Ahead of The Moscow Times conference "Leasing -- Additional Opportunities for Your Business", to be held on Friday, this is what industry experts, from Moscow to Vladivostok, had to say about the future of leasing in Russia.
How will the leasing industry develop in the near future?
What are the greatest opportunities and obstacles?
Yekaterina Lazorina, Partner, PricewaterhouseCoopers
The leasing market continues to gain momentum in Russia and it should continue to grow as long as there is overall economic growth.
On the one hand, leasing allows companies to free their financial resources and enjoy certain tax benefits, such as accelerated depreciation, greater flexibility in terms of their debt-to-equity ratio and increased balance sheet choice for the accounting of the leased assets.
On the other hand, leasing firms still frequently run into disputes with tax authorities. This is because of a lack of clarity in certain legal provisions or their unfavorable interpretation by the authorities. Some of these issues are being resolved in the draft amendments to the profit tax chapter of the Tax Code that will come into force on Jan. 1, 2006.
Oleg Rakitsky, Chief Executive Officer, DeltaLeasing (Vladivostok)
In Siberia and the Far East we are witnessing significant demand in such sectors as construction, wood processing, printing, food processing and water bottling, as well as transportation and logistics.
One of the biggest hurdles for the development of leasing is finding specialists in the field. Most new hires have to go through a substantial period of on-the-job training before they learn the peculiarities of this industry. Another problem is a lack of funding for lease projects.
According to various sources, less than 3 percent of capital expenditures in Russia are financed through leasing companies, and thus the growth opportunities are hardly limited at this moment.
Bob Wallingford, Tax Partner, KPMG, and Co-Chairman of? the American Chamber of? Commerce Leasing Committee
I would expect leasing to continue growing at a reasonable rate over the next one to three years but not to explode. In order for the sector to dramatically increase over the longer term, several issues would need to be resolved.
Firstly, leasing must provide greater security based on the leased asset. The key problem currently is that the leased asset does not provide sufficient additional credit protection to the lessor over other traditional loan financing mechanisms.
The next point is that current hindrances to leasing -- an unclear legal framework, difficulty of repossession, the uncertainty of the court system -- must be eliminated. There are continual tax and customs issues that arise and cause a lack of predictability for even standard transactions, such as VAT recovery, customs value or property tax.
Finally, leasing must be able to benefit from sophisticated financing structures -- in other words, securitization. Currently, many attorneys and tax advisers are considering ways to securitize financial assets, such as retail loans and lease receivables.
In general, I am bullish on leasing in Russia, but over the mid- to longer-term as the above hindrances and financing structures are ironed out.
Alexander Kozhevnikov, General Director, Avangard Leasing
The leasing market is set to see rapid annual growth -- if not by between 50 percent and 70 percent, then at least by a large double-digit percentage. This growth is inevitable as new sectors such as aircraft leasing are being drawn into the leasing loop. Last year, for example, we handled a leasing contract for 12 Boeing 757 aircraft.
Another big growth area is in the Russian railroads. We offered private operators the first railroad cars in 2000, and with Russian Railways entering the market, it saw a colossal boost. We're also seeing growth in energy; this really does need serious investment and the share of leasing in this sector could be very significant.
Yelena Kristoforova, Head of Logistics, Rosinter
At Rostik Group, we've been directly involved in financial leasing for equipment used in our restaurants, which comes mainly from overseas -- that equipment can reach up to 50 percent of the amount needed to open a restaurant.
Up to now, our license holders have mainly dealt with Russian leasing companies. But I think it's likely we'll start turning more and more to foreign leasing companies as this could save money.
If you consider that up to an estimated 80 percent of equipment in Russian industry needs to replaced, there is only one thing you can say: "Leasing will save Russia."
Mikhail Tkachenko, Deputy Director, Moscow Leasing Company
The share of leasing in fixed capital investment currently stands at around 6 percent, according to Russian experts, which is much lower than in developed economies. If you think about the current level of wear and tear on Russian production facilities, it's pretty clear that growth in leasing will outpace other Russian business sectors. I believe we'll also see growth in Russia's regions, particularly in agricultural and private companies.
As tax laws in Russia stand, leasing can offer a tax benefit for companies, although it's not always that significant or well defined.
Donald James Craig, Regional Director, Corporate Fleet Leasing
Leasing is becoming a recognized way of doing business in Russia as it is in most other parts of the world, although the risk of doing business is still a concern.
Previously, the most accepted form of leasing in Russia was what is considered pure financial leasing. As the leasing trend continues to develop throughout Russia, operational leasing is becoming a favored way of doing business, especially in the transportation sector.
Yelena Skrynnik, General Director of RosAgroLeasing, Chair of the RosLeasing Association
We expect the growth of new leasing deals to slow over the coming years. Annual growth in new contracts runs at between 40 and 50 percent at the moment. By 2008 the volume of leasing industry should reach $10 billion. The concentration of capital in the leasing market in sectors such as aircraft building, agriculture, railroad and transportation will increase. Leasing by small businesses will also develop more rapidly.
On the downside, tax and accounting practices still sometimes contradict leasing legislation and don't correspond to the practices in more developed leasing markets. Acute issues of getting back the leased property in case of breach of a contract and guaranteed collateral are not covered properly by legislation.
