How do companies in Eurasia finance their
trade/investment deals?
2004
Roman Vvedensky
BISNIS representative
in Nizhny Novgorod
U.S. Department of
Commerce
NOTE: For the purpose of this report, Eurasia
encompasses the countries of the former Soviet Union except the Baltic States
and countries where BISNIS does not presently have representatives (Belarus and
Turkmenistan).
Yes, it is.
1.1 If yes, what are the 5 top banks in your country (by assets AND by equity/net worth)?/ (1.1.2) What are the 5 top banks in your region?
The list of five top
banks, provided below, includes two national and three regional banking
institutions. The composition of the charts may be rearranged by mid-2004, when
two national banks – Avtobank-Nikoil and UralSib Bank – finalize their deal of
merging. Both of the banks have pro-active branches in Nizhny Novgorod with a
network of bank offices across the city. The total assets of the local branch
of Avtobank-Nikoil are estimated at approx. US$ 31 million, and the assets of
the local branch of UralSib Bank exceed US$ 52 million. The Nizhny Novgorod
branch of a new merged national bank is likely to become one of the Top Five in
the regional banking market, probably, under the name of Avtobank-UralSib.
Another dynamic banking institution is the Nizhny Novgorod branch of KMB-Bank, co-owned by foreign shareholders: the European Bank
for Reconstruction and Development (EBRD), Soros Economic Development Fund, DEG
(Deutsche Investitions und Entwicklungsgesellschaft), Triodos Bank NV (the
Netherlands). According to the Russian magazine Dengi (Money), KMB-bank was
ranked # 77 according to its
net assets (US$ 279.26 mln), and it was ranked # 170 according to its capital
(US$ 25.18 mln) as if for 1 January 2004. Parameters of the Nizhny Novgorod
branch of KMB-Bank are non-assessed.
|
|
Total assets |
Capital |
Profit before Tax |
1. |
Volgo-Vyatsky Bank
of Sberbank * |
$5,518.35 mln |
$249.19 mln |
$97.65 mln |
2. |
NizhegorodPromStroyBank
(NPSB) |
$219.49 mln |
$54.27 mln |
$9.35 mln |
3. |
Nizhny Novgorod branch of Alfa Bank ** |
$179.33 mln |
NA |
$9.13 mln |
4. |
SarovBusinessBank |
$135.49 mln |
$39.82 mln |
$5.92 mln |
5. |
NBD-Bank |
$67.08 mln |
$9.40 mln |
$2.10 mln |
The
exchange rate of USD to Ruble is approximated at 1:28.5
Note 1: Volgo-Vyatsky
Bank of Sberbank (VVB – Sberbank) is a subsidiary bank of Sberbank of Russian
Federation, which is the largest commercial bank in Russia (where the Bank of
Russia owns a control stake). Unlike other banks in the charts, VVB – Sberbank
covers 7 regions in the Upper Volga area, but not only the Nizhny Novgorod
region, which takes approx. 30-40% of VVB – Sberbank’s business products and
activities. VVB – Sberbank has 16 branches with hundreds of offices in Nizhny
Novgorod and the region.
Note 2: Nizhny Novgorod
branch of Alfa Bank represents Alfa Bank in the Nizhny Novgorod region. Alfa
bank is the 4th largest bank in Russia in total assets, and the 5th
– in capital. Parameters on Alfa bank’s branch in Nizhny Novgorod are dated 18
December 2003, while other banks’ parameters are dated 1 January 2004 as they
have been provided by the banks’ PR departments (VVB-Sberbank, and NBD-Bank) or
referred to by the national magazine Expert #11 (414) dated 22 March 2004.
Contact info on Top Five
of the Nizhny Novgorod region:
|
Banks |
Contact information |
||
1. |
Volgo-Vyatsky Bank of Sberbank |
35 Oktyabrskaya
street, Nizhny Novgorod 603005 Russia tel: +7 8312 17 17 17,
tel: +7 8312 17 98 00 (secretariat); fax: +7 8312 17 98 68; e-mail: valuta@sbrf.nnov.ru; info@sbrf.nnov.ru; |
||
Regional
branch offices of Volgo-Vyatsky Bank of Sberbank |
||||
|
Nizhny Novgorod region branch |
35 Oktyabrskaya
street, Nizhny Novgorod 603005 Russia tel: +7 8312 19 61 12 |
||
|
Vladimir region branch |
36 Prospect Lenina
street, Vladimir, Russia tel: +7 0922 32 30 31,
+7 0922 24 06 26 |
||
|
Mari El branch |
30 Pushkina street,
Yoshkar-Ola, Republic of Mari El, Russia tel: +7 8362 11 70 81,
+7 8362 68 42 25 |
||
|
Mordovia branch |
86 Prospect 70 let Oktyabrya street, Saransk, Republic of Mordovia,
Russia, tel: +7 83422 56 45 91, tel: +7 83422 55 12 11 |
||
|
Kirov region branch |
25 Derendyaeva street,
Kirov, Russia tel: +7 8332 65 33 66,
+7 8332 65 13 22 |
||
|
Chuvashia branch |
3 Prospect Moskovsky street, Cheboksary, Chuvash Republic, Russia,
tel: +7 8352 42 07 30, +7 8352 23 34 14 |
||
|
Tatarstan branch |
44 Butlerova street,
Kazan, Republic of Tatarstan, Russia, tel: +7 8432 64 56 10,
+7 8432 64 64 10 |
||
|
||||
2. |
NizhegorodPromStroybank |
21 Gruzinskaya street,
Nizhny Novgorod 603600 Russia tel: +7 8312 33 95 44;
fax: +7 8312 33 37 47, +7 8312 33 43
11; e-mail: klad@npsb.ru |
||
3. |
Nizhny Novgorod branch of Alfa Bank |
45 Piskunova street,
Nizhny Novgorod 603005 Russia tel: +7 8312 30 09 55;
fax: +7 8312 30 09 81 e-mail: nizhny_novgorod@alfabank.ru; www.alfabank.ru
, http://www.alfabank.ru/branches/nizhni/ |
||
4. |
SarovBusinessBank |
13 Silkina street,
Sarov, Nizhny Novgorod region 607190 tel: +7 83130 407 78;
fax: +7 83130 433 95 e-mail: bank@sbb.sar.ru; www.sbbank.ru |
||
5. |
NBD-Bank |
6 Gorky square, Nizhny
Novgorod 603950 Russia tel: +7 8312 30 80 61;
fax: +7 8312 34 39 48 http://www.nbdbank.ru
|
||
|
Nizhny Novgorod branch of KMB-Bank |
27 Piskunova street,
Nizhny Novgorod 603005 Russia tel: +7 8312 34 45 42
; tel/fax: +7 8312 30 49 13, tel/fax: +7 8312 31
73 11 e-mail: kmbnn@kmb.ru; http://www.kmb.ru
, http://www.kmb.ru/regions/nn.html |
||
|
Nizhny Novgorod branch of UralSib Bank |
13 Varvarskaya street,
Nizhny Novgorod 603006 Russia tel: +7 8312 78 40 00, fax: +7 8312 78 44 11; e-mail: nnovgorod@uralsibbank.ru; http://www.uralsibbank.ru,
http://www.uralsibbank.ru/network/nnovgorod/ |
||
|
Nizhny Novgorod branch of Avtobank-Nikoil |
55 Studenaya street,
Nizhny Novgorod 603000 Russia tel/fax: +7 8312 34 03
82 e-mail: green@ab.nn.ru |
||
1.1.1. Which banks have their financial statements audited per International Accounting Standards or International Financial Standards on Accounting and since what year?
