Baring Vostok to engage in leasing
Vedomosti learned that the USA-Russia Fund sold the DeltaLeasing Company to the direct investment Baring Vostok Private Equity Fund. For the USA-Russia Fund the DeltaLeasing was one of the most successful projects, however Baring Vostok believes it has a good potential for a further growth. Baring Vostok Capital Partners manages direct investment funds with assets exceeding $400 million. At present BVCP is placing moneys of the new fund of the Baring Vostok Private Equity Fund, the capital of which was formed in December 2001 in the amount of $205 million. BVCP is affiliated with Guernsey Island-registered Baring Private Equity Partners Company that manages direct investment funds worth $2 billion. Until recently it was a part of the ING Group, but in October the management of the company agreed with ING to buy out the stock. At the same time $360 million of IGN remain in the company management. The USA-Russia Fund set up in 1999 the Delta Capital Group, which united the DeltaCredit Bank and the DeltaBank, and the DeltaLeasing Company, renamed from RKM Leasing-Center acquired by the Fund in Rostov-on-Don. Today the company has seven affiliates and is present in 20 Russian regions. It has concluded over 800 contracts. The assets comprise $40 million and the 2003 profit is expected to be $1 million. DeltaLeasing specializes in leasing equipment, transportation means and real estate to small and medium-sized enterprises. Last year it received $10 million four-year credits from EBRR and IFC. James Cook, Senior Vice-President of the USA-Russia Fund, told Vedomosti the Fund decided to sell DeltaLeasing after accepting a new development strategy for the group. If earlier it focused on crediting small and medium-sized businesses, now priority is given to retail business – consumer crediting and mortgage. “We have been working on the deal since August. The time was appropriate to sell DeltaLeasing, and Baring Vostok made a good offer to us”, Cook said. He refused to disclose the amount of the deal, saying only the return on investment was 40 percent – “one of the highest results for all the investments (of the Fund)”. Cook said the Fund plans IPO for DeltaBank and DeltaCredit in the coming two years, however the plan was impossible for DeltaLeasing as the company was too small. BVCP however hopes the leasing company will grow at least five-fold in five years due to low competition. “Small and medium-sized business is a dynamically developing sector of the Russian economy, and leasing is the optimal financing mechanism for it. Therefore, we believe DeltaLeasing has a good growth potential”, BVCP co-managing partner Michael Calvy said. He estimated DeltaLeasing equity to considerably increase next year which will allow the company to raise its assets to $200-300 million in five years. DeltaLeasing President Nikolai Zinovyev said the leasing business is more profitable today than banking. “Due to tax privileges and the absence of competition we can get higher profitability than banks through credits”, Zinovyev said. According to him, leasing yield comprises 12-18 percent annual in hard currency and 20-30 percent in rubles, while the efficient rate for the clients is 5-10 percent annual. Market participants agree leasing provides a high yield, however the advantage shrinks as the business expands. The smaller the deal, the higher the yield, said Viktor Korchagov, the director general of the Baltic Leasing Company. “The business is sufficiently protected and stable: the equipment purchased by a leasing company is a highly liquid asset”, he said. “Equipment leasing for small and medium-sized companies is a very interesting and profitable business”, said Alexander Rubtsov, director general of the Ilyushin-Finance leasing company. However, in his words, to ensure a successful development the companies have to constantly increase the capital and have access to long money. Therefore the most successful leasing companies in the world are those backed by major financial structures. “Independent players are incomparable with such companies in the volume of activities”, agreed Roman Gladkikh, deputy head of the project financing department of Alfa-Bank, which supervises the activities of Alfa-Leasing Company.
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