The Lease Agreement: a Lessee’S Per- Olga Kosikhina Told Us How Spective Leasing Helped Her Transform Pg
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39584 Published by the Leasing Development Group of the International Finance Corporation (IFC), a Member of the World Bank Group, with financial support from the Canadian International Development Agency INFORMATION BULLETIN Public Disclosure Authorized CONTENTS : http://www.ifc.org/russianleasing MARCH-APRIL 2001, Issue 2 (14) A SUCCESSFUL SUPERMARKET IN OUR PROJECT NOVOCHEBOKSARSK An Interview with Karim Ahmad, IFC Investment Officer pg. 2 uring the Leasing De- Training velopment Group’s re- pg. 5 Public Disclosure Authorized Dcent seminar in Chu- vashia, we learned about a THEORY AND PRACTICE lessee named Trading House How to approach a leasing company #55 from the city of pg. 9 Novocheboksarsk. Director The Lease Agreement: a lessee’s per- Olga Kosikhina told us how spective leasing helped her transform pg. 12 her store from a loss-maker The Eurasia Foundation Private Enter- into a rising star. prise Development pg. 15 Olga Kosikhina, Director of Trading Continued on pg. 24 House #55, with a leased refrigerator Risk minimisation for leasing companies counter. The counter has allowed the pg. 22 store to increase turnover and the range of Public Disclosure Authorized products offered LEASING IN REGIONS Leasing Development Project in the Tomsk Region pg. 18 he overall theme of this edition of the Leasing Couri- er is lessees. Why have we chosen to devote so LEASING IN RUSSIA Tmuch attention to the «consumers» of the leasing in- Leasing licenses dustry? Because unlike the savvy experts from the leasing pg. 19 companies, banks and equipment manufacturers, who al- Leasing in Chuvashia ready thoroughly understand leasing, lessees often have pg. 19 only a vague idea of the specifics of this financial tool. In The Canadian Business Association the hope of educating lessees about leasing, we have de- visits Russia’s Northwest Region cided to launch a new section of the Leasing Courier enti- pg. 20 tled «Advice for Lessees.» This section will include practi- Public Disclosure Authorized cal information to help lessees in their business activities. SMALL BUSINESS The Leasing Development Group is also developing a new A successful supermarket in series of seminars for lessees entitled «Acquiring Fixed Novocheboksarsk Assets Using Leasing» The first of these seminars will be pg. 24 held in Krasnodar this May. NEWS If you would like to suggest any topics that may be of Press Digest special use or interest to lessees, please contact us at the pg. 26 address listed on the back cover of this journal. QUESTIONS AND ANSWERS pg. 30 2 OUR PROJECT March-April 2001 IFC INVESTMENT PROJECTS An Interview with Karim Ahmad, IFC Investment Officer. By Viktoria Struts, IFC PR Specialist. How do IFC investment projects work? We basically have two kinds of project. Sometimes the IFC buys shares in existing companies or helps found new ones, always capping its involvement at 25%. In other cases, it simply gives loans to client companies. These loans are usually more long-term than those readily available on the market, but they are still commercial in nature, so potential clients should not expect to receive any dis- Karim Ahmad, IFC Investment Officer counted rates. Furthermore, our loans may not exceed 50% of a client’s total assets, so we are never the sole source of funding. What is the goal of the IFC’s investment projects? Can you tell us more about the IFC’s crite- The IFC was created for the purpose of mak- ria for investment projects? ing investments in the private sector. It essen- tially acts as an investment bank with two ob- First of all, potential clients must already have jectives: on the one hand, of course, it tries to a well thought-out plan. A mere desire «to get in- turn a profit, but on the other, it tries to devel- to leasing» is not enough. The IFC is not a leas- op the markets where it operates. The leasing ing company; it is more like a bank that is inter- industry is one area that we consider especial- ested in financing the process of leasing itself. ly important. Therefore, companies should not come to us for help with just one or two deals. We are looking We use two basic criteria to assess our in- for long-term partners. When we do give loans vestment projects: they must be profitable, to leasing companies, we make a number of de- and they must contribute to market growth. In mands. First of all, the companies must diversi- countries like Poland and the Czech Repub- fy their portfolios so that no single lessee or in- lic, where the private sector is already well dustry makes up more than 25-30% of their to- developed, we are undertaking fewer and tal. Second, the companies must adhere to a fewer projects, since the markets in these