Objects, analysis tasks and sources of information
Leasing is a profitable investment in material assets, an organization’s investment in part of the property, buildings, paving, equipment and other assets that have a tangible form, provided by the organization for temporary use (temporary possession and use) for the purpose of generating income.
As noted in Form No. 5 “Appendix to balance sheet“The article “Income-generating investments in tangible assets” reflects income-generating investments in tangible assets provided for a fee for temporary possession and use (under lease agreements, rental agreements, rental agreements) for the purpose of generating income.
In Section 3 of Form No. 5 “Appendix to the Balance Sheet” the following are highlighted as objects of profitable investments:
Assets for leasing;
Assets provided under a rental agreement;
Assets provided under a lease agreement.
The objects of analysis of leasing activities are presented in Fig. 14.1.
Fig. 14.1. Objects of analysis of leasing activities
The objectives of the analysis of leasing activities are:
justification of lease payment calculations;
determining the effectiveness of leasing from the lessor and the lessee.
To date, the regulatory framework for leasing activities is represented by the UNIDROIT Convention on International Financial Leasing (Ottawa, May 1998).
Sources of information when analyzing an organization's leasing activities are leasing agreements, the balance sheet asset item "Income-generating investments in tangible assets", accounts 02 "Depreciation of fixed assets", 03 "Income-generating investments in tangible assets", 20 "Main production", 45 "Shipped goods" ", 90 "Realization", etc., section "Income-generating investments in assets" of Form No. 5 "Appendix to the Balance Sheet", as well as accounting data for leasing operations carried out in accordance with the Temporary Regulations on Leasing, approved by the Decree of the Government of the Russian Federation dated June 29, 1995 No. 633 and Instructions on the reflection in accounting of transactions under a leasing agreement.
In the context of a radical change in business conditions, there has become a practical need to search for non-traditional methods of renewing the fixed capital of enterprises. The relevance of this problem is supported by four negative trends observed in the Republic of Belarus:
1. in the country's industry, the wear and tear of fixed production assets is growing at an alarming rate. Currently it ranges from 60 to 95%, which is a direct threat to the economic security of the country;
2. there is little activity in investing in fixed assets. It should be noted that a large share of investments (up to 40%) goes to the construction and reconstruction of social facilities, which does not participate in the reproduction process.
3. about 60% of all basic technologies used today in the economy of the Republic of Belarus were developed before 1990. Of the 6 thousand defining technologies used in the production of main types of products, 79% are traditional and only 15.8% are new and 5.2 % - high technologies, and the share of the latter is gradually decreasing;
4. The share of foreign investment in the total investment in the republic is about 4%, which is about $200 per capita (in Russia it is 5 times more).
Therefore, at this stage of development, it is extremely important to ensure high rates of investment in the renewal of fixed capital, especially in the production of export-oriented goods and services.
One of the promising forms of updating fixed capital in enterprises is leasing.
The first Belarusian leasing companies appeared under banks; the circle of their clients was limited to the same banks and a very small number of other organizations that were able to evaluate the effectiveness of leasing and take advantage of its benefits. Already at the first stages of their development, leasing companies felt the need to combine their efforts to introduce the Belarusian leasing market. Therefore, in 1993, companies such as Priorleasing, Dukat-Leasing, Lotos and other pioneers of leasing in Belarus established the Belarusian Union of Lessors."
Since this period, leasing in Belarus begins to actively develop. Independent leasing companies are appearing, and since 1996, leasing companies have been organized at manufacturing plants of cars, tractors, and machine tools. (MAZcontractleasing, MTZ-leasing, First Industrial Leasing Company and others). Currently, there are more than 40 leasing companies in the republic.
Currently, the leasing form of investment accounts for about 1% of the total amount of investment in the country. Structure of leasing objects: 45% – computers and office equipment, 34% – industrial equipment, 10% - cars, 11% - other equipment.
In parallel with domestic leasing, international leasing also developed. Since 1991, road trains began to arrive in the republic in the form of leasing. They were transferred to Belarusian automobile enterprises by leasing companies from manufacturing plants Mercedes, Renault, and then Volvo, MAN, Iveco, Scania, and DAF. Today, all European factories producing tractors and semi-trailers are represented on the Belarusian market, supplying vehicles on lease. In fact, a new industry has emerged - international transport, based mainly on leasing equipment. Currently, there are more than 4.5 thousand units of rolling stock on lease.
