LEASING IS SIMPLE, LEASING IS PROFITABLE

 

Quite recently, Azerbaijan's economy has acquired a new financial tool, leasing, which is quite a new form of financing productive activity of enterprises and natural persons for their own and family needs.

Foreign companies' concern in this business component in Azerbaijan is not explained only by high growth rates of Azerbaijani economy. The point is that leasing schemes implementation calls for free financial resources. In conditions of Azerbaijan, the government, commercial banks or foreign entities can act as investors. The government is already allotting funds from the state budget to set up a leasing company for this purpose. A few more leasing companies have been established at support of commercial banks, but it is a difficult task for the young banking sector to attract considerable financial investments. One of promising forms of direct foreign investments is the international financial leasing. Parex Leasing & Factoring can serve as an example for such form of investment. The company has gained customers' trust and already secured its niche in Azerbaijan's market of leasing services.

 

According to the estimations of the International Financial Corporation, as of January 1, 2007 the total amount of leasing portfolio in Azerbaijan was 61.9mln manat ($70.5mln). Parex Leasing, Ata Leasing, Texnika Leasing, AGLeasing, Azerileasing, ILS Azerleasing, UniLeasing performed 787 leasing operations so far and they are currently implementing 33 projects in a total amount of 11mln manat. The active leasing portfolio of Parex Leasing & Factoring as of January 1, 2007 amounted to $19mln. Thus, the young company established in spring 2005 today controls more than a quarter of leasing service market in Azerbaijan.

It is quite hard to underestimate the role of leasing in Azerbaijan's economy. 383 new workplaces have been opened as a result of funded leasing-related projects in Azerbaijan, however 90 percent of performed operations are limited to Absheron economic area. Moreover, all running leasing companies render insurance for leasing items.

 

Ainis Soms, Director General, Parex Leasing & Factoring, is sharing with us his opinion on success in business: "First of all, Parex Banka (ultimate parent of Parex Leasing & Factoring) representative office has analyzed the market and we saw huge prospects and demand for our resources; and we received many requests from businessmen and well-doing companies concerning funding some projects that were very interesting by our criteria". Thus, Latvian companies in person of Parex Leasing & Factoring entered Azerbaijani market.

It was not by chance that Latvian company, Parex Banka AO, has chosen Azerbaijan for its representative office in Caucasian region. "Our financial analyses showed that Azerbaijan was the most attractive and loyal country, with interesting financial market and rapidly progressing economy", Mr Soms says, "We were the first Latvian investor in Azerbaijan's market. It was promoted by good and favorable economical and political relations between Latvia and Azerbaijan", Mr Soms outlined.

 

When Vaira Vike-Freiberga, President of Latvia, paid her visit to Azerbaijan in 2005, Parex had already had its representative office in Azerbaijan. In October 2006, President of Azerbaijan Ilham Aliyev visited Riga. "Friendly visits of country leaders were accompanied with business-forums with participation of businessmen from Azerbaijan and Latvia, many mutually beneficial contracts at governmental level have been signed and convention for avoidance of double taxation came into effect on January 01, 2007, which, in its turn, boosts development of business", Mr. Soms said, while speaking on positive aspects of cooperation.

Mutual visits at the high level are economically beneficial for both the countries. In particular, Parex Banka helped find expensive equipment for mineral resource industry and the only equipment of the kind is delivered to Azerbaijan through Parex Leasing & Factoring.

Parex Leasing & Factoring has already executed a number of contracts at the governmental level, in particular it funded governmental entities under the state program for cashless settlements and introduction of new manat. Latvian company participated in the program of creating salary accounts. "Under this program, we helped many banks purchase ATMs, and last year the company started paying salaries via use of plastic cards. We want to be up-to-date and even move ahead of time", Mr. Soms said.

"We came to the market partially upon our customers' request since we are there where our clients are", the head of Parex Leasing & Factoring underlined, saying ‘first of all, the company started working with well-doing legal entities that had a good business reputation in the market and displayed good financial indicators.'

 

In 2006 alone, Parex Leasing & Factoring signed more than 250 leasing agreements. The capital assets purchased with aid of Parex Leasing & Factoring in Azerbaijan by 2007 today amount to over $27mln. The company has 220 customers and 586 leasing units. In January 2007 alone 37 new contracts were signed with $1.6mln of Parex Leasing & Factoring's total participation. The company's active portfolio by the results of January 2007 amounted over $20mln.