Three banks out of the
Top Five have been audited by international auditing firms since the early and
mid-1990s. Sberbank of Russian Federation – Ernst & Young (before 2002 –
PricewaterhouseCoopers), Alfa bank - PricewaterhouseCoopers, NBD-Bank -
PricewaterhouseCoopers. Two other banks - SarovBusinessBank and
NizhegorodPromStroyBank – have been audited by Russian companies.
Other three banks have
been audited by the following international firms: UralSib Bank –
PricewaterhouseCoopers (till 2002); Avtobank-Nikoil
- Ernst & Young; KMB-bank – PricewaterhouseCoopers (till 2002).
Starting in 2005, all
Russian banks will run books in compliance with general standards of
International Accounting System, which would contribute to their greater
transparency for foreign business community, and shareholders.
1.1.3. Are any “captive” and do they lend preferentially to the group they belong to?
SarovBusinessBank is a
clear example of a ‘captive’ regional bank, which primarily services interests
of its regional industrial and financial group. The bank enters the capital/buy
out portfolio of shares of enterprises, which are of a business interest for
the regional industrial and financial group, lends short- and mid-term to the
group’s companies, and propose a variety of financial services to the group’s
affiliated companies and their staff. The bank generates loans to affiliated
companies both with its own funds and with the funds, raised on the Moscow
financial market. SarovBusinessBank runs an aggressive policy under the
strategy of its industrial and financial group, and it has recently acquired a
stake (approx. 20-25%) in NizhegorodPromStroyBank (NPSB), the largest local
bank of the Nizhny Novgorod region.
NPSB also has some
features of a ‘captive’ bank, which is, mainly, reflected in favorable terms of
corporate lending (lower interest rate, milder terms of revolving loans) for
its major shareholders, which include many large industrial enterprises of
Nizhny Novgorod and the region.
VVB-Sberbank and
Nizhny Novgorod branch of Alfa bank do not reveal clear signs of ‘captive’
banking institutions although the latter is part of the national industrial and
financial Alfa Group. Both banks offer favorable terms of loans and financial
services to major local companies with a sound credit history. Also, Nizhny
Novgorod branch of Alfa bank holds clearing accounts of affiliated companies of
Alfa Group in the Nizhny Novgorod region, and it provides them with principal
financial services, including short- and mid-term loans. Alfa Group’s
affiliated companies usually negotiate major financial deals directly with the head
office of Alfa bank in Moscow.
Currently, NBD-Bank
has demonstrated no features, attributed to a ‘captive’ financial institution,
as the bank promotes itself in the regional market as a bank to small and
middle businesses. The bank’s policy matches the proclaimed goals of its
foreign shareholders – the European Bank for Reconstruction and Development
(EBRD), and the International Finance Corporation (IFC), which hold blocking
portfolio of the bank’s shares.
1.2 What are their major lines of lending (e.g., agribusiness; manufacturing equipment; else)?
|
Banks |
Major lines of lending
|
1. |
Volgo-Vyatsky Bank of Sberbank |
Corporate banking:
Agribusiness, major manufacturing industries, service sector (i.e. telecom,
wholesale & retail trade, construction, transportation); Retail banking: small
businesses, households, and individuals. |
2. |
NizhegorodPromStroybank (NPSB) |
Corporate banking:
major manufacturing industries & service sector (i.e. telecom, trade); (Developing) retail
banking: individuals. |
3. |
Nizhny Novgorod branch of Alfa Bank |
Corporate banking:
major manufacturing industries, agribusiness (focus on food processing),
service sector (i.e. trade, telecom, construction); Retail banking: small
businesses, households, and individuals. |
4. |
SarovBusinessBank |
Corporate banking:
affiliated companies of the industrial and financial group; (Developing) retail
banking: individuals. |
5. |
NBD-Bank |
Corporate banking:
middle businesses in industries, and service sector (i.e. trade); Retail banking: small
businesses, households, and individuals. |
1.3 What
type of experience do they have with Foreign Export Credit Agencies?
|
Banks |
Export Credit Agencies |
1. |
Sberbank of Russian Federation |
US Ex-Im Bank, EBRD,
SACE (Italy), COFACE (France), EDC (Canada), Hermes (Germany), CESCE (Spain),
EKN (Sweden), NCM (Netherlands), NEXI (Japan), EFK (Denmark), KUKE C.A.