Since 1994, European companies have been leasing woodworking machines and light industry equipment. For the most part, these transactions are directly related to the organization of joint ventures or foreign ventures. A foreign investor, having deposited minimum size authorized capital, imports the bulk of investments into the republic in the form of leasing. Or, having leased modern equipment, a foreign enterprise enters into an agreement with the same lessee company to perform certain work on leased equipment from customer-supplied raw materials.
The significant role of leasing in the economic mechanism for updating fixed capital was emphasized in the National Program for Attracting Investments in the Economy of the Republic of Belarus, where the development of leasing was recognized as one of the main means of solving the problems of modernizing production in conditions of limited financial resources. The development of leasing services in Belarus will ensure an influx of capital into the production sector, create necessary conditions for the accelerated development of strategically important sectors of the republic.
Considering the economic essence of leasing, it should be noted that, although much experience in conducting leasing operations has been accumulated in world practice, there is still no consensus on its definition. One of the reasons for ambiguous interpretations of the concept of leasing is the complexity and inconsistency of the relationships between the contracting parties in the leasing transaction process. There are several points of view on the essence and origin of leasing. Some view leasing as a veiled way of buying and selling means of production or the right to use someone else’s property, others completely identify it with long-term or medium-term lease, others interpret leasing as a unique way of lending to investment projects, and others consider leasing as an opportunity to manage someone else’s property on behalf of the principal. Such different points of view on the economic essence of leasing are caused by the complex, ambiguous content of leasing operations, differences in legal systems, accounting and reporting, and taxation in different countries.
Leasing activities– activities related to the acquisition by one legal entity of a leased asset for its own or borrowed funds into ownership and its transfer to another business entity for a period and for a fee for temporary possession and use with or without the right of redemption. Leasing activities in the Republic of Belarus are not licensed.
Leasing is a complex of property and economic relations agreements arising between legally independent persons regarding the transfer of property for temporary use for an appropriate fee, as well as financing the acquisition of movable and immovable leased property. Leasing is seen as an alternative, on the one hand, to capital investment, and on the other, to financing. Leasing company actually credits the lessee, therefore, along with the term “leasing”, the concept “loan - lease” is sometimes used. Unlike a sales contract, under which ownership of a product passes from the seller to the buyer, when leasing, ownership of the object remains with the lessor for the entire term of the contract, and the lessee acquires it only for temporary use for the purpose of production use.
The uniqueness of leasing compared to other forms of fixed capital renewal is the combination of elements of investment, credit and trade operations. The lessor can purchase the leased object at the request and in the interests of the lessee, and the lessee, at the end of the contract, can buy the property at its residual value.
There are also differences between leasing and commercial loans. First of all, this is explained by property relations. In commercial lending, the buyer's ownership rights arise from the moment the item is transferred. When leasing, the right to use property is separated from the right to dispose of it. Only in certain cases, after the end of the leasing period, can the lessee's right to purchase the leased object and, accordingly, transfer ownership of it be provided. Although a commercial loan, like leasing, presupposes a relationship between trade and credit transactions, in the first case the credit transaction is conditioned by the act of purchase and sale, i.e. it exists because there is a trade transaction. With leasing, there is no such close direct relationship. A commercial loan is short-term in nature, while leasing implies a long-term relationship, although medium- and short-term transactions are not excluded. Thus, a feature of this stage of leasing development in the Republic of Belarus is the predominance leasing transactions concluded for short periods (3 – 5) years. Another difference between leasing and commercial credit is that leasing is carried out in commodity form, but is returned in commodity or monetary form, while a loan is provided and returned in monetary form.
Leasing, as an alternative form of lending, increases competition between banks and leasing companies, has a lowering effect on loan interest, which, in turn, stimulates the influx of capital into the production sector.
Leasing deal– a set of agreements necessary for the implementation of leasing between the lessor, the lessee and the seller (supplier) of the leased asset. The leasing transaction, in addition to the leasing agreement itself, may include an agency agreement for selecting an equipment seller and finding an additional lender, an insurance agreement, an agreement for the delivery, installation and maintenance of equipment and other necessary services. These agreements are concluded both between the participants in the leasing transaction and with third-party companies involved in this.
