleksei Prokopiev. According to Mr. Prokopiev, all of the relevant ministries and agencies have approved the program except the RF Ministry of Finance. He expressed the hope that a representative from the Antimonopoly Ministry (MAP) would join the conciliation commission for the drafting of the year 2000 budget, where he or she would insist that funds be set aside for the government program for the development of small and medium-sized business. The Deputy Minister explained that the Federal Program for Government Support of Small Enterprise was developed by MAP in close cooperation with the Federal Fund for the Support of Small Business and consists of two main divisions. The first division promotes the development of progressive technology for the support of small enterprise, the development of financial and credit institutions, and leasing and franchising. The second defines priorities for the development of small enterprise: food processing, small construction, consumer goods production, road and wayside services, information service on the basis of local communication centers, the service industry and border trade. The program also includes regulatory and legal protection for small business.

RBC, 30 September, 1999

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The Russian-American Working Group for Small Business held a two-day conference in Samara. The participants signed a plan of action defining the group’s main tasks. The group plans to expose any government acts or regulations that impede the growth of Russian enterprise and to work out a set of measures to remove these administrative barriers. Moreover, it will prepare legislative bills on the defense of entrepreneurs, on venture capital, on consumer unions for mutual credit and insurance, on franchising, and on amendments and additions to the RF Tax Code, as well as to the federal laws “On Government Support for Small Enterprise in Russia,” “On a Single Tax for Imputed Earnings from Certain Kinds of Activity,” and “On Leasing.” Participants in the conference included the following: Ilya Yuzhanov, RF Minister for Antimonopoly Policy and the Support of Enterprise; Konstantin Titov, governor of Samara Oblast; James

Wilfong, deputy director of the US Small Business Administration; experts from the US State Department and the US Agency for International Development; and representatives of Russian and American business communities.

RBC, 30 September 1999

“We have to develop mechanisms that will enable regional farmers to lease “Sibselmash” equipment,” declared Vitaly Mukha, governor of Novosibirsk Oblast, during his visit to “Sibselmash” Scientific and Production Association. He inspected the production and held meetings with the association’s directors and leading specialists. In the opinion of Mr. Mukha, the problem today is that many farmers cannot afford the high-quality farming equipment that the company produces. He noted that the company has managed to keep up its high level of expertise and production potential over the last ten years without receiving a penny from the federal government for conversion programs. The factory’s specialists explained that while half of “Sibselmash’s” production used to be for the defense industry, it has now been redirected toward civil needs. Beyond the Urals the company has a virtual monopoly on the production of rollers for mining conveyor belts (previously they were shipped to the Kuzbass region from Ukraine). “Sibselmash’s” mechanical egg-sorting machines have achieved production figures twice those of electrical machines and have been supplied to Moscow, Petropavlovsk-Kamchatsky, Ufa, Tomsk and Novokuznetsk. Sibselmash heating units are in demand in Krasnoyarsk, Irkutsk and Yakutia for heating production facilities, warehouses and offices.

RBC, 29 September, 1999

According to estimates by experts from the RF Ministry of Agriculture and Foodstuffs, financing for leased farm equipment currently amounts to 6.8 billion rubles, - Ravgat Altynbayev, Deputy Minister of Agriculture and Foodstuffs, announced to journalists today. He went on to say that 405 million rubles were spent to finance leasing in 1999, but this amount of investment is insufficient. Experts estimate that about 40 billion rubles must be spent to finance leasing operations. If the necessary funds are raised, Russia will be able to obtain the equipment it needs; but for now, notes Mr. Altynbayev, the Ministry has asked for only 8 billion rubles, realistically expecting to raise no more than 3.5 billion.

RBC, 23 September, 1999

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“Belrosauto” Company is actively trying to break into the Russian leasing market. As the general director of “Soyuzagromash”, Arkady Osherov, announced at a conference of farm equipment producers, the corporation and trading house that he runs, “Traktorselkhozmash”, is actively helping the Belorussian company “Belrosauto” promote its leasing services for tractors and other agricultural machinery in Russia. He said that “Belrosauto” is trying to supply Russia with no less than 1,500 tractors from the Minsk Tractor Plant and automobiles from the Minsk Auto Plant through leasing and installment plans.

RBC, 16 September 1999

To establish effective leasing in civil aviation would require credit for 9-12 years and an 85% guarantee from the government, believes Yury Koptev, general director of the Russian Aviation and Aerospace Agency. He reminded journalists that civil aviation throughout the world relies on leasing. As for military aviation, Mr. Koptev said that one of the main tasks should be to promote Russian technology in world markets, while the agency’s main function should be to help facilitate export.