(Poland), EGAP (Czech republic) |
2. |
NizhegorodPromStroybank |
NA |
3. |
Alfa Bank |
US Ex-Im Bank, Hermes
(Germany), NEXI (Japan), EID/MITI (Japan), SACE (Italy), COFACE (France),
EGAP (Czech republic), KUKE (Poland), HBOR (Croatia), and some others. |
4. |
SarovBusinessBank |
NA |
5. |
NBD-Bank |
Hermes (Germany), IFC,
EBRD, US Ex-Im Bank |
|
|
|
|
UralSib Bank |
Hermes (Germany), US
Ex-Im Bank, CESCE (Spain), EBRD, EKN (Sweden), SACE (Italy). |
|
Avtobank-Nikoil |
Hermes (Germany),
CESCE (Spain), EKN (Sweden), and some others |
|
KMB Bank |
US Ex-Im Bank, EBRD,
IFC |
Note: Regional banks,
non-assessed (NA) in the diagram, provided no information about lending
agreements with Foreign Export Credit Agencies.
1.4 If any, what type: short term? Medium term? Long term? All? What are the terms of the lending agreement?
Lending agreements
with foreign Export Credit Agencies (ECA) are opened for maximum a 5-year
period (short-, and mid-term). The only exception is Sberbank of Russian
Federation, which opens long-term credit lines with ECAs (the deals should be
coordinated with the parent bank – Sberbank of Russian Federation - in Moscow).
Credits from ECAs may cover maximum 90% of an import contract with a Russian
company. Depending on the contract terms, credit history, pledge, and country
of origin for goods, imported to Russia, an annual interest rate varies from 7%
to 12% in USD and Euro.
1.5 Have they been rated by (i) a foreign rating agency or (ii) a
domestic agency?
See
1.5.1. and 1.5.2.
1.5.1 If yes, by whom and what was the rating (and the date of the rating)?
1.5.2 How does the above domestic rating translate
into that of a western agency?
|
Banks |
Standard & Poor’s |
Fitch |
Moody’s |
RUS-RATING |
|||
|
|
Long-term |
Short-term |
Long-term |
Short-term |
Long-term |
Short-term |
|
1 |
Sberbank of Russian Federation |
|
|
BB+ |
B |
|
|
|
2 |
NizhegorodProm-Stroybank |
|
|
|
|
|
|
CCC |
3 |
Alfa Bank |
B |
B |
B+ |
B |
B1 |
|
|
4 |
SarovBusinessBank |
|
|
|
|
|
|
CCC+ |
5 |
NBD-Bank |
|
|
|
|
|
|
B |
6 |
KMB-Bank |
|
|
|
|
A1(rus) |
RUS-1 |
|
7 |
UralSib Bank |
B- |
B- |
B |
B |
|
|
BB+ |
8 |
Avtobank-Nikoil |
|
|
B |
B |
|
|
CCC- |
Note 1: The ratings are provided by 1 January
2004.
Note 2: Rus-Rating is a domestic rating agency (www.rusrating.ru), which describes its
methodology as follows:
The company profile of
a Russian bank is compiled from both financial and non-financial information.
The short-term rating assigned to each bank is based on a scoring model
originally developed for risk management in a Russian bank. The scale AAA, AA,
A, BBB, etc is well known, but the definitions (see below) have been adapted to
the Russian environment. Given the gap between the Russian and Western
economies, and the focus of Rus-Rating on the Russian interbank market, no
attempt has been made to benchmark these ratings against international ratings.
Systemic country risk (but not country-related transfer risk) is explicitly a
part of the rating scale. The aim is to define a scale that has some absolute
meaning, irrespective of the conditions in Russia. Banks cannot therefore be
rated better then A- at this time. The top rating currently anticipated for a
Russian bank will be is BBB+.
RATINGS |
DEFINITION |
AAA+- |
Very high degree of creditworthiness. Financial condition is considered strong and stable in the long term. Country systemic risk is low. |
AA+- |
High degree of creditworthiness. Financial condition is considered strong and stable in the long term. Country systemic risk is low. |
A+- |
High degree of creditworthiness. Financial condition is considered strong and stable in the long term. Country systemic risk is high |
BBB+- |
Relatively
high degree of creditworthiness. Financial condition is considered
satisfactory and stable in the medium term. |
BB+- |
Average
degree of creditworthiness. Financial condition is considered satisfactory
and stable in the short term. |
B+- |
Creditworthiness
is slightly lower than average. The main indicators of financial condition
are considered satisfactory and stable in the short term. |
CCC+- |
Creditworthiness
is lower than average. The main indicators of financial condition are
considered satisfactory but stability is uncertain in the short term. |
CC+- |
Creditworthiness
is slightly low. The main indicators of financial condition are close to
being satisfactory but stability is uncertain in the short term. |
C+- |
Creditworthiness
is unacceptably low. The financial condition may be either unsatisfactory or
close to satisfactory, but unstable. |
D |
Low
level of creditworthiness. The financial condition is unsatisfactory. |
1.6. Are there any foreign banks in your country/region?
There are no foreign banks in the Nizhny
Novgorod region, but there is a branch and five representative offices of the
banks, either owned or controlled by foreign banks and investment funds:
-
KMB-Bank (Nizhny Novgorod branch)
-
West LB (representative office)
-
Delta-Credit (representative office)
-
Home-Credit (representative office)
-
Moscow
International Bank (representative
office)
-
Moscow Narodny
Bank (representative office)
Note: Moscow Narodny Bank is going to merge
with Eurofinance Bank in 2004. Both of the banks are controlled by foreign
affiliated structures of the Bank of Russia.
1.6.1 Are they willing to lend
money to domestic firms and under what terms?
The banks may be divided in three categories according to their target
groups of customers. West LB, Moscow
International Bank, and Moscow Narodny Bank are focused on major corporate
customers of the region. The list of local customers includes large domestic,
national and international companies, which operate in the Nizhny Novgorod
region. The banks do not disclose information on their customers and interest
rates on loans, but usually the annual interest rate varies from 8% to 12% in
USD/Euro or 12% to 16% in Rubles, depending on the terms for a loan provision.