Object of leasing This may include any movable and immovable property related to fixed assets, as well as software and working tools that ensure the functioning of leased fixed assets. The object of leasing cannot be property used for personal (family) or household needs, land plots, other natural objects, as well as other property in accordance with the law.
Subjects leasing are the lessor, the lessee, and the manufacturer of the leased object. The lessor is a business entity that is the owner of the leased object and provides it for leasing. A specialized leasing organization (firm) can act as a lessor. Leasing companies can be subsidiaries of commercial banks and large industrial enterprises.
Lessee- a party negotiating with the lessor, vested with the right to own and use the leased object within the limits established by the leasing agreement. The user can be all business entities. Enterprises, organizations and other business entities engaged in the production or sale of inventory items act as the manufacturer of the leasing object. These are the so-called suppliers of transaction objects.
Lessors, lessees, manufacturers - suppliers – direct subjects of the leasing transaction. Indirect participants in the transaction There may be banks lending to the lessor and acting as guarantors of transactions, insurance companies, brokerage and other intermediary firms. In large transactions, the number of participants increases to 6 - 7. The composition of participants in a leasing transaction is significantly reduced if the supplier and the lessor are the same legal entity. In such cases, leasing issues are dealt with by branches of leasing companies created by goods manufacturers as subsidiaries, or branches specially created to promote goods on the market through leasing, or special divisions within manufacturing enterprises (marketing services).
For a manufacturer (supplier), leasing means accelerating the sale of products, bringing them to the consumer, and receiving payment; for the lender (leasing company) - a source of income in the form of amounts from the sale of leased property to the lessee and various types of commissions for services. The lessor is usually insured against risk, since in order to pay off obligations he can take away the property, lease it to another person or sell it.
Main advantages of leasing:
The ability to use the leased asset without significant initial investment. The client pays only the advance amount if it is provided for in the contract, and makes the remaining payments periodically throughout the entire term of the contract;
At the end of the leasing agreement, the lessee has the opportunity to purchase the leased object at a small residual value;
Leasing payments are included in the cost of products (works, services), which reduces taxable profit;
Leasing financing improves financial flows by leaving credit lines free;
Property acquired under a leasing agreement is collateral for the leasing transaction, therefore, unlike a loan, an enterprise, as a rule, does not need to assume additional collateral obligations;
The leased object is not subject to revaluation during the term of the contract;
The lessee independently selects the leasing object and the equipment seller, takes part in all stages of the transaction between the lessor and the seller;
Allows you to avoid losses associated with the obsolescence of machines and equipment, and to use the latest achievements of scientific and technological progress in production;
Preserves (maintains) balance sheet liquidity. With leasing, unlike a bank loan, there is virtually no increase in the lessee's obligations (decrease in liquidity) when purchasing machinery, equipment and other property;
Concluding a leasing agreement is also possible in case of financial difficulties, since the amount of the leasing fee is relatively small in relation to the amount of the entire leasing transaction. Payments are not made at once, but in installments at the agreed time;
The risk of loss or damage to leased property usually lies with the owner, i.e. the lessor, and maintenance and repair of equipment (machines, mechanisms) can also be carried out by the lessor;
Enables small businesses to use expensive equipment;
The lease payment is made after the equipment is installed and reaches the appropriate performance.
Relations regarding leasing between its subjects are determined by a leasing agreement (contract). A leasing agreement is an agreement between the lessor and the lessee establishing the rights and obligations regarding the acquisition by the lessor of the leased object specified by the lessee from the seller (supplier) determined by the latter and the provision of the leased object to the lessee for a fee for temporary possession and use with or without the right of redemption.
The leasing agreement must specify:
Parties to the contract;
Type of leasing;
The object of the leasing transaction (determination of its qualities according to technical documentation or individual characteristics, the presence of an owner);
Duration of the contract (its beginning and end);
Rights and obligations of the parties, including the limits of the user’s rights to the leased object, obligations to make lease payments, possible options possession of property at the end of the leasing period, user liability for failure to fulfill or improper fulfillment of obligations, including for causing harm to the leased object; assignment of rights taking into account the interests of the lessor and other conditions;
Terms of leasing and commission payments: their form, size, method and terms of payment;
Ensuring the fulfillment of obligations (pledge, insurance, surety, guarantee);
Procedure for terminating the contract.
