FINANCE-EQUIPMENT LEASING FOR BULGARIAN AGRICULTURAL BUSINESS

EQUIPMENT LEASING FOR BULGARIAN
AGRICULTURAL BUSINESS
Please read the case study
carefully and answer the questions below
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
andother 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.
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