The loans are usually provided short-, and mid-term. There have been few
exceptions, when investment loans were provided for a period over 5 years.
KMB-Bank renders
credit services to domestic small and middle enterprises (SMEs), and
individuals. Loans vary from US$ 100 to US$ 500,000 (or their equivalent in
Rubles). Micro-loans are provided for maximum 2 years with an annual interest
rate of 18%-19% in USD/Euro (or 20%-33% in Rubles). Small loans, which in KMB-Bank’s
grading vary from US$ 20,000 to US$ 100,000, are provided for maximum 3 years
with an annual interest rate of 13%-17% in USD/Euro (or 20%-24% in Rubles).
Medium loans, limited to US$ 500,000 due to the bank owners’ requirements, are
provided for maximum 3 years with an annual rate of 13%-17% in USD/Euro (or
19%-22% in Rubles). Upon a customer’s request, small and medium loans can be
extended for the period of 5 years.
Delta-Credit and Home-Credit provide loans to individuals and family
households for acquisition of consumer goods (electronics, computers,
furniture, etc.) at local shopping malls. The annual interest rate on consumer
goods usually reaches 34% in Rubles, and it is not disclosed to a customer as
the banks publicize another mechanism of charging fees for provision of funds
to its customers.
1.6.2 Are there any examples of deals they have helped financed in your
country/region?
The range of corporate
customers, benefited from loans, letters of credit, and guarantees of the banks
with foreign capital in the Nizhny Novgorod region, includes most of domestic
industrial leaders: GAZ (automotive sector), Volga-Telecom
(telecommunications), Nizhny Novgorod Oil & Margarine Company (food
industry), Normal (mechanical engineering), Bor Glassworks, Vyksa Metallurgical
Plant (steel-making), Lukoil-NizhegorodNefteProduct (petrochemical industry),
Volga paper mill, etc.
Yes, it is.
2.1 If yes, which one are the most active in your country (and region
for Russia)?
Quadriga Capital Russia GmbH
Branch Office Nizhny Novgorod
Kendrick D. White, Director
52 Osharskaya street, Nizhny Novgorod 603006 Russia
tel: +7 8312 783 255
fax: +7 8312 783 252
e-mail: k.white@quadriga-capital.ru
2.2 What is each fund’s industry specialty(ies) and/or geographical
focus?
Quadriga Capital
Russia GmbH is the fund manager of two of the EBRD’s Regional Venture Funds
(RVF), including the St-Petersburg RVF and the Central Russia RVF, and it has
got offices both in St-Pete and Nizhny Novgorod. Quadriga’s principal
shareholders include both the EBRD, contributing US$ 60 million, and
Kreditanstalt für Wiederaufbau (KfW) (on behalf of the German Government), contributing US$ 40
million. The venture fund considers sound investment and business development
proposals from both medium and larger private businesses of most industries and
service sectors, and it does not invest into the weapon, alcohol and tobacco
sectors. The annual turnover of an applicant company should exceed USD 3-5
million, and the applicant should meet a set of technical due diligence
standards, demanded by Quadriga Capital Russia GmbH.
2.3 What are their terms?
Participation in capital – 25%-49% (to ensure financial control over the
company);
Proposed investment – US$ 3–6 million; investment may be increased thru
syndication with other financial institutions;
Period of investment – 5 years.
The Fund requires forecasts of 3-5 financial projections from a company,
and it expects, minimum, a 35% internal rate of return (IRR) on the fund’s
investment, based on IAS/GAAP book-keeping. To assist invested companies with
strategic goals and business plans, the Fund maintains direct contacts with the
company’s senior management through all the investment period.
e-mail: k.white@quadriga-capital.ru
3. Is Financing Obtained Through Other Public Funded Programs (like SME support institutions, co-sponsored by local
governments/associations);
Yes, it is.
3.1 If yes, which ones? What are their terms and
instruments?
(i) Fund for Support of Micro Entrepreneurship FORA,
Opportunity International Network.
The Fund provides loans under US$ 1,000 to start-ups
and entrepreneurs.
52 Osharskaya street Nizhny Novgorod 603006 Russia
tel/fax: +7 8312 78 43 10 / 20/ 30
e-mail: stacieschrader@cs.com;
www.forafund.ru
(ii) The Nizhny Novgorod Region’s Government.
The government
compensates 50% of an interest rate on commercial loans, raised by local
companies on the projects in agribusiness, small business, and textile
industry, provided by the local banks, authorized by the government. The
authorized banks are defined at annual open tenders. To win the tender, a bank
should have a network of branches in the region, and it should provide
favorable terms of commercial credits (lower interest rate, zero commission for
a loan provision).
Building 2, Kreml, Nizhny Novgorod 603082 Russia
Ministry of Economics and Entrepreneurship Support
Tel: +7 8312 39 06 62;
e-mail: root@dep.kreml.nnov.ru
(iii) Small Business Support Fund of the Nizhny Novgorod region
The Fund provides loans to small businesses via SME associations of the
Nizhny Novgorod region.
28, Gagarin avenue, Nizhny Novgorod 603098 Russia
tel/fax: +7 8312 65 95 90
tel/fax: +78 312 65 95 50
4. Is Self-Financing
an Important Factor in Business Financing?
Yes, it is.
4.1 If yes, are there any trends regarding the
industries and the types of firms that are able to self-finance?
According
to official statistics, the enterprises of the region invested over US$ 1.1
billion in their fixed capital in 2003, where investment of large and middle
enterprises totaled US$ 796 million. Self-financing made over 70% of investment
in fixed capital of corporate businesses in the Nizhny Novgorod region. Two
thirds of self-investment was pooled in the industrial sector, transport and
telecommunications. Self-financing is common for large industrial companies,
which are often parts of national holdings, active in the following industries:
automotive, aerospace, engineering, metallurgy, petrochemical, ship-building,
telecommunications, and some others.