RBC, 15 September 1999

The State Duma Committee for Geopolitical Issues has proposed a bill “On the Principles of State Regulation of Aviation Leasing.” As the State Duma press service told RBC news agency, the bill provides various new conditions for aviation technology produced in Russia or in cooperation with countries of the CIS. These include the possibility of accelerated depreciation of leased assets, compulsory state guarantees on investors’ loans, fixed interest rates and tax exemptions for specified periods, as well as exemptions from customs duties. The bill was proposed by deputies E. Buchenkov, V. Ilyukhin, N. Stolyarov, N. Bezborodov, A. Mitrofanov, Yu. Nikiforenko, A. Kuvshinov, A. Filatov and S. Zhebrovsky.

RBC, 15 September 1999

The Russian government has commissioned the Ministry of Finance to provide Sberbank with state guarantees on 550 million rubles of credit earmarked for “Rosagrosnab” at 42% APR for a term of up to one year, and to conclude a guarantee agreement that would guarantee fulfillment of liabilities under the credit agreement. Rosagrosnab has received the right to lease agricultural equipment purchased on credit for eight years.

Vremya MN, 17 August 1999

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EVENTS IN THE FOREIGN LEASING MARKET

Boeing Co. plans to reevaluate its relationship with clients in the highly profitable sphere of airplane leasing in the hope of improving service and raising profits. The company plans to expand and unify credit access for the purchase of its passenger planes, military planes and other machinery. Most of the restructuring will pertain to the company’s financial division, Boeing Capital Corp. The details are expected to be announced this week. The company’s plans provoked enormous concern throughout the market among companies that lease Boeing aviation technology, reported the Wall Street Journal.

RBC, 4 October 1999

On 28 September 1999, the International Finance Corporation (IFC) signed a loan agreement for $5 million with one of the most stable financial institutions in Zimbabwe, udc Holdings Limited, Zimbabwean, which specializes in leasing, as well as medium- and long-term financing. The IFC had already invested in the company’s charter capital and given it two loans for $12 million as early as 1984. These investments were returned in full. The company will use the additional new investment to expand its financing programs for Zimbabwean companies in the agriculture, tourist and transportation sectors.

IFC Press-Service, Washington, 28 September 1999

The council of the Intergovernmental Association of Agroindustrial Banks (MAAB) of the CIS in St. Petersburg has decided to create a leasing company, as Yury Trushin, the president of MAAB and a member of the board of directors of the Soyuz Banking Group, announced to Interfax. According to Mr. Trushin, the establishment of this leasing company will help integrate the agricultural sectors of CIS countries. In the near future MAAB will announce which country is to host the new leasing company.

Based on materials published in Finansovye Izvestiya, 29 August 1999

Prepared by Irina Likhachova

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TAXATION

September - October 1999, Issue 5 (5)

CHANGES TO THE TAX CODE OF THE RUSSIAN FEDERATION

Nina Zhuravlyova, Accountant & Auditor IFC Leasing Development Group

Our commentary on the introduction of Part One of the Tax Code (henceforth Code) was published in LC #1. That commentary dealt exclusively with points concerning leasing.

In mid August the Law “On Amendments and Additions to the Tax Code of the Russian Federation ” (henceforth the Law) went into effect. In this article we will present a survey of the changes that may affect parties to leasing transactions.

It is hard to say unambiguously whether the Law improves or worsens conditions for participants in leasing transactions. On the one hand, the Law eliminated many of the internal contradictions that were characteristic of the previous redaction of the Code. On the other, it expanded the competencies of the tax authorities.

THE NEW COMPETENCIES OF THE TAX AUTHORITIES

The Law has given the tax authorities additional competency to check the correctness of tax calculation and payment and to collect arrears, fines and penalties.

In particular the tax authorities have been given more power to control the prices that tax bearers charge for their goods, work and services (Article 40 of the Code ):

● The Law extends the Article’s validity to foreign trade transactions, which affects parties to leasing transactions who import leased property or engage in cross-border leasing;

● The Law broadens the concept of “related parties” to include not only those organization that have direct shares in other organizations’ capital, but also those with indirect shares. Moreover, the courts can declare persons to be interdependent on bases other than those stipulated in Clause 1, Article 20 of the Code, if the relationship between these persons might influence the results of a transaction for the sale of goods (work, services).