When carrying out leasing operations, one cannot ignore the risks associated with them, such as the creditworthiness of business entities; changes in tax deduction rates, poor quality use of the object, its damage, accidental destruction, loss, unjustified transfer of the object to a third party, etc. Taking into account the degree and nature of the risk, the agreement must stipulate which risks are assigned to the lessor and which are assigned to the lessee, their measures of responsibility. The leasing contract may be terminated early, for example due to non-payment of payments, etc.
Leasing contracts reflect the typical distribution of interests between the lessor and the lessee. The partners' interest in a contract with partial amortization of the lease without full payment of the costs of acquiring or manufacturing the leased object (operational leasing) is due to the following circumstances.
For the lessee:
Lower payments during the main leasing period;
Efficiency in changing the leased object;
Sometimes unfavorable conditions due to increased risk for the lessor.
For the lessor:
Less depreciation during the main leasing period;
The risk of non-reimbursement of costs during the entire period of leasing the property;
Less chance of generating income through the sale of property or extension of the lease term;
Higher fee for leasing an object.
The interests of partners in a contract with full depreciation (financial leasing) are as follows.
Lessee:
A good opportunity to adapt the duration of the contract to the economic period of use of the object;
No problems in use at the end of the main lease of equipment (purchase, lease extension, etc.);
Reducing the chances of contract termination.
Lessor:
Reimbursement of funds during the main leasing term;
Increased chances of receiving additional income after the end of the leasing period (sale of the property).
Leasing is advisable only if it is equally beneficial to both the lessor and the lessee. This circumstance requires careful development of leasing conditions in relation to each specific case. The decision-making process on leasing takes place in a certain sequence (in stages), each subsequent stage involves making a decision at the previous stage by both the lessor and the lessee. The conclusion of a leasing contract can be represented as follows:
| Lessee | Lessor |
| First stage | |
| Capital investment growth planning | Establishing contact with the lessee |
| Checking all financing alternatives | Preliminary verification of the lessee as a potential partner |
| Studying offers from a number of lessors | Answers to requests from the lessee |
| Clarifying inquiries to lessors | Offer several leasing models for a partner |
| Second stage | |
| Making a decision on delivery terms, price, installation costs of the leased object | Providing consultations on the leasing object |
| Proposals for the lease payment formation model | |
| Third stage | |
| Drawing up a contract and signing it | |
| Fourth stage | |
| Checking the received leased object | Delivery of the object to the lessee |
| Confirmation of acceptance of the object (the contract period begins) | Payment of supplier invoice |
| Fifth stage | |
| Contract maintenance | Evaluation of leasing contract performance |
| Sixth stage | |
| Deciding whether to terminate or extend a contract | Determination of residual leasing value |
Information and financial flows of a leasing transaction are presented in Fig. 14.2.
 |
Rice. 14.2. Information and financial flows of a leasing transaction
When determining the validity period of a leasing agreement, a number of points are taken into account:
The service life of equipment, buildings, structures, determined by technical and economic data or by law. The leasing term cannot exceed the period of possible operation of the leased object;
The depreciation period of the leased asset, its initial cost;
Inflation dynamics affecting the price of the leased object and the amount of lease payments;
Conditions of the leasing capital market (demand, supply, payment);
Conditions for bank lending, including leasing operations.
If we consider the types of leasing, then their number in international practice reaches 50. Leasing is classified according to various criteria: the composition of participants, the type and degree of payback of the leased property; volume of servicing of the leased object; market sector; type of financing, etc.
The systemic classification of leasing forms is presented in Table 14.1.
Table 14.1. Classification of leasing forms
| Classification feature | Feature content |
| By composition of participants | Direct leasing Indirect leasing Return leasing Group leasing |
| By degree of payback | Financial leasing Operational leasing |
| By type of rental property | Leasing of movable property Leasing of real estate |
| By volume of service | Clean leasing Wet leasing |
| By market sector | Internal leasing International leasing(export and import, transit) |
| According to depreciation terms | Leasing with standard depreciation Leasing with accelerated depreciation |
| By method of replacing the leased object | Term leasing Renewable leasing |
| By the nature of leasing payments | Leasing with cash payment Leasing with payment compensation in goods or services Leasing with mixed payment |
With direct leasing, the owner of the property independently leases the object (a two-way transaction); with indirect transfer of property occurs through an intermediary (supplier - lessor - lessee).
