What are the sources of funding for the leasing company

Assignment Help Finance Basics

Reference no: EM131970666

Question: EQUIPMENT LEASING FOR BULGARIAN AGRICULTURAL BUSINESS

Farmers and businessmen in Bulgaria (EU) can lease equipment and pay for it over time instead of raising money up front to buy it, thanks to a public-private partnership of local and international financial companies.

Originally meant to help farmers obtain tractors and other equipment, the first leasing company in Bulgaria has also helped a dentist starting his own practice acquire dental equipment. It also helped a yeast company get packaging equipment to compete against imports. Loans are hard to come by in post-soviet Bulgaria. The lack of credit is a major brake on small and medium-sized companies struggling to take the place of failed, state-owned enterprises.

More than 20 separate leases - involving $1 million worth of equipment - had been signed as of October, 2008 by the UniCredit Leasing. The revenues generated from leasing equipment should eventually allow the business to run without donor subsidies.

ABC Leasing Company leveraged an additional $3 million in line-of-credit financing from the Credit Suisse Bank, The European Investment Bank (EIB), and the International Finance Corporation (IFC), which is the market-based lending arm of the World Bank.

Since the company buys equipment at a client's request, increased market demand, for tractors in particular, is reshaping the market. The first set of farmers who wanted to lease tractors preferred a Chinese tractor over the Czech model available on the local market.

Constructing the Deal:

Each party to the deal brought more than money to the table:

• UniCredit Leasing - Local knowledge, nationwide branch network

• Credit Suisse (Switzerland) - Extensive leasing experience through its leasing arm,

to leasing expertise, experience in emerging markets; also provides a line of credit for funding leases

• IFC - Experience in establishing leasing companies in post-soviet countries and other emerging markets; also provides a line of credit for funding leases

• ABC Leasing Company - Qualified client base that needed term funding for processing equipment and business vehicles.

The technical driver of the project was Credit Suisse, which conducted a market survey and more important, insisted that appropriate leasing laws be in place before it would invest and enter the market.

While a draft law on leasing was circulating, the law received little attention until the project was conceived. Once a financial package of $4 million of equity, loans, and technical assistance was lined up, and local authorities could see that a leasing company would be started if the law was passed, parliamentary consideration was quick. The lesson to be learned here is enabling environment activities are stronger done in parallel to a technical activity.

Update as of January, 2009: Lease contracts for a value of over $2 million were signed in 2009. Only

15% of the value was for agriculture and agri-processing equipment, because the 2008 cropping

season was missed because of the lack of equipment in the country. Our leasing company is now

assisting with the import of Chinese tractors.

Bulgarian Leasing Case Study Questions:

1. Why was leasing chosen as a financial intervention in Bulgaria? What constraints to finance existed in the market?

2. What preconditions needed to be addressed for the leasing company to be launched?

3. What are the sources of funding for the leasing company?

Reference no: EM131970666

Questions Cloud

What is the payback period : An investment project provides cash flows of $1,190 per year for 10 years. If the initial cost is $8,000, what is the payback period?

Securities market through the underlying assets : The corporations use restrictive covenants and the call features on bond issues to hedge against the loss on the bonds.

Explain five ways that the us income tax law would benefit : Write a three to five page research paper that highlights three to five ways that the U.S income tax law would benefit you if you were Starting a new business.

Calculate the cost of equity using the dcf method : Calculate the cost of equity using the DCF method. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places).

What are the sources of funding for the leasing company : What preconditions needed to be addressed for the leasing company to be launched? What are the sources of funding for the leasing company?

What is the correct closing entry for the expense accounts : The Retained Earnings account has a credit balance of $46,000 before closing entries are made. What is the correct closing entry for the expense accounts?

Find rate that you are to receive from floating rate payer : You entered into a swap 2.25 years ago that has semiannual payments. You are paying the fixed payment and receiving the floating payment.

What amount represents skinner basis in partnership interest : In return for a 20% partnership interest, Skinner contributed $5,000 cash and land. What amount represents Skinner's basis in the partnership interest?

How would you recommend that entrepreneur contact individual : An entrepreneur of a new venture has had no success in getting financing from formal venture capitalists. He now has decided to turn to the informal risk.

User Account

All Pages