A safeguards system against the financial risks of leasing operations is not really being dealt with by the authorities.
How will the leasing industry develop in the near future?
What are the greatest opportunities and obstacles?
Yekaterina Lazorina, Partner, PricewaterhouseCoopers
The leasing market continues to gain momentum in Russia and it should continue to grow as long as there is overall economic growth.
On the one hand, leasing allows companies to free their financial resources and enjoy certain tax benefits, such as accelerated depreciation, greater flexibility in terms of their debt-to-equity ratio and increased balance sheet choice for the accounting of the leased assets.
On the other hand, leasing firms still frequently run into disputes with tax authorities. This is because of a lack of clarity in certain legal provisions or their unfavorable interpretation by the authorities. Some of these issues are being resolved in the draft amendments to the profit tax chapter of the Tax Code that will come into force on Jan. 1, 2006.
Oleg Rakitsky, Chief Executive Officer, DeltaLeasing (Vladivostok)
In Siberia and the Far East we are witnessing significant demand in such sectors as construction, wood processing, printing, food processing and water bottling, as well as transportation and logistics.
One of the biggest hurdles for the development of leasing is finding specialists in the field. Most new hires have to go through a substantial period of on-the-job training before they learn the peculiarities of this industry. Another problem is a lack of funding for lease projects.
According to various sources, less than 3 percent of capital expenditures in Russia are financed through leasing companies, and thus the growth opportunities are hardly limited at this moment.
Bob Wallingford, Tax Partner, KPMG, and Co-Chairman of? the American Chamber of? Commerce Leasing Committee
I would expect leasing to continue growing at a reasonable rate over the next one to three years but not to explode. In order for the sector to dramatically increase over the longer term, several issues would need to be resolved.
Firstly, leasing must provide greater security based on the leased asset. The key problem currently is that the leased asset does not provide sufficient additional credit protection to the lessor over other traditional loan financing mechanisms.
The next point is that current hindrances to leasing -- an unclear legal framework, difficulty of repossession, the uncertainty of the court system -- must be eliminated. There are continual tax and customs issues that arise and cause a lack of predictability for even standard transactions, such as VAT recovery, customs value or property tax.
Finally, leasing must be able to benefit from sophisticated financing structures -- in other words, securitization. Currently, many attorneys and tax advisers are considering ways to securitize financial assets, such as retail loans and lease receivables.
In general, I am bullish on leasing in Russia, but over the mid- to longer-term as the above hindrances and financing structures are ironed out.
Alexander Kozhevnikov, General Director, Avangard Leasing
The leasing market is set to see rapid annual growth -- if not by between 50 percent and 70 percent, then at least by a large double-digit percentage. This growth is inevitable as new sectors such as aircraft leasing are being drawn into the leasing loop. Last year, for example, we handled a leasing contract for 12 Boeing 757 aircraft.
Another big growth area is in the Russian railroads. We offered private operators the first railroad cars in 2000, and with Russian Railways entering the market, it saw a colossal boost. We're also seeing growth in energy; this really does need serious investment and the share of leasing in this sector could be very significant.
Yelena Kristoforova, Head of Logistics, Rosinter
At Rostik Group, we've been directly involved in financial leasing for equipment used in our restaurants, which comes mainly from overseas -- that equipment can reach up to 50 percent of the amount needed to open a restaurant.
Up to now, our license holders have mainly dealt with Russian leasing companies. But I think it's likely we'll start turning more and more to foreign leasing companies as this could save money.
If you consider that up to an estimated 80 percent of equipment in Russian industry needs to replaced, there is only one thing you can say: "Leasing will save Russia."
Mikhail Tkachenko, Deputy Director, Moscow Leasing Company
The share of leasing in fixed capital investment currently stands at around 6 percent, according to Russian experts, which is much lower than in developed economies. If you think about the current level of wear and tear on Russian production facilities, it's pretty clear that growth in leasing will outpace other Russian business sectors. I believe we'll also see growth in Russia's regions, particularly in agricultural and private companies.
As tax laws in Russia stand, leasing can offer a tax benefit for companies, although it's not always that significant or well defined.
Donald James Craig, Regional Director, Corporate Fleet Leasing
Leasing is becoming a recognized way of doing business in Russia as it is in most other parts of the world, although the risk of doing business is still a concern.
Previously, the most accepted form of leasing in Russia was what is considered pure financial leasing. As the leasing trend continues to develop throughout Russia, operational leasing is becoming a favored way of doing business, especially in the transportation sector.
Yelena Skrynnik, General Director of RosAgroLeasing, Chair of the RosLeasing Association
We expect the growth of new leasing deals to slow over the coming years. Annual growth in new contracts runs at between 40 and 50 percent at the moment. By 2008 the volume of leasing industry should reach $10 billion. The concentration of capital in the leasing market in sectors such as aircraft building, agriculture, railroad and transportation will increase. Leasing by small businesses will also develop more rapidly.
On the downside, tax and accounting practices still sometimes contradict leasing legislation and don't correspond to the practices in more developed leasing markets. Acute issues of getting back the leased property in case of breach of a contract and guaranteed collateral are not covered properly by legislation.
A safeguards system against the financial risks of leasing operations is not really being dealt with by the authorities.
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