● The Law decreases the deviation of prices established by the parties as a basis for price control from 30% to 20% of the prices charged by the tax bearer for similar goods (work, services) over a short period of time.

We would like to point out the clearer new wording of the clause, which now includes “work and services” (the previous wording mentioned only “goods”, although it followed from the context of the Article as a whole that Clause 3 applied

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There was no further clarification of the phrase “over a short period of time.”

There were significant changes pertaining to the activities of the customs authorities. The terms for payment of customs were brought nearer to those for payment of taxes. At the same time a much more lenient penalty has been established for non-payment or incomplete payment of tax in connection with the shipment of goods across the Russian customs border. The new penalty of 20% of the unpaid tax (Article 122) is much lower than the one stipulated under Article 282 of the RF Customs Code.

The matter of accounting regulations for foreign organizations has been settled. The particulars of accounting, including for different forms of receiving revenue, are referred to the competency of the RF Ministry of Tax and Duties (Articles 83, 84)

LIABILITY FOR INFRINGEMENT OF THE LAW

On the whole the new Law compounds the demands placed on tax bearers in comparison with the original redaction of the Code. For example, the limits in effect since 1 January 1999 on the size of tax penalties (no more than 0.1% per day and no more than the sum of undeclared tax) have been struck out; the period for tax inspections has been increased; the period of limitation for exaction of tax penalties has been increased from three months to six; and the period within which the tax authorities must make decisions on tax collection has been increased from 10 days to 16.

We would like to note that one must now take special care to register every commercial transaction, since under the new Law the absence of accounts (including invoices and primary accounting documents or registers), as well as the untimely or inaccurate reflection of business activities in the accounting records, are considered gross violations of accounting regulations and are subject to tax penalties in accordance with Article 120 of the Code. Moreover, according to the Article, both the seller and the buyer of the goods (work, services) may be subject to tax penalties, since either may be found lacking invoices. It should be noted that under existing tax legislation , invoices must be drawn up for all goods (work, services), whether or not they are subject to VAT.

MAJOR CLAUSES PROTECTING THE RIGHTS OF TAXPAYERS

An amendment to Article 21 of the Code opens up new possibilities for overcoming ambiguities in legislative and regulatory acts. It gives taxpayers the right to receive written explanations on matters pertaining to tax and duty laws, not only from the tax authorities, but also from other authorized state agencies. In our opinion, the latter include customs and financial authorities, based on the more precise wording of Article 9. This is all the more important since, according to the newly elaborated Article 111, taxpayers and tax agents are freed from liability if, in breaking the law, they were guided by the written explanations of the tax authorities or other authorized state agencies. It is also made clear that the explanations must pertain to the tax periods during which the violation occurred. It is of no importance when the written explanations were drawn up or published.

In our opinion, if the taxpayer followed the written explanations of the above-mentioned agencies, then in the event of a tax violation he is not subject to fines, although even in this case taxes and penalties can be exacted from him without

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This decree is very important to those who participate in leasing transactions, since in their practical activities they often need to submit written requests for clarifications and explanations of the law to the tax and financial authorities and follow their instructions.

In conclusion, the new Law does not mean a return to the situation where the taxpayer had no rights or protection from the tax inspector. It preserves its general approach to tax accountability, in which the presumption of innocence is paramount, as well as the provision that all remaining uncertainties, contradictions and obscurities inherent in the tax and duty legislation must be interpreted exclusively in favor of the taxpayer (Clause 7, Article 3). The new wording of the Code also directly states that tax sanctions may only be exacted through the courts (Clause 7, Article 114).

Federal Law #154 (9 July 1999)

Tax Code of the Russian Federation-Federal Law #146 of 31/07/98 (published 9 July 1999)

Clause 1, Article 2 and Clause 2, Article 7 of the RF Law on Value Added Tax (6 December 1991); Clause 9 of Decree #685 of the President of the Russian Federation "On the Main Points of Tax Reform in the Russian Federation and Measures to Strengthen Tax Discipline" (8 May 1996); RF Government Resolution #914 (29/07/96)

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QUESTIONS AND ANSWERS

September - October 1999, Issue 5 (5)

Can a noncommercial organization act as a lessor? According to Article 50 of the Civil Code of the Russian Federation (CC RF) and Article 24 of the RF Federal Law “On Noncommercial Organizations”, noncommercial organizations may engage in entrepreneurial activities, provided that these activities promote the goal for which the organization was created. Certain forms of activity require that the organization hold a relevant license. In particular, this category includes leasing; consequently, noncommercial organizations may act as lessors if they hold a leasing license. Olga Sishlyannikova, Some questions arise when considering this problem in the context of the RF Federal Law “On a legal expert with the IFC Leasing”. Article 5 of RF Federal Law “On Leasing” stipulates that leasing companies are Leasing Development created as commercial organizations. This seems only to apply to those commercial Group, explains some moot points concerning organizations for whom leasing is the main activity. The general requirements for lessors are the legal aspects of established under Clause 1, Article 4 of the Law on Leasing, which defines both physical and leasing. legal persons as lessors without regard to the goal of the legal persons’ activities.

