October1999XINDETELECOM1FinanceLeaseinChina：TurningChallengeintoOpportunitiesNewformsandnewstructuresforthenewcentury22October1999,BeijingByWilliamKruegerOctober1999XINDETELECOM2CONTENTS1,ConventionalFinanceLease2,TheLeasingCycle3,StructuredParticipatingLease4,HowDoesSPLWork5,Restructuring6,ConclusionOctober1999XINDETELECOM31,ConventionalFinanceLease•ItiswidelyusedandwellknowninthebusinesscircleofJVleasecompaniesinChina.•GreatachievementhasbeenmadeonsomeindustriesandregionsinChina.•Disadvantage:Lackofflexibility.October1999XINDETELECOM4AComprehensiveTransactionLenderGuarantorSupplierThreeParties+Guarantor&Lender(1)(2)LesseeLessorOctober1999XINDETELECOM5MultipleContracts(1)MasterFinanceLeaseContractbetweenlessorandlessee.(2)PurchaseContractsbetweenlessorandsuppliersbasedonlessee’sdecision.(3)CapitalfundsLoanatLIBOR+aLeaseatLIBOR+b(4)Guarantee.October1999XINDETELECOM6ApplicableScope•Awell-establishedoperatororcorporateentity.•Purchasingequipmentfortheexpansionofitsoperations.•Leaseobligationissupportedbyotherprofitablebusinesses.•Guaranteeusuallyrequired.October1999XINDETELECOM7GreatAchievementinChina•Startpoint:1981.•41JVcompanies.•Raisedcapitalfunds>US$7billion,attheendof1998.•ForeigninvestorMajorityfromJapan,andallindustrializedcountriesandregions.•Industries:Telecommunication,Aircraft,Petrochemical,Metallurgy,Textile,Lightindustry.October1999XINDETELECOM8LackofFlexibility•Shortleaseperiod.•Fixedrentrepaymentdate&rent.•Strictcreditassessment.•Amountofleaseprincipalislimited.•Limitedtowellestablishedoperators.•Limitedtosingleequipmentunits.October1999XINDETELECOM92,TheLeasingCycleFinanceleasesFlexible/creativefinanceleasesOperatingleaseInnovativeleasesMaturityOctober1999XINDETELECOM10TheFinanceLeaseBasics•Customer(Lessee)isusingLeasetofinance100%ofafixedasset•LeaseCompany(Lessor)ispaying100%ofthecostsofthefixedasset,soretainstitleuntilendofthelease.•TheLeasetransferssubstantiallyallrisksandrewardsincidenttoownershipofanasset.October1999XINDETELECOM11TheBasics(cont.)•TheLeaseisnon-cancelable.•AtendofLease,thetitleistransferredtoLesseeatsymbolicvalue.•Lessee’scostisinterestontheLease,maintenanceandinsuranceoftheequipmentandamortization.•Lessor’sprofitistheinterestmargin.October1999XINDETELECOM12Flexible/CreativeFinanceLeases•Structuresaredependentonlessee’scashflow.•Lessoroffersadditionalservices•Establishmentoflegaltaxandaccountingguidelines•HighgrowthandmarketpenetrationOctober1999XINDETELECOM133,StructuredParticipatingLease•Secondstageintheleasingcycle.•Flexibility:inthefinancing;andrentalrepaymenttomeetlesseescashflow.•Creative:lessoroffersadditionalservices.October1999XINDETELECOM14Structured•Abundleofassetsnotthewholecompany•ItisheavilysupportedbycontractualobligationsprovidingforjointsupervisionoftheprojectOctober1999XINDETELECOM15Participating•Thetimingandtheamountofleasepaymentdependentuponthebusinessperformance•Sharingfinancialbenefitsbutnotmanagementofoperations.•Sharingimpactofforeignexchangefluctuations•ThepaymentobligationtriggerbycertaineventOctober1999XINDETELECOM16Lease•Astandardizedandlegalapproachfortransaction.•ConformtotheContractLawofthePRC.,otherLawsandRegulationsinChina.October1999XINDETELECOM17EssentialelementsofSPLcontract1.Defineleasedobjects2.Statusuponexpiration3.Amount,timing,numberofrentalpayments...