strict repayment schedule. Third, certain kinds of countries have begun to function on their business are strictly prohibited, such as any pro- own. In Russia, we see our principal task as ject that involves the manufacture of alcoholic creating and supporting «model» enterprises drinks, firearms, military technology or gambling that might serve as an example to other com- machines. As I mentioned before, projects are panies. expected to be profitable, so companies have to Karim Ahmad headed the IFC Leasing Devel- nior manager of the IFC’s Technical Assistance opment Group for more than two years until his Program. Karim runs technical assistance pro- transfer, in July 2000, to a new position within jects for the leasing sectors of Russia and the IFC’s Central and Eastern Europe Depart- Ukraine and helps promote investment in the ment. He is now an investment officer and se- financial markets of these countries. March-April 2001 OUR PROJECT 3 consider whether their leases will pay off, where with an appropriate balance of Western and lo- they will make their profits and how much in- cal specialists. DL Vostok has been able to se- come they will earn on their investments. cure funding from some major banks, which is extremely important for a leasing company in Russia, where finance is hard to come by. Final- Every time the IFC creates a new leasing ly, the company has been careful to tailor its ser- company, the other players on the market be- vices to the Russian market. It spent half a year gin to realize that leasing can be a profitable developing the basic structure of its lease agree- business. At the same time, we try to influence ments, putting together a solid insurance policy, the development of the market itself by push- working out agreements with its principal suppli- ing for legislative reforms. We also send a sig- ers and selecting its clients. All of these nal to potential investors that it is safe and painstaking preparations should soon begin to profitable to invest in this particular market - pay off. The company plans to expand its portfo- otherwise we wouldn’t be doing it ourselves. lio dramatically over the next six months. Karim, how does a company apply for IFC Could you give us some concrete exam- funding? ples of companies that the IFC has created? There is no standard application form. Anyone We have formed successful leasing compa- with a well thought-out plan and a desire to form nies in more than 60 countries. A prime example a new company, or to expand an existing one, is the Korean Development Leasing Company, can contact the IFC directly. This applies to both which has now become the largest leasing com- foreign companies and local ones. Applicants pany in South Korea. must tell us about their companies and their pro- posed projects, either by mail or in person. If a In Russia, the IFC helped form Deutsche project seems interesting, the IFC will ask the Leasing Vostok, together with Deutsche Leas- applicant to prepare and submit a detailed busi- ing, the fourth largest leasing company in Ger- ness plan for further consideration. many. Deutsche Leasing Vostok is the first uni- versal leasing company in Russia with a signifi- cant amount of foreign capital. Although the How exactly does the IFC decide which company is still young (it was founded in spring projects to finance? 2000) it has already achieved a certain measure of success for a variety of reasons. The project’s The review committee usually consists of an main sponsor, the DL Gruppe, has proven very investment specialist with considerable experi- effective. They have put together a strong team ence and a thorough knowledge of both finance In addition to leasing companies, the IFC also ernized, since a modern yogurt factory can use invests in industrial firms, banks and insurance only the highest-quality milk. Thus, during the companies. second stage of the project we helped modern- One example is the well-known yogurt com- ize and re-equip the local dairy farms. We did pany Campina. This project was developed in not begin working on the construction of the two stages. In February 1992, when the Dutch factory until we had already developed the lo- company Campina Melcuni decided to build a cal infrastructure. That took about one year. yogurt plant in the Stupino district of the The construction itself cost about 60 million Moscow Region, the IFC helped finance the guilders ($30m). Over the two-year term of the construction. However, before granting the loan, we helped modernize 12 local dairy loan, we required that the local farms that were farms, all of which continue to work with to supply the factory with milk be fully mod- Campina to this day. 4 OUR PROJECT March-April 2001 and local conditions, and an engineer with the tions to the IFC, which then decides whether to appropriate technical experience.