Do foreign leasing companies who do business on Russian territory need a license? According to Clause 3, Article 6 of the RF Federal Law “On Leasing”, nonresidents do need a license to engage in leasing. However, this regulation contradicts several other legislative acts:

● Clause 1, Article 161of the Principles of Civil Law of the USSR and Republics stipulates that the civil legal capacity of foreign legal persons is defined by the laws of the country in which they are founded; ● Clause 2, Article 1 of the RF Federal Law On the Licensing of Various Kinds of Activity stipulates that the Law on Leasing does not apply to foreign trade; ● Article 2 of the RF Federal Law “On Foreign Investment in the Russian Federation” (9 July 1999) establishes that the legal capacity of foreign legal persons is determined by the laws of the country in which they are founded, as is a legal person’s right to engage in investment activity.

Based on the laws listed above, one must conclude that it is sufficient for a foreign leasing company to hold a leasing license in its home country (if required by the government of that country).

Consequently, in light of the contradictions between the laws pertaining to this issue, foreign leasing companies can take either of the following decisions:

● To engage in leasing without a license from the RF Ministry of the Economy and defend its position in court in the event that state agencies make claims against it; ● To obtain a leasing license from the RF Ministry of the Economy.

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Must a foreign leasing company that has signed a lease agreement with a Russian lessee and has no representative office in Russia register with the tax authorities? According to current tax legislation, foreign leasing companies must register with the tax authorities, whether or not the tax authorities subsequently declare their activities subject to taxation. Companies must register with local tax authorities where they do business. If a foreign leasing company does business in multiple locations within Russia, then it must register in each location.

If a foreign leasing company operates in Russia without a permanent representative office, then it or its authorized representative (which may be a Russian lessee) must send notification of its sources of revenue to the state tax authority for the Federation subject wherein resides its source of revenue; it must also send notification to the Ministry of Tax and Duties. This means that if a foreign leasing company signs lease agreements with several different sources of revenue located in different subjects of the Federation, then it must register within each of these subjects of the Federation. Notification must be sent within one month after the company obtains the right to receive revenue or begins its activity, which, in the case of leasing activity, means the date of the first lease payment or moment when the lease agreement takes effect.

Foreign legal persons who fail to register on time with the tax authorities or attempt to evade registration will be found in violation of tax law and may incur fines. Furthermore, regardless of registration with the tax authorities, Russian lessees must withhold taxes from the income of foreign leasing companies when making lease payments.

Which documents does the lessee’s accountant need when entering the leased property into the books? According to the Law “On Bookkeeping”, all business transactions performed by an organization must be registered in the primary accounting documents on which the accounting records are based. These documents are used for accounting if they were drawn up in accordance with the forms contained in the book of primary accounting documents .

The methodological instructions for registration of fixed assets do not provide for any exceptions to the current bookkeeping regulations in the case of leased fixed assets. The instructions do, however, take into account the following special features of bookkeeping for property under a financial lease agreement:

● Leased property is entered into the bookkeeping records on the basis of the deed of transfer and acceptance for the fixed assets (standard intersectoral form #OS-1 ), bearing the signature of the lessee’s director and according to the appraisal given in the agreement (Clause 40, 87). ● The lessee’s accountants are advised to register the leased assets on the inventory cards for the accounting of fixed assets (form #S-6). The lessee may also enter the leased assets according to the inventory number assigned by the lessor (Clauses 8-11).

Under current tax laws , bearers of VAT, which include all commercial enterprises, must draw up an invoice for each sale of goods (work, services). Insofar as the transfer of property under a lease agreement does not count as a sales transaction (the lessor retains ownership for the duration of the contract), the delivery of the leased assets need not be recorded in an invoice.

Thus, in light of all of the above, the lessee’s accountant must have the following documents when entering the leased assets into the accounting records: the lease agreement, the technical passport and other acquisition documents, and the deed of transfer and acceptance for the leased assets, drawn up in accordance with current legislation.