The largest producers Providing their products on direct leasing terms are such well-known companies as IBM, Hegoch, as well as many aviation, shipbuilding and automobile companies. For example, the leaders of the global automobile market - the Daimler-Chrysler and BMW concerns - are the founders of a number of leading leasing companies through which they sell their products in many countries around the world.
In large, complex transactions, the number of participants may increase. In group leasing, when leasing large-scale objects, several companies act as the lessor, including manufacturing companies together with a leasing company or bank. General leasing gives the lessee the right to supplement the list of leased equipment without concluding additional contracts in addition to the main one.
The essence of the leaseback operation is that the owner of the property sells it to a leasing company and then leases it, i.e. becomes a lessee. This form of leasing is used in cases where the owner of the property is in need of funds. Such a transaction allows the enterprise to receive funds through the sale of means of production without ceasing their operation. The released funds can be used for new capital investments or to replenish your own working capital. Manufacturer leasing (supplier leasing) is an operation in which the lessor finances a manufacturer performing two functions - the seller of the leased object and the lessee with the right to subleasing. The seller of the equipment becomes the lessee, as in leaseback, but the property is not used by him, but by other business entities whom he finds and subleases to them the object of the transaction.
Depending on the characteristics of the leased object, there are leasing of movable and immovable property. Leasing of movable property is the most common. It covers a wide range of objects, such as vehicles, construction equipment, production equipment, mechanisms, instruments, television and remote communications, computer technology and information processing, licenses, know-how, computer programs etc. The objects of real estate leasing are administrative and industrial buildings, large stores, garages, etc.
Real estate leasing operations are the most complex due to the rather long period and large contract amount. The principle of the transaction can be represented as follows: the acquisition by a leasing company of a production facility or participation in its construction for further leasing to enterprises. Given that construction takes a long period of time, the tenant company, under the terms of the contract, can make an advance towards future leasing payments.
Property that has already been in use can be leased, but not at its original value, but at its estimated value. This benefits both the supplier and the user. The supplier receives income from property that is still usable but currently idle; the user may be attracted by its relatively low cost.
For renewable leasing There is a periodic replacement of previously leased equipment (machines, mechanisms) with more advanced models. This model can be common, for example, in computer leasing, where the time before new, improved modifications appear on the market is short.
At operational leasing the property is transferred to the lessee for a period significantly less than its standard service life. This type of leasing provides compensation to the lessor for the cost of the leased object in the amount of less than 75% of its original cost during the leasing agreement. Upon expiration of the operational leasing agreement and the lessee paying the lessor the established amount of payments for the use of the property, the leased object, as a rule, must be returned to the lessor.
Operating leasing is a leasing relationship in which the lessor's expenses associated with the acquisition and maintenance of leased property are not covered by leasing payments during one leasing contract. Characteristics operational leasing are:
The lessor is forced to lease the leased property for temporary use several times, usually to different users, in order to reimburse all its costs for the acquisition and maintenance of the leased object;
The contract is concluded for a period less than the period of physical wear and tear of the equipment;
The risk of damage, loss of the leased object, rapid obsolescence lies with the lessor;
The lessor purchases equipment without knowing the specific lessee; the object of leasing is the most modern and popular machines and equipment;
Leasing companies usually insure the property leased under operational lease and provide its maintenance and repair.
In operational leasing, the lessor is an investor, bears the risk of recoupment of investments, and the lessee only uses them.
Financial leasing is characterized by the fact that for the lessor the period for which the property is transferred for temporary use coincides in duration with the period of its full depreciation. In this case, the entire scope of responsibilities for insurance, maintenance and repair rests with the user of the property. During the term of the contract, the lessor returns to himself at least 75% of the original cost of the property, regardless of whether the transaction is completed by purchasing the leased object, returning it, or extending the lease agreement on other terms.