Small
businesses and companies from retail trade sector are less bound with self
financing, and they more rely on short-, and mid-term bank loans.
5.
Is Leasing a Significant Vehicle for Business Finance?
Yes, it is.
5.1 If yes, who are the key players in your country/region?
- Delta Leasing, Nizhny Novgorod branch
36 Rozhdestvenskaya street, Nizhny Novgorod 603001 Russia
tel/fax: +7 8312 31 31 22; tel/fax: +7 8312 78 03 82;
e-mail: bvl@deltaleasing.ru
- Volga Leasing Company
13 Silkina street, Sarov 607190 Nizhny Novgorod region
tel/fax: +7 83130 3 90 38
e-mail: leasing@sbb.sar.ru
- Volgo-Vyatsky Mezhregionalny Leasing Center
28 Gagarin avenue, Nizhny Novgorod, 603098 Russia
tel: +7 8312 64 54 44; fax: +7 8312 64 06 70
e-mail: leascom@dmb.mts-nn.ru
- KMB-Leasing, Nizhny Novgorod representative office
27
Piskunova street, Nizhny Novgorod 603005 Russia
tel: +7 8312 31 73 10; fax: +7 8312 31 73 11
e-mail: aptyushev_a@kmb.ru
- Mortgage Company of Sberbank
35 Oktyabrskaya street, Nizhny Novgorod 603005
Russia
tel/fax: +7 8312 17 86 61
tel/fax: +7 8312 77 38 65
e-mail: info@sbrf.nnov.ru
5.1.1 What is their type of experience (type
of industry and size of deals)?
The Nizhny Novgorod
branch of Delta Leasing is a leader of the regional market. In 2003, it
concluded 83 agreements on provision of leasing services in the amount of
approx. US$ 5 million to local customers from SME sector. The average value of
a deal totals US$ 120,000 in the Nizhny Novgorod region. The company leased
various types of productive, store and trade equipment (approx. 45% of all the
deals) as well as cargo and passenger vehicles (50%). Approximately 80% of all
equipment and vehicles is of a foreign make (after the Customs clearance).
Delta Leasing signed agreements with Ford Motor Company, Volkswagen, and
Renault for provision of leasing services on their vehicles in Russia. Last
year, the Nizhny Novgorod branch of Delta Leasing started negotiations with all
major car trading companies of Nizhny Novgorod to provide leasing services to
their customers. Delta Leasing provides favorable terms of leasing for local
customers, which are as follows:
(Leasing of equipment)
Leasing period – 18-48
months (with a possibility of extension to 60 months)
Funding for leasing –
US$ 20,000 – US$ 1,000,000 (which should cover maximum 70%-75% of the contract
value)
Advance payment –
25%-30% of the contract value
Annual consolidated fee
(premium of Delta Leasing) – 7.5% - 10.5% from a price of equipment
Schedule of payments –
monthly, in regular installments
Insurance – mandatory,
covered by Delta Leasing
Deferred payment –
provided for maximum 6 months for installation and setting works
(Leasing of vehicles)
Price of a vehicle/several vehicles – US$ 13,000 – US$ 700,000
Leasing period – 18-36 months
Funding for leasing – US$ 10,000 – US$ 500,000
Advance payment – 25% of the vehicle price
Annual consolidated fee (premium of Delta
Leasing) – 7.5% - 11% from a price of vehicle
Schedule of payments –
monthly, in regular installments
Insurance – mandatory
(Auto Casco), covered by a customer
(Leasing
of real estate)
Leasing period – maximum 60 months
Funding for leasing – US$ 20,000 – US$ 1,000,000
Advance payment – 25%-30% of the contract
value
Annual consolidated fee (premium of Delta
Leasing) – 7.5% - 10.5% from a real estate price
Schedule of payments –
monthly, in regular installments
Insurance – mandatory,
covered by Delta Leasing
Deferred payment – provided for maximum 6
months.
Delta-Leasing was purchased by the investment fund Baring Vostok Capital
Partners from Delta Capital in 2003. Formally, the leasing company has become
independent, although it maintains financial relations with Delta Capital.
Other three leasing companies - Volga Leasing Company, KMB-Leasing (Nizhny Novgorod office), and Mortgage Company of Sberbank – are captive,
as they are owned, respectively, by SarovBusinessBank, KMB-Bank, and
Volgo-Vyatsky Bank of Sberbank. Technically, the leasing terms of KMB-Leasing,
and Mortgage Company of Sberbank are close to the terms of Delta-Leasing, although
their fees are slightly higher, especially with KMB-Leasing. KMB-Leasing
provides leasing services for acquisition of equipment and vehicles to its
target group of customers – local SMEs, so that funding per one deal does not
exceed US$ 500,000. Mortgage Company of Sberbank provides leasing services to
its corporate customers and SMEs for acquisition of real estate objects,
productive equipment, machinery and vehicles without special restrictions on
the size of a deal.
Volga Leasing Company,
owned by SarovBusinessBank, has 5
offices in the Nizhny Novgorod region, and three offices in Moscow, Vologda,
and the Krasnoyarsk region. In January-September 2003, the company funded
leasing deals in the amount of US$ 8.5 million in Russia. The company provides
leasing services to medium and few large companies/organizations for
acquisition of productive equipment, machinery and vehicles. In 2003, the list
of its customers included the Nizhny Novgorod region’s government (US$ 1.43
million for acquisition of vehicles), the Russian Nuclear Center at Sarov (US$
0.63 million for machinery and vehicles), a local mineral water company, and
some others. The company has been developing leasing services for acquisition
of cargo and passenger vehicles for SMEs thru a network of the local bank
Garantia, which is part of the financial and industrial group of
SarovBusinessBank. The minimum amount of a deal with Volga Leasing
Company is US$ 5,000, the leasing period is 24-36 months (depending on the
contact terms), the advance payment is 30% from the contract value, and the
minimum rate of funding is 15% in USD (25% in Rubles) annually, excluding
commission of the leasing company.