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Can insurance payments on leased assets be included in the cost of production? The lease agreement may provide for the insurance of the leased assets and stipulate which party must act as the insured, as well as defining the periods and conditions of the insurance contract .

From this it follows that insurance for leased assets cannot be considered a necessary form of insurance. Thus for tax purposes the insured may not include within the cost of production (work, services) any insurance payment exceeding 1% of proceeds from the sale of the product (work, services) as reported on line 010 of form 2, “Declaration of Profit and Loss,” in the Addendum to the accounting balance sheet. The indicated expenses should be included in the cost of production for the appropriate fiscal period . Any expenses in excess of this norm should be paid out of profit after taxes.

In our opinion this statute is valid irrespective of which leasing party (lessor or lessee) acts as the insured, or which puts the leased assets on his balance. This conclusion is based on the special nature of leasing transactions, which consists in the fact that the leased assets transferred to the lessee under the lease agreement can be put on the balance of either the lessor or the lessee, as agreed by the parties, while the lessor retains the actual property rights to the assets for the duration of the contract .

Furthermore, if under the lease agreement the lessor is named as the insured, then the insurance payments on the leased property are to be fully included in the lease payments .

For tax purposes, the foreign legal person's accreditation, or lack thereof, is irrelevant. The term "permanent representative office" as it is used to determine tax status is defined under Clause 1.4 of RF State Tax Service Instruction #34 "On the Taxation of Profit and Income of Foreign Legal Persons" (16 June 1994).

Clause 1.2, Article 9 of Federal Law #129-FL "On Bookkeeping" of 21/11/96 (23/07/98 redaction)

Ministry of Finance Decree #33n "On the Establishment of Methodological Instructions for Bookkeeping Registration of Fixed Assets" (20/07/98)

Clause 2 of RF Goskomstat Resolution #71a "On the Establishment of Standard Forms for Primary Accounting Documentation of Labor and Payment, Fixed and Nonmaterial Assets, Materials, Commodities of Little Value or Duration, and Work in Capital Construction" (30/10/97)

Articles 2 and 7 of the RF Law on Value Added Tax of 6 December 1991 (4 May 1999 redaction).

RF Government Resolution #914 "Regulations for Invoice Registers Used in Calculating Value Added Tax" (29/07/96)

Article 21 of Federal Law #164-FL "On Leasing" (29/10/98).

Pp. "r", Clause 2 of the "Statute on the Composition of Expenditures…" confirmed by Resolution #552 (5 August 1992)

Clause 12 of the "Statute on the Composition of Expenditures…" confirmed by Resolution #552 (5 August 1992); Letter #04-07-04 of the RF Ministry of Finance (23/02/98); Letter #04-02-14 4 of the RF Ministry of Finance (16/01/98)

Clause 1, Article 4 and Clause 1, Article 12 of Federal Law #164-FL "On Leasing" (29/10/98)

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Article 29 of Federal Law #164-FL "On Leasing" (29/10/98); pp. "Ch", Clause 2 of the "Statute on the Composition of Expenditures…" confirmed by Resolution #552 (5 August 1992).

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September - October 1999, Issue 5 (5)

Chief Editor: IN THE NEXT ISSUES:

Irina Likhachova THEORY AND PRACTICE The Relationship Between Lessors and Suppliers: The Articles prepared by: Experience of Siberian Leasing Company

Gail Bowkett LEASING IN THE REGIONS Vladimir Dementiev Sakhalin. Kemerovo Irina Likhachova Andrei Pisarenko ACCOUNTING Olga Shishlyannikova Supplier’s Credit Against Goods Nina Zhuravlyova

Translation by: SMALL BUSINESS Daniel Kohn “Avana” Dry Cleaner, Irkutsk

Comments, proposals, questions and submissions may be NEWS sent to: Press Survey on Developments in the Financial Leasing Market IFC Leasing Development Group Gazetny Per. 5, Bld. 2 QUESTIONS AND ANSWERS Moscow 103918 LEASING IN RUSSIA Email: Survey of the Financial Leasing Market: Results of Research by the Leasing Development Group Telephone: (095) ... LEGISLATION Fax: (095) ... Comparative Analysis of Russian and Foreign Leasing Legislation

and much more . . .

The Leasing Courier newsletter is distributed free of charge as a part of the Leasing Development Project, implemented by the International Finance Corporation with financial support from the Canadian International Development Agency (CIDA) and the British Know How Fund (BKHF).

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