LEASING OF TRANSPORT VEHICLES - Intermotor Armenia
| Project
Plus, member of HB Holding CJSC, together with the Daimler Chrysler Corporation
and Intermotor Armenia, the local representative of Daimler Chrysler, has developed this project for establishing a leasing company in Armenia -- First Leasing and Finance (FLF). Introduction: Armenia is enjoying sustained economic growth, and there is an emerging demand for productive loans and complementary sources for funding of capital assets. However, the market of funding the capital assets is limited to commercial banks, which provide loans on the short-term basis, with high interest rates, and with strict collateral policies. There is no well-established market for financial intermediary services offering alternatives to loan financing of capital assets. The introduction of a well functioning system of lease finance will facilitate the development of private as well as public transportation sectors, providing better terms and conditions for procurement of vehicles, agricultural and construction equipment. Concept: FLF will be established as a financial intermediary company dedicated to developing better financial solutions, mainly leasing services, for private and governmental businesses. The founders of the Project are Intermotor Armenia (the local representative of Daimler Chrysler in Armenia) and MB Leasing (Mercedes Benz Leasing), together with Daimler Chrysler New Corporate Business Projects Department and Daimler Chrysler Moscow Regional Office. The legal framework governing leasing activities in Armenia provides adequate regulation only for leasing services in the transportation sector, currently. Hence, FLF will start its operations in the car-leasing segment of the market, basically offering Mercedes-Benz vehicles. With the development of the adequate regulatory framework, the Company will expand its operations and provide financial leasing services for the industrial, agricultural, construction vehicles, and then in the other sectors. The target markets for the Company at this stage are taxi companies, car rental companies, tourism companies, passenger and cargo transportation companies operating in the whole territory of Armenia. The brand name of the Mercedes-Benz cars, that the FLF is going to lease to its customers, will serve as a highly valuable reputational asset for the Company. The Mercedes Benz brand also has the advantage of a highly qualified service center available in Yerevan. An important economic benefit of the project will be its vital contribution to the development of all economic and commercial sectors, specifically, the industrial, tourism, transportation, and service sectors of Armenia, with significant impact on employment and infrastructure development. Operations: The Company will provide financial leasing services for passenger cars, vans, buses, and trucks, mainly used as commercial vehicles, with the following conditions: Leasing without purchase right: This will be a zero accounting leasing. The lessee will pay a low monthly fee, but the vehicles will remain the property of the lessor. These vehicles will be replaced by new vehicle every 3 years. Leasing of vehicles with purchase right: The lessee will pay a down payment and higher monthly rate compared with the previous option. But the vehicle will become his property at the end of the contract, in a three-year period. For the case of taxi leasing besides above mentioned two cases, two more options are also assumed in the calculations: Single owner, when car will be given to one driver; and, Two owners, when two drivers will own the car; each of them will operate the car for 12 hours and pay half the daily rate. The Financial Plan: To start its leasing services the Company needs to raise 15 million EUR, during the first four years. The project will be implemented as four subprojects over four years. The amount of capital needed for the first year of the Company s operations is 4 million EUR, and the remainder is needed during the subsequent three years. It is proposed that the founders of the Company will initially invest an equity capital of up to 5 million EUR. The Company plans to start returning the invested amounts to the shareholders from the fourth year. The average payback period is 9 years, and the IRR of the project is 21%. The average lease rate is expected to be in the range from 15 EUR (for taxies) to 170 EUR (for trucks and buses) per day. The average lease period will be 3 years for passenger cars and 5 years for trucks and buses. Key Project Indicators: Total Project Full Scale cost: 15 million EUR Investment needed in the first year: 4 million EUR Project start date: January 2002 Project implementation period: Four years Full Pay back period: Nine years IRR 21.12%s NPV 7,732,989.38 EUR ROE 252.26% ROI 188.36%. During the first three years of operations the Company intends to sell about 500 Mercedes-Benz passenger cars, trucks, buses, and mini-buses. This number will increase at about 20 percent of its annual number of vehicles, starting from the fourth year of operations. Additional sources of financing could include the International Finance Corporation, the European Bank for Reconstruction and Development, the Overseas Private Investment Corporation (OPIC), The Caucasus Fund, the capital market, and international banks. They may help the Company to gain equity and low-interest debt financing; as well as by their participation will add credibility and confidence to the Company business. Local and foreign banks, as well as insurance companies operating in Armenia will also be considered as potential minority shareholders and future partners. Preliminary agreement was reached with the Deutsche Bank for funding the project. Based on the emerging demand for lease financing schemes in the Armenian market and the preliminary financial estimations, the Project is considered not only a profitable business opportunity but also a first step in investigating the whole financial leasing industry of Armenia. Point of Contact: Mr. Levon Arevshatyan General Manager Intermotor Armenia JV CJSC General Distributor to Daimler Chrysler in Armenia Gai Ave 14/3 375062 Yerevan, Armenia Tel: 374-1-58 12 75, 52 80 85, 63 85 97 Fax: 374-1-56 51 79 E-mail: levon-arevshatyan@mercedez-benz.am intmot@mercedez-benz.am |