LEASING A MODERN FINANCING ALTERNATIVE

CONTENTS Leasing – conceptual approaches The leasing market in Romania Leasing versus banking credit

Leasing defined Method of payment for the use of an asset Different from renting A party undertakes to transfer for a determined period of time to another party the right to use an asset against a regular payment The right of option

Leasing – conceptual approaches Definition: Parties: lessor/the financer (locator/finantator) lessee/the user (locatar/utilizator) supplier (furnizor) insurance company (companie de asigurari)

Mechanism of leasing 1. A leasing contract is signed between the Lessor and the Lessee 2. The Lessor pays the purchase price to the Supplier 3. The equipment is delivered to the Lessee 4. The Lessee pays lease rentals determined by contract to the Lessor.

Application for leasing a short presentation of the evolution of the company’s activity and of the managing team’s experience; copies of the constitutive acts of the company; a balance sheet revised by the Ministry of Finance; the balance for the last month; the patrimony’s situation; the business plan for the financing project; the credits situation and payables; the forecasted cash-flow over the location period

Main types of lease operations Financial leasing transfer of risk transfer of ownership right lessee’s option usage period Operational leasing none of the above

Types of lease operations short term leasing medium term long term direct indirect lease-back (sale and lease-back) buy-back personnel leasing experimental time-sharing international (external) leasing internal leasing

LEASING terms Economic life (viaţa economică) : the period along which a certain good is estimated to be economically usable by one or more users; or the number of the production units or similar units that are estimated to be obtained through using the good by one or more users. leasing rate / royalty (rata de leasing - redevenţă) : in case of financial leasing: the due quota of the entry value of the good and of the leasing interest (the average rate of the bank interest on the Romanian market); in case of operational leasing – the quota for amortization calculated according to the normative acts in force and a benefit established by the contracting parties entry value (valoare de intrare) -is the value at which the good was acquired by the financing party, the cost of acquisition respectively. residual value (valoare reziduală) the value at which, at the expiry date of the leasing contract, the transfer of the right of property over a good by the user is done. total value (valoare totală) - the total value of the leasing rates to which the residual value is added.

Advantages of leasing financial statements are not "loaded" with expenses (just the monthly royalty) - credibility - future financing contracts ease of scheduling the expenses easy replacement of depreciated goods no need for supplementary guarantee rapidity of the approval of the operation process

Disadvantages For the lessee Equipment is not operational under the whole period of the contract The cost of the leasing The ownership of the good For the lessor -goods can be damaged after the first lease -royality delayed

Comparing leasing and credit Ensures the investment’s financing No other collateral requested Supplementary collateral Financial statements do not include liabilities to banks Financial statements include liabilities to banks Duty fees are paid at the residual value Duty fees are paid at the entire value of the good Advance required Advance payment

Leasing and renting Criteria Leasing Renting Computation of according to the according to the existing the installments acquisition price of the good conditions on the market (including quotas of it) and represent the equivalent some predefined elements they of the usage right (interest, profit, VAT, a.s.o.). The ownership Right At the end of the lease period The rented good cannot the good may go into the go into the posession of posession of the lessee based the tenant at the end on the paid rent and a residual of the location (unless price. a sale-purchase contract is being signed).

Leasing market in Romania - short hystory 1994 – the first Romanian leasing company 1996 – ASLR (Association of leasing companies in Romania) two conditions imposed by law -object of the activity leasing -registered and paid capital of 500 million ROL 331 companies, 213 sent documents to the BNR to be registered as IFN (after new regulations Norm 28/2006) 100 active , 33 members of ASRL (48% of the market) – 38 in 2005 - 2006 total value of contracts concluded by ASLR members was 1175 mil. Euro, and the value of financed goods was 920 mil EUR.

Leasing market in Romania -structure Leasing companies affiliated to banks (8%) Leasing companies affiliated to some producers or product suppliers (17%) Independent leasing companies (75%)

Leasing market in Romania -structure Companies providing financial leasing -56% Companies providing operational leasing -7% Companies providing both types of leasing -37%

Leasing market in Romania -structure FINANCIAL LEASING –members of ASLR OPERATIONAL LEASING - members of ASLR 9 months 2006 9 months 2005 first 9 months of 2006 first 9 months of 2005 national cross-border No of contracts 91.22% 1.51% 95.8% 0.9% 2.87% - 3.2% Value of goods 87.51.% 3.74% 95.7% 1.5% 2.42% 2.8%

Leasing market in Romania -structure

Top 15 leasing companies according to the value of the contracts in 2004 Porsche Leasing Romania 17.87% AFIN Romania 15.85% BCR Leasing 12.99% RCI Leasing Romania 10.62% Tiriac Leasing 9.20% Motoractive 6.97% Eurial Leasing 4.88% TBI Leasing 4.51% Romstal Leasing 4.03% Ager Leasing 2.69% Romexterra Leasing 1.83% DRT Leasing 1.30% Auto Italia Impex 1.22% Toyo Motor Center 1.20% Atlassib Leasing 1.04%

Structure of contracts according to their object

Structure of the leasing market according to the duration of the contract 3-5 years - 54%, 1-3 years - 43% 5-8 years – especially real estate leasing

Real Estate leasing – feature and trends less than 2-3% of the market, an increasing trend compared with 2005 No major changes in 2006 18% in Western Europe (even Poland 13%) An increasing trend for big companies

Real estate leasing evolution: factors Increased competition of the banks Leasing term < mortgage credit term Most companies do not have a well determined risk portofolio MTS leasing fraud Lack of information

Perspectives and trends on the market The features of market leasing in Romania Legal framework Non-banking financial institutions status is still unclear Low level of investment in Romania The new Ordinance 28/2006 -social capital to 200 000 Euro and joint stock companies -report to national bank – supervision authority -risk provisions and solvability ............the number of companies will decrease (2500 to …) -new legislative measures – VAT at the total value of the installment - duty fees at the total value not residual -new conditions for the customers ------ Price of goods through leasing will be higher The experience of other countries – in France or Germany - similar with credit institutions - Great Britain – commercial law - Italy – similar with Romania

Leasing market Europe (billion euro)

Chapter 4: Leasing versus bank credit comparison between the acquisition of a good through leasing and through bank credit object: Dacia Logan Laureate price: 6,785.73 Euro (without VAT) institutions: BCR (Banca Comercială Română) and BCR Leasing

Comparison tables: leasing versus credit Period of the leasing contract – months 48 Currency Euro Price (no VAT) 6,785.73 Advance (15-50% of the price no VAT ) -20% 1,357.15 Financed value 5,428.58 Interest rate 10.50 % Residual value 139.02 Leasing installment (no VAT) 138.99 Management commission 135.71 Value of the contract 8,164.41 Total cost 9,479.49 Period of the credit contract – months 48 Currency Euro Price (no VAT) 6,785.73 Advance- 25% of the total value of the car 2,041 Bank loan (75%* total value) 6,123 Interest rate 12% Residual value - Credit installment 161 Management commission 169.62 Value of the contract 7 668 Total cost 9,878.62

Conclusions and recommendations Legal persons – management will prefer financing through leasing, as it does not increase the degree of financial leverage of the company Natural persons If: Advance payment for leasing + leasing installments > Advance for credit + credit installments => choose bank credit If: Advance payment for leasing + leasing installments < Advance for credit + credit installments => choose leasing

Conclusions and recommendations final cost advanced payment Guarantees Monthly installment Fiscal advantages Other conditions imposed to the borrower

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