Volgo-Vyatsky
Mezhregionalny Leasing Center, associated with the Nizhny Novgorod region’s
fund for small business support and some other official institutions of the
region, claimed that it funded leasing deals with local companies in the amount
of US$ 815,000 in January – September 2003. The company provides SMEs of the
Nizhny Novgorod region with leasing services on acquisition of various
productive equipment, machinery, and vehicles.
There are also several
national leasing companies, operating in the region, e.g. Alfa-Leasing (www.alfaleasing.ru), SiAl-Leasing (www.ulh.ru; leasing@ulh.ru),
which are specialized in large leasing deals for corporate customers;
Carcade-Leasing, which render leasing services to SMEs (mainly, on leasing of
vehicles), PromsvyazLeasing, and some others.
5.1.2 Which leasing companies are independent and which ones are captive
to a particular bank/industrial group
See under question 5.1.1.
5.2 What are the prerequisites to qualify for a leasing arrangement and
what are the terms?
The company, which
applies for a service from a leasing company, should meet a set of criteria,
typical for the regional financial market (business plan, approved by a leasing
expert; no old debts on tax payments, and overdue payments to third parties).
Leasing company would also demand additional pledge or guarantees of third
parties/personal guarantees of the company’s owners to secure financial risk,
associated with a lessee. No additional pledge is required for leasing of
vehicles. Usually, a lessee is required to be in business for minimum one year
(with no bad records).
A leasing company,
owned by a bank, usually requires opening of a clearing account with the bank
for repayments under the leasing agreement. Since submission of a full set of
documents, a leasing company considers an application within 1-5 days for
leasing of vehicles, within 14 days for leasing of machinery and real estate.
Larger deals may be considered for a longer period. A leasing contract is
nominated either in US$/Euro or Rubles, depending on a contract for supply of
equipment, and a customer’s preferences.
A regular set of
documents, submitted to a leasing company, includes:
-
Charter documents
of a lessee company, including a registration certificate;
-
Registration
document from a local office of the Internal Revenue Service;
-
Information from
a lessee’s bank (confirmation of a clearing account, opened with the bank;
confirmation of no claims from the bank to the lessee; authorized copy of the
company’s seal and signatures);
-
Registered
(audited) company’s balance sheet with mandatory attachments/forms for the last
two reported periods (quarterly, yearly);
-
Authorization of
responsibilities of a person, who signs a leasing agreement;
-
Copy of a
passport of the person;
-
Certificate from
a local office of the Internal Revenue Service that a lessee has no
debts/overdue payments to the federal/regional/local budgets.
The set of documents
is shortened by some leasing companies for leasing of vehicles.
5.3 Has any legislation been adopted in your region/country regulating
leasing activities and if yes, when? Is any related legislation pending?
No special laws on leasing were adopted by the regional legislature. The
principal legal documents are as follows:
-
Federal Law “On financial lease (leasing)” N 164-FZ dated 29 October 1998
with amendments made in accordance with Federal Law N 10-FZ dated 29 January
2002;
-
Decree of the Government of the Russian Federation N 1 dated 1 January
2002 “On classification of assets, included into depreciation categories”.
6. Is Financing Obtained Through
Other Sources (savings; black
market loans; offshore investment, barter; countertrade; etc.)
Savings and black
market loans are still a considerable source of funding for start-ups and small
businesses, although their share in overall funding vehicles has been
decreasing compared to 2002.
The share of barter in
a segment of medium and big businesses is insignificant, although it has
slightly increased compared to 2002.
Offshore investment is
an important tool of funding for large industrial projects carried out by
national industrial and financial groups, which have affiliated companies in
the Nizhny Novgorod region (telecom, metallurgy, engineering, food processing,
etc.). Offshore investment is a reasonable source of funding for the projects
in the construction and trade sector of Nizhny Novgorod.
7. Could you make a rough estimate (in %) about which of the above mentioned finance options (question 1 to 6) are the most frequently used to finance the following:
Micro-deals: Banks – 25%; local SME support
funds – 10%; Self-financing – 40%; Black market loans – 25%.
Small deals: Banks – 40%; Self-financing – 50%; Black market loans –
10%.
Medium deals: Banks – 70%; Self-financing – 30%;
Large deals: Banks – 45%; Self-financing – 20%; Cross financing – 20%;
Offshore financing – 10%; Investment funds – 5%.
8.
What Is the Standard Procedure to be Followed by a Company in Your
Country/Region When Applying for Financing? How Long Does It Take?
The
procedure when applying for financing at banks and leasing companies is
similar, although leasing takes more time because of technical issues, related
to the transfer of funds, insuring of equipment, charging of commissions, and
producing necessary payments. Regarding leasing procedures and time
constraints, see above articles 5.1.1 and 5.1.2 of the present report.
A bank loan provision,
traditionally, goes thru the following stages:
(a) A borrower first approaches a bank either personally
or by phone for a consultation (basic information, including calculation of an
interest rate is available at web-sites of some banks).
(b) The borrower receives a pack of documents for
further submission to the bank. It usually includes an application, describing
the purpose of a loan and its duration; copy of the company’s charter
documents; passport copies of a CEO, chief accountant, and the company’s
owners; the company’s balance sheet with mandatory attachments for the last 6
months with a verification stamp of a local IRS office; the company’s cash flow
for the last 6 months, verified by the company’s bank/s; letter/s from other
banks, which provided loans to the company; a list of fixed assets of the
company and certificates of the company’s ownership on the assets; a list of
the company’s inventories; description of a pledge; copies of the company’s
leasing contracts on real estate and vehicles (if any); one/two bank cards with
the company’s CEO and chief accountant signatures, verified by a notary; a loan
agreement; a collateral agreement; a business plan or a summary for the
project; other documents, which may be required by a loan officer.
(c) The bank’s loan officer studies the submitted pack
of documents, produces necessary calculations, and evaluates potential risk
with the borrower. The documents are also verified by the bank’s legal
department. Depending on the situation, an economic security officer/a loan
officer may pay a visit to the borrower to check the collateral. Usually, bank
representatives are reluctant to take real estate as a collateral as it demands
additional time and charges from a customer for the real estate insurance.