Characteristics of the features of financial leasing are shown in Fig. 14.3.
 |
Rice. 14.3. Characteristics of financial leasing features
"Pure" leasing provides that the main responsibilities associated with the operation of equipment and other leased items fall on the lessee. He pays taxes, fees, insurance and bears all expenses associated with the use of the equipment. The lessee is obliged to keep the equipment in working order and maintain it so that even after the end of the lease period it is in good condition. Full service leasing provides for a full range of services provided by the lessor: maintenance of the leased property; research prior to purchasing equipment; supply of spare parts for the leased item; consultations on operation, etc.
Leasing with a partial set of services assumes that the lessor is assigned only certain functions for servicing the leased property ("wet leasing"). Typically, such leasing is used for high-precision, latest equipment, complex machines and mechanisms.
Internal leasing– a financial transaction in which the leasing subjects are located on the territory of one state; international – a lease agreement for international valuables, property between leasing subjects located in different countries. We can also talk about international leasing if the subjects of the leasing transaction are located in one country, but at the same time use the material assets of another country, or at least one of the parties builds its activities and has joint capital with a foreign company.
If a leasing company purchases equipment or machines from a national manufacturer and then sends them abroad to a foreign user (lessee), then this operation is called export leasing. Import leasing is a financial transaction in which the manufacturer is located in the territory of a foreign state and leases an object to a non-resident. International transit leasing is a financial transaction in which all leasing entities (manufacturer, lessor and user) are located on the territory of different states.
International leasing affects the state of the country's balance of payments. Leasing payments paid to foreign leasing companies increase external costs, and their receipts have a positive effect on the balance of payments. Purchasing property after the end of the leasing agreement is tantamount to import.
Leasing as a special area of business activity, widespread abroad, is currently being developed in the Russian Federation. For Russia, leasing activity is new. After Russia became part of the world economy, leasing appeared here too. If actively implemented, leasing, due to its inherent capabilities, can be a powerful impetus for the technical re-equipment of production, structural restructuring of the Russian economy, and saturation of the market with high-quality goods.
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Introduction
Chapter 1 Economic content of leasing
Prerequisites for the emergence of leasing
Economic essence of leasing
Leasing classification
Peculiarities of using leasing in Russia. Market overview
Chapter 2 Leasing mechanism
Main elements of the leasing mechanism
Leasing payments
Methods for determining the amount of leasing payments
Chapter 3 Analysis of the enterprise’s activities and development paths of Simpak LLC
3.1 Description of the enterprise
3.2 Product analysis
3.3 Monitoring and market development trends
3.4 Organization of production
3.5 Main problems and ways to solve them
Chapter 4 Use of leasing in the activities of Simpak LLC
4.1 Subject of leasing
4.2 Lessor and leasing conditions
4.3 Insurance of property leased
Chapter 5 Assessment of the economic effect of using leasing in the activities of Simpak LLC
Chapter 6 Environmental and legal basis for the activities of Simpak LLC Conclusion
List of sources used
Introduction
The transformation under the influence of scientific and technological progress in the sphere of production and circulation, profound changes in the economic conditions of business, necessitate the search and implementation of non-traditional methods for the economy of our country for updating the material and technical base and modifying fixed assets of subjects of various forms of ownership. One such method is leasing.
Until the early 60s, leasing in foreign countries mainly affected retail companies, which often rented their premises. Leasing has exploded in popularity over the past three decades; Instead of borrowing money to buy a computer, car, boat or satellite, a company can lease it.
The relevance of leasing development in Russia, including the formation of a leasing market, is determined primarily by the unfavorable state of the equipment fleet: significant specific gravity obsolete equipment, low efficiency of its use, lack of spare parts, etc. One of the options for solving these problems may be leasing, which combines all elements of foreign trade, credit and investment operations.
Work published
Sergey Kalinin credit analyst of the risk management department
Daniil Amambaev credit analyst of the risk management department
REGION Group of Companies
Information and analytical magazine “Territory of Leasing” No. 2 for 2013
For the first time, leasing companies entered the Russian bond market in 2001. The role of the pioneer was played by the captive company OJSC Rostelecom, which at that time occupied a leading position in the market, the captive company OJSC Rostelecom, whose financial indicators were better than the industry average. The company managed to place a bond issue of 500 million rubles by public subscription.