"The monthly growth in $1mln for such a small company that celebrates its 2nd birthday on March 25 is more than enough, I think", Mr. Soms said. 

Today, businessmen collaborating with the company are already coming with a ready project and business-plan.

Since the company started its activity, a number of vendors have formed. They proved as professionals in delivery of specialized equipment such as construction equipment, etc.

 

"Large factories developing their dispatching delivery network and needing new commercial transportation of high quality are willing to collaborate with us", the head of Parex Leasing & Factoring outlines.

The company's personnel apply flexible approaches in solving all the tasks. Its specialists can provide business analysis for the customers and advice on right choice of services they need.

Despite increased interest to leasing deals, many people still are quite unclear of the principles practiced in leasing companies. Ainis Soms, Director General, Parex Leasing & Factoring, explained this situation in his interview with Caspian Energy.

 

Caspian Energy (CE): Why is it profitable to use leasing rather than crediting?

Ainis Soms, Director General, Parex Leasing & Factoring: First of all, to avoid client risking his financial resources. We agreed with all equipment vendors on the following terms: we open our customer a credit link in the bank and pay for the equipment upon its delivery to Baku on date of deal closing. None of market vendors could say our company has ever delayed payments. In our payments we are as accurate as a Swiss clock. For this reason we gained the respect of our customers. In the very moment we have paid for equipment or vehicles, we immediately hand over the leasing item to the client and it moves right into the business operation.  We minimize our customers' financial risks by avoiding advance payments. The goods shall be issued against money simultaneously. And vendors base their trust in us on their experience with us, although in the beginning they closely monitored our work. But any doubts in Parex in Azerbaijan's market vanished right after the first deal.

 

CE: Interest rates and loans play a large role in leasing. How do you sustain the market competition?

Ainis Soms: We think our interest rates are quite competitive in the market. We build our activities by finding suitable credit portfolio and fixed assets return schedule with each client behind the table with each individual client.

The clients pay only partially for the fixed assets, whereas our company is responsible for the major part of the resources. In other words, we provide guarantee and confidence to our clients in their business through enabling them to invest their short-term and floating assets in more risky projects, purchase raw stock and replenish these floating assets. In fact, we consider leasing resources long-term resources. So if the clients wish to upgrade or purchase new equipment, they can get the maximum result by taking minimum of their assets from circulation.

Today we can say with confidence that we can close a deal one percent cheaper than our competitors, but on a reasonable basis.

We can always come to agreement with businessmen as we did before. If over 580 units of new equipment in Azerbaijan were purchased with our assistance, it implies that businessmen would benefit from it.

In case the client invests all funds in purchase of permanent assets, he might face certain problems with future development of his business. Using our services, he does not stop progressing, but even speeds up. In the shortest time he purchases the required equipment which brings him extra profit.

There are situations when leasing terms do not suit the client, and we can advise him what can be used as collateral from the company's assets. As a result, following the leasing they get an opportunity to go to the banks and pawn their fixed assets against additional short-term credits. Moreover, we do not require any additional guarantee as leased car or any special vehicle itself is a guarantee item. That is, existing guarantees remain unburdened and the businessman still can obtain short-term credits in the bank to settle their problems.

Duration of a leasing agreement we offer is longer than that of a credit agreement. L easing interest rates are lower than those of a credit. Our cash assets are coming from Latvia. Actually, we purchase cash assets from our holding company (Parex Banka) and distribute them through leasing and working with local banks as each Azerbaijan-based entity.

 

CE: Does it mean that the company has no problems attracting financial resources?

Ainis Soms: The banks assets in amount of over €3bn prove that we have a plenty of financial resources. Parex Banka's subsidiaries, including leasing companies, are opened credit links from our holding company. As a private bank Parex Banka has a very high reputation among businessmen.

At present, we think we should face no problems with financing and it is the greatest advantage we have. We treat equally natural person purchasing an economy car to go to work or countryside at weekends, and a businessman addressing us to fund a project of few millions dollars.

We never told anyone that this amount is too high for us to be funded. At present, we don't have funding limits at all.