Banks prefer liquid securities, inventory in stock, operating equipment and
some other categories of liquid assets as a pledge as they usually demand no
additional paperwork to be registered as collateral. Considerable financial
turnover of the borrower with the bank also contributes to the borrower’s
credibility.
(d) The loan officer submits the file of loan documents
with his/her recommendation to the bank’s loan committee, which approves or
disapproves the loan’s provision.
(e) In case of approval, the bank’s authorized official
signs the agreements and submits them to the loan officer, who, then, passes
one set of documents to the company. The loan officer also ensures transfer of
loan funds to the customer’s account.
(f) Since then, the loan officer monitors the loan,
produces necessary calculations on the interest rate, and ensures the timely
redemption of the interest and the loan.
The total procedure of
documents collection may take from one week to one month from a borrower, if
the company applies for a loan from the bank for the first time. The documents
collection takes less time and efforts from a borrower in case of revolving
loans/credit line/overdraft opened by the bank its customer with a good
financial record.
8.1 for a trade deal
Standard procedure of
applying for a trade deal financing with a commercial bank coincides with the
pattern, described above. Since the documents are submitted to a loan officer
by a borrowing company, the deal is either approved or not within 1-5 working
days.
Consideration may take
longer if the application is submitted to a local branch of the national
commercial bank, which is not entitled to approve loans locally in case the
loan exceeds a certain limit. Then, the documents for a loan are submitted to
the bank’s head office.
8.2 for an investment deal?
Application for an
investment deal financing with a commercial bank will demand more documents
from a corporate borrower and it will take more time for the bank to approve or
disapprove provision of funding. The company should prepare a good business
plan and a feasibility study on the project, to be discussed and further
developed with an investment officer of the bank. The bank would give
preference to the company with a good credit history with the same bank.
Assuming the bank is not restricted in mid-term funds, and the required loan
does not exceed 10% of the bank’s total credit portfolio, then, the company may
receive financing within 1-3 months after submission of all necessary documents
to the bank.
With few exceptions,
most of the regional banks do not have enough mid-term funds to offer
investment financing. Local branches of large national banks are in a
better-off position. Still, investment financing is available only to the
creams of the regional corporate community. Preference is given to large
profitable companies with regular hard-currency returns on export contracts, or
to other local companies, which control considerable niche in the
regional/national market.
Investment financing is
also available with the investment fund Quadriga Capital Russia GmbH (Nizhny
Novgorod office). Still, the fund’s procedures requires from 5 to 9 months of
preliminary work with a customer on the investment project, and the customer’s
financial projections should meet financial criteria of the investment
fund.
8.3 How much time does it take to get a deal financed?
For a micro-deal: 1-5 working days;
For a small deal: 3-14 working days;
For a medium deal: 5-14 working days;
For a large deal: 1-9 months.
Note: Financing for micro-, small, and medium deals takes less time, when
a customer has already got a good credit history with a bank/SME support fund.
Financing for large deals varies in time limits depending on (a) duration and
security of a loan; (b) source of financing, which may come from a bank, from
the company’s industrial & financial group /cross financing/, and from an
investment fund.
9. What Are the Qualifying Conditions On the Checklist of Finance Providers When Considering a Business Proposal (List by order of importance)
9.1 For a domestic Lender
9.2 For a Foreign Lender
National/local banks make no special distinction between a domestic or a
foreign lender, as all financial deals should comply with the regulations of
the Bank of Russia.
1/ Company financials;
2/ Collateral/pledge to get a loan;
3/ Tenors (= terms to pay back a loan)
4/ Sound business idea/trade
deal structure;
5/ Hard currencies exports/receivables;
6/ Solid market position and profit margin;
7/ Loan’s
value (USD, Euro or Rubles – it is mainly decided by a borrower);
8/ Due diligence conducted by a foreign/national organization;
9/ Openness and transparency of
the company;
10/ Penalties for deferred payment;
11/ Others.
Note 1: in late 2003,
the Bank of Russia announced a decrease of the annual interest rate from 18% to
14% in Rubles. Currently, major national banks offer 12%-16% interest rate in
Rubles (or 8% - 12% in USD/Euro) to reliable local borrowers on mid-term loans.
Note 2: Accounting
Standards (IAS, U.S. GAAP standards) are important for the loans, syndicated by
national/local banks jointly with international financial institutions.
10. What Are the Key Obstacles
for a Company to Get Trade Financing or Investment Financing and What Are the
Most Common Errors Committed Resulting in not Getting Any Financing?
1/ Lack of collateral;
2/ Poor business proposal;
3/ Management weakness;
4/ Cost of a loan;
5/ Balance sheet weakness (e.g., lack of
capital; unreliable accounting);
6/ Lack of credit lines from foreign banks;
7/ Unacceptable terms of foreign vendors.
11. What Are the
Financing Programs Available in Your Country/Region Through:
11.1 U.S. Government programs
(Exim, OPIC, TDA, etc.);
Nizhny Novgorod hosts
offices/branches of a dozen of Russian banks, whose guaranties are accepted by
the US Ex-Im Bank for trade finance and investment deals with US machinery and
products.
OPIC mission ran a
seminar for the regional government, local banks and companies in Nizhny
Novgorod in June 2003. OPIC and the regional government agreed on cooperation
on construction and infrastructure projects in the region.
11. 2 Multilateral
institutions (World Bank, EBRD, ADB, IDB, etc.);
The EBRD is a principal
source of funding for both KMB-Bank, and the Quadriga Capital Russia GmbH. In
2003, the EBRD and the IFC increased their stake in the capital of NBD-Bank to
encourage its lending programs for industrial companies and SMEs of the Nizhny
Novgorod region.
11.3
Country/federal/state/regional/local programs?