Current state of the leasing company bond market
Since 2001, there has been a noticeable increase in the volume of the bond market for leasing companies (Fig. 1)
However, comparing the levels of development of the leasing business in Russia and the debt securities market of companies in this segment, we can confidently state the insufficiency of the latter.
The share of funds received from the placement of bonds in the total resource base of leasing companies is about 5%. In the markets of the USA, Canada, Western Europe this figure is much higher – 12–15%.
Today in Russia there are 70 issues of debt securities of leasing companies in circulation, and since the birth of this market in our country, 32 issues have been redeemed, 6 issues have been cancelled, and the issuer has defaulted on four more.
Another quantitative aspect is also important: only 5% of total number existing leasing companies decided to issue bonds. Among them, 80% of the volume of placed securities falls on VEB-Leasing, VTB Leasing, TransFin-M and URALSIB Leasing Company, the remaining 20% - on another 10 companies (Fig. 2). Average term circulation of issues – 5.1 years.
Key aspects of issuing debt securities by leasing companies
The primary and perhaps most significant purpose of issuing debt securities by leasing companies is to increase flexibility and agility. In the case of credit financing, lease payments must be strictly synchronized with the repayment of the loan principal and interest, and the terms of transactions must be comparable to funding. When entering organized debt markets, the need for synchronization disappears.
A company, having received 3–5-year resources from a bond placement, has a certain “freedom” in choosing the duration of the contract, as well as approaches to assessing the credit capacity and solvency of a potential lessee, since there is no need for an assessment of the project by the bank lending to the transaction. This allows you to shorten the period for reviewing the project and making a decision on it.
An important aspect is the cost of resources. For borrowed funds, it is often higher than the yield on bonds. Thus, leasing companies have the opportunity to either increase marginal income or place more profitable offers on the market, not to mention the fact that more expensive loans can be refinanced with resources from bond loans. Another degree of freedom is that the leased property will not be encumbered with bank collateral.
Difficulties in leasing companies entering the public debt market
But there are a number of significant obstacles on the way of a leasing company to the public borrowing market. Firstly, preparing a bond issue requires certain knowledge, skills, qualified specialists and administrative resources. Secondly, when entering the public debt market, it is necessary to demonstrate a high degree of transparency, disclosing not only reporting data, but also the volume and quality of the leasing portfolio, which is often one of the main limiting factors.
In addition, when assessing a company, potential investors do not ignore the level indicators equity and volume of the leasing portfolio, quality of risk management, business direction, position in the industry.
Leasing company valuation standards
Due to the complex specifics of business, it is more problematic to objectively evaluate a leasing company than other participants in the debt market. And if the qualitative indicators of its activities are more or less “available” to investors, then certain difficulties arise with the quantitative ones.
First of all, this is due to imperfections in reflection regulation current activities in reporting documents. Difficulties in valuation arise due to the fact that there are several different types of leasing, and, accordingly, there is diversity in the ways of displaying leasing transactions in financial statements companies according to IFRS, GAAP (USA) and especially RAS. IFRS and RAS have qualitative differences both in terms of disclosure of financial information of leasing companies and in the financial settlement system.
In the RAS standard, the structure of balance sheet items is determined in accordance with the terms of the leasing agreement and the balance holder of the asset, which can be either the lessor or the lessee. In fact, the balance sheet according to Russian standards does not reflect what is happening and does not give a real picture of the company’s activities in this market. The main problem with the reports of leasing companies under RAS is the failure to disclose the structure of the leasing portfolio, its credit and market quality, liquidity and the volume of overdue payments. It is worth noting that there is no separate PBU that would regulate accounting in leasing companies.
As for IFRS, IAS 17 “Leases” fully provides the necessary data. Unlike RAS, property leased can only be reflected on the balance sheet of the lessee. The structure of international reporting allows you to see a wide range of indicators. So, for example, as part of the assets of a leasing company, you can highlight the item “Net Investment in Leasing” (NIL), which shows the present value of future leasing payments. Financial statements disclose information about the credit quality of the portfolio, accounts receivable and overdue payments. Reporting made on the basis of international standards is more informative and allows a more objective assessment of the company.
