Leasing of the middle level – Newspaper Kommersant No. 50 (7495) dated 03/24/2023
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After the outbreak of hostilities in Ukraine, the Russian leasing market has changed dramatically. Foreign players left it en masse, and logistics was completely rebuilt. But unlike many other segments, where the role of the state increased in 2022, in leasing the business of foreign players was picked up primarily by private investors. The reason was not only discounts and the reluctance of Western shareholders to interact with government agencies, but also the prospects for the development of small and medium-sized businesses, in which small players can really compete with the largest market participants.
Life after downtime
The events of 2022 had a negative impact on the Russian leasing market, as well as on many other segments of the economy. According to Expert RA, the volume of new business decreased by 13%, to 1.98 trillion rubles. According to the results of the year, both the corporate (by 31%, to 354 billion rubles) and retail segments (by 8%, to 1.626 trillion rubles) showed a fall. The number of transactions decreased for the first time since 2015, amounting to 340 thousand (see Kommersant on March 20).
In addition to logistical problems common to any business in Russia and difficulties in making payments, companies faced a shortage of leased items and could not meet demand (see Kommersant dated January 25, 2023, December 1, 2022). The turn to eastern producers was more difficult than expected, including due to longer logistics (see Kommersant dated July 27, 2022).
At the same time, the work of leasing companies with foreign capital was limited or even completely frozen, which, according to Expert RA, accounted for 10–15% of the Russian market in 2021. We are talking, for example, about captive leasing structures of foreign manufacturers of cars, special equipment and equipment, which specialized, with rare exceptions, in leasing goods from parent companies that funded them.
In particular, the Siemens concern, most European automakers (Renault, Volkswagen, Mercedes, BMW), manufacturers of trucks and special equipment (John Deere, Scania, Volvo) and others had their own leasing companies.
However, the assets themselves did not become worse due to political complications, and in the second half of the year, mergers and acquisitions intensified on the leasing market (see Kommersant of January 31). Last fall, the Insight investment group acquired for 52 billion rubles. leasing company Siemens Finance (now Deltalizing). At the beginning of 2023, the same group bought John Deere Financial, and AvtoVAZ bought RNL Leasing (in fact, as part of the acquisition of the Russian business of Renault-Nissan, including RN-Bank). Russian investors bought foreign players whose business could be restored under the new conditions or who looked like a good portfolio investment.
There is another strategy option – to intercept the business of a “frozen” competitor. For example, Rosbank Leasing was able to lure “qualified personnel and quality clients” from its closest competitors, who do not sell the business, but stopped the conclusion of new leasing agreements, Raiffeisenbank and Unicredit Bank, said Guram Kudryavtsev, CEO of the company.
Consolidation of the industry also took place through purely domestic transactions. So, Alfa-Leasing in November bought the regional Expert-Leasing, which specializes in construction and special equipment (see Kommersant dated November 7, 2022).
Until the end of 2023, market participants expect several more transactions, including large ones. Among the most likely contenders, Kommersant’s sources name the Insight group, Expobank, and Interleasing.
At the same time, leasing companies that are part of large state-owned banking groups hardly participate in the redistribution of the market. “Leasing companies leaving the market, as a rule, did not sell the business, which was largely associated with the equipment of their brands, but the retiring portfolio,” VTB noted. The volume of the portfolio of leaving companies could hardly be of interest to leasing GPB, VTB or Sberbank, one of Kommersant’s interlocutors agrees. The opportunity for them to integrate new leasing companies into current business processes also raises doubts, Sergey Savinov, General Director of Interleasing, believes.
Risks of buying and selling foreign assets
For a foreign seller of a leasing company, the risks are associated primarily with possible changes in regulation in the Russian Federation. So, in December 2022, an additional tax to the budget and an agreed KPI for the acquired company appeared. This not only complicated the approval process, but also reduced the price of assets, explains Evgeny Penkin, director of Salyut Advisory. In addition, there is always a risk that the agreed buyer will be included in the sanctions lists during negotiations or immediately after the signing of documents, but before payment, Mr. Penkin notes. Buyers also bear the risk, he adds: “In such transactions, there are limited representations and warranties on the part of the seller. Accordingly, any risks associated with the business, the tax policy of the previous owner, become the risks of the buyer.
Financial risks at the same time look less threatening. “All such transactions take place with the permission of the Central Bank or the government of the Russian Federation. And this permission implies consent both to the transaction itself and to sending money to the counterparty, ”the expert notes. On the territory of unfriendly states there are restrictions on the movement of money of Russian origin. But the European sanctions directive contains a clause that the restrictions do not apply to Russian subsidiaries of European companies. “Accordingly, the Russian leasing subsidiary, after the approval of the transaction by the Russian government, receives funds from the transaction from another Russian legal entity. The funds then go to the parent company. In this case, funds do not fall under any restrictions,” explains Anton Krivozubov, head of Baltic Bridge AB.
Speed and simplicity are more important than money
What the Russian leasing market will look like as a result of perestroika, neither its participants nor experts can yet predict. “It is difficult to talk about the plans for the development of leasing companies, they have not been announced by anyone (about the plans of the Insight group see interview.— “b”), but the new owners will in any case be responsible for fulfilling the obligations that were established during the approval of the transaction,” says Tatiana Kofanova, partner and head of the group for working with automotive companies at DRT.
However, some trends are already quite obvious. As Guram Kudryavtsev notes, in the Russian Federation, lessors that are part of state-owned banking groups have been the market leaders that set trends for decades. But the beneficiaries of the current processes, the expert believes, look like “strong middle peasants of the leasing market.”
The Insight group is confident that the leasing companies acquired by it have the potential to become more universal players and occupy their own niche. The latest acquisition of Alfa-Leasing allowed the company to strengthen its positions in the SME segment, which, unlike corporate leasing, shows good recovery rates and is less susceptible to geopolitical conditions. “These companies take equipment in smaller batches, but want to get it quickly and with a minimum of bureaucracy. Therefore, the boxed product scheme works well here – with transparent conditions, a fixed price and understandable delivery times, ”explains Yulia Bokova, head of the financial department of Alfa-Leasing Group of Companies.
The trend is confirmed by other market participants. “The cost of funding is no longer the determining issue for success or failure. Given the shortage of leasing items and the market orientation towards retail segments and SMEs, speed is of key importance. The conditional developer needs a certain technique. We need it as soon as possible to continue the work. He does not have the opportunity to conduct lengthy procedures, tenders and choose the cheapest offer. He will choose the fastest and easiest offer to process,” says Guram Kudryavtsev.
Everyone has to learn new approaches, including state-owned companies. As explained in VTB, “the subjects of transactions with small and medium-sized businesses, as a rule, are equipment and vehicles, they are easier to type and put on stream, unlike corporate segments, where each transaction takes months.”
Special product lines are created for SME clients, which are distinguished by speed, reduced volume of document packages and the introduction of digital solutions for the convenience of clients. Although, of course, the risks with SME clients are higher than when working with large clients, admits Maxim Kalinkin, CEO of the Gazprombank Leasing group.
In the future, competition for a client in the SME segment and in leasing in general will only increase, the players admit. For example, along with Chinese brands of equipment, leasing companies from China may also appear on the market, as happened with Western products. With the advent of Chinese brands of equipment on the market, Chinese leasing companies may also come, admits Tatyana Kofanova. Sergey Savinov believes that against the backdrop of growing demand for leasing services, “companies outside the top 30 and even top 40, which previously had a conservative attitude to business, are becoming more active.”
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