The government of the
Nizhny Novgorod region has been carrying out a business support program for
local companies in the sector of agribusiness, textile industry and SMEs, when
it compensated 50% of an interest rate on commercial loans, raised by the
companies for the projects, approved by the government. Financing has been
provided within approved quotas, set in the region’s budget.
Investment projects over
US$ 1,000,000 receive tax concessions from the regional and local governments.
12. If Foreign Companies Are Extending Finance (credit), What Are the Common Terms?
A down payment is
usually within 10%-20% of the contract value. A redemption period for most of
the trade finance contracts, announced in 2003, was restricted to 6-18 months,
depending on the price and terms of the contracts. Most of trade finance deals
with German, Japanese, and some other companies were under US$ 10-15 million,
and they provided for a supply of foreign machinery to local companies. Most of
the deals were run via local financial institutions.
There is also a group
of large trading companies in Nizhny Novgorod, which extend short-term credit
lines (1-2 months) with their principal suppliers from Europe at a zero
interest rate.
13.
What Are the Most Common Instruments for Import Payment, e.g., Confirmed LCs,
Off Shore Accounts, etc. and What Terms Are Applicable?
Partial prepayment,
confirmed irrevocable letters of credit (LCs), and confirmed bank guarantees
are the most common instruments for import payment. A new financial instrument
– a back-to-back letter of credit was presented to the market by the local
office of MMB bank in late 2003.
To open an LC or to
receive a bank guarantee, a local company should either deposit an equal amount
of funds with the bank, or apply for a loan (+ collateral agreement) to secure
the bank’s risks, related to the deal.
14. What
Positive Changes Can Be Expected in the Future and What Is Being Prepared at
the Public/Private Level to Improve the Situation for Financing Business
Development in Your Region/Country?
The
biggest change in the regional financial market has been related to a quick
start of consumer credit programs. Within a year, credit programs on
acquisition of durable consumer goods and cars have become common, as they are
provided, nowadays, by every third bank of the region. It is quite probable
that retail banking will stay one of the most dynamic vehicles in the regional
market for the next two years. According to the Russian statistics, sales of
foreign cars reached the amount of sales of Russian cars, in a financial
equivalent, in 2003. Wider access to retail credits may also stimulate
consumption of foreign durable goods as well. Retail banking may further
develop in the sectors of credit cards (where an overdraft on the balance
account will stand for a short-term loan), and mortgage lending. The latter has
been offered mainly by Sberbank at the regional market, but with a set of
national laws, to be passed in 2004-2005, and a possible decrease of inflation
and, consequently, of the interest rate of the Bank of Russia, mortgage lending
may become more common thru other large commercial banks of Russia. The
national bank deposit insurance policy, to be launched in mid-2004, would also
stimulate development of the retail banking in Russia, and in the Nizhny
Novgorod region, in particular.
Development
of investment banking has been slow, although it is another perspective niche
in the regional financial market, which may start growing after 2005 – 2006.
Traditional
services of corporate banking have not revealed big changes in 2003, and a
decrease in the interest rate of the Bank of Russia has not led to considerable
improvements for, at least, two reasons: the quality of corporate borrowers is
still moderate (the banks are reluctant to increase loan portfolio with
corporate customers due to a growing risk of bad loans), and the banks’ premium
is decreasing while the costs are not. The second problem may be partially sold
for the next few years, when national and regional banks start merging to
increase efficiency of operation, pool more resources, and cut costs.
15. Are
there any Publications and Web Site in English and/or Russian that Address
Finance Issues?
www.alfabank.ru/branches/nizhni
www.uralsibbank.ru/network/nnovgorod/
www.ifc.org/russianleasing/eng
16. Is Consumer Credit
Available in Your Country/Region?
Yes,
it is.
16. 1 If Yes, for what
purchases the credit is mostly used for?
The most common goods, purchased with consumer
credit, are electronics (TVs, videos, stereos, etc.), computers, printers,
scanners, other durable consumer goods, DIY products, vehicles and cars. A new
venue in consumer credit is holiday tours, annual fees for beauty saloons,
sports & recreation centers. The
most popular consumer credits are for purchasing of cars and electronics.
16.2 How do banks compile
and evaluate credit history information?
Financial institutions, which operate in the
sector of consumer credit, can be divided in two major groups according to the
methods of credit history evaluation: (a) traditional; (b) express.
Traditional banks are the most numerous, and
consumer credits are a new product for them. They are mainly focused on car
credits, and some of them – on durable consumer goods. They usually take the
pledge of other people (third party) and of the acquired equipment as
collateral. Insurance of the acquired consumer good, especially, of a car, is
mandatory. The loan procedure may take from 1 to 5 days. The annual interest
rate on cars is usually within 11%-14% in USD or 19%-21% in Rubles, and the
bank charges 2% from a car price as its commission.
Express banks have come to the Nizhny Novgorod
market, mainly, in 2003. They are focused only on credits for acquisitions of
consumer goods (except cars), and they apply their own electronic scoring
systems, which enable them to approve/disapprove a loan within 15 minutes since
an application. They usually offer a relatively high interest rate – up to 34%
annually in Rubles – which is often partly hidden in a price of a good under an
agreement with a trading company. The list of express banks in the regional
market includes Home-Credit, Delta-Credit, and Russky Standard.
Although express banks are quite active in the
regional market, it is probable that they would be ‘squeezed’ in two-three
years by the banks, which are developing credit card programs with a short-term
overdraft. The period of two-three years is a necessary minimum for the banks
to accumulate basic credit information on its customers, who actively apply
credit cards services.
17. Are
there other public or
private resources available in your country/region that could provide
assistance to potential investors and/or lenders?
The Nizhny Novgorod region Chamber of
Commerce and Industry
1 Oktyabrskaya square Nizhny Novgorod 603005
Russia
tel: +7 8312 19 42 10
fax: +7 8312 19 40 09
e-mail: tpp@rda.nnov.ru
The Nizhny Novgorod Regional Development
Agency
1 Oktyabrskaya square Nizhny Novgorod 603005
Russia
tel/fax: +7 8312 19 47 82
tel/fax: +7 8312 31 73 37