However, only 24 companies in Russia prepare audited statements according to IFRS standards, and only eight companies - leaders in this business - publish them. The unpopularity of IFRS reporting is due to the reluctance to disclose the real financial condition of companies and the additional costs associated with its preparation. At the same time, this behavior of Russian leasing companies is largely explained by the fact that today they are focused primarily on credit resources of the domestic market.
However, serious progress on this issue is possible in the near future. In accordance with the Plan of the Ministry of Finance of the Russian Federation for the development of accounting and reporting in our country for 2012–2015. a number of Russian accounting rules (PBU) will be replaced by new federal accounting standards developed on the basis of international standards. This reform will affect all Russian organizations, including leasing companies. According to paragraph 6 of this document, the complete transfer of individual reporting to IFRS should be completed by 2015–2016.
However, even in the current situation, it is possible to objectively evaluate the activities of a leasing company. This requires a detailed analysis of the market and credit risks of a reliably disclosed leasing portfolio. However, in practice, the provision of this information is a rare “event”.
Criteria for evaluating a leasing company
In this regard, we have identified a group of financial indicators that are worth paying attention to when analyzing a leasing company in order to purchase its bonds. They can also be used when considering the issue of lending.
These indicators include:
- The level (adequacy) of equity capital is calculated similarly to banking N1. Leasing activities are in many ways similar to banking and are based on the principle of “raising resources at lower rates, placing them at higher rates.” It is logical to assume that the equity indicator not only reflects the scale of the business and the seriousness of the shareholders' intentions for its development, but also the ability to cover obligations in the event of a default on part of the assets at risk (NIL). Speaking about the level of sufficiency, we note that the banking regulator (Bank of Russia) sets the bar for credit institutions at no lower than 10%, while the Basel 3 BC standard provides for at least 8% without taking into account the reserve.
- Covering short- and long-term financial obligations, taking into account the cost of resources, with leasing payments (leasing portfolio). A time-standardized indicator will be more informative, but the possibility of ranking will arise in the event of disclosure of data on the company's cash flow (CF) or high-quality deciphered IFRS reporting. When calculating it, it is necessary to take into account various nuances, for example, VAT on purchased assets or the amount of advances received from lessees, etc. From our practice, the minimum value of the indicator is about 1.07.
- The portfolio delinquency level is the share of late payments in the total portfolio. Due to the constant change in the volume of the leasing portfolio, this indicator should be considered in dynamics. Data from the analytical agencies research we use indicate that the range of values for the level of overdue “outside of a crisis” is from 0.5 to 3% of the total portfolio; during a crisis, it expands to 9%. Upper limit the indicator usually reaches in the post-crisis period. It is at this time that the maximum number of defaulters is present in the portfolio, and its growth due to new business does not occur.
There are other parameters that fall into the auxiliary category, but their weight in the overall assessment is less. These include return on assets, equity and invested capital, weighted average cost of borrowed funds, and financial leverage. A number of other criteria can be included in this group, but our practice shows that they have little effect on the overall assessment.
Approaches to determining the credit capacity of a leasing company
There are several approaches to determining the volume of credit capacity of a leasing company from the point of view of investors in the bond market, namely setting a limit:
- by scale of activity, taking into account revenue, balance sheet currency with subsequent adjustment for credit quality;
- by liquidity and portfolio size, the basic principle of which is similar to the principle of calculating the limit for the purpose of portfolio securitization;
- based on the volume and liquidity of the issuer's debt securities.
But one of the most rational approaches, in our opinion, is to determine the credit capacity limit based on the equity capital adequacy ratio. Thus, we are able to calculate the amount of investment in a leasing company by which it will be able to increase its working assets without going beyond the equity capital adequacy ratio. The next step in this approach is to determine the “risk appetite”, i.e. the amount of funds from the received estimated credit limit that the investor is willing to invest in the issuer’s bonds, taking into account the market characteristics of the securities (yield, duration, availability of an offer, liquidity) listed above credit quality indicators and, of course, subjective expert opinion.
In Russian legislation, accounting in leasing companies is regulated by the Order of the Ministry of Finance on the reflection in accounting of transactions under a leasing agreement (Order of the Ministry of Finance of the Russian Federation dated February 17, 1997 No. 15).