In May 2007, Vyachislav Levitski, the director of Odessa-based construction company INDOSTROI, had just been awarded a large municipal contract for road reconstruction. Although the fast-growing, midsize company had a good credit history and had received previous bank loans, INDOSTROI was unable to get further bank financing for equipment without additional collateral. To fulfill the large road reconstruction contract, Levitski resorted to renting equipment, which was both unreliable and expensive. He knew that he needed another solution to meet his client’s demands and reach further potential growth.
Market surveys conducted by IFC’s Ukraine Leasing Development Project in 2004 and 2005 identified two main impediments to growth in the leasing market: access to long-term financing and lack of knowledge about leasing among entrepreneurs. Although awareness of leasing as an alternative financial instrument was beginning to grow in Ukraine’s capital, Kyiv, it was virtually nonexistent in other regions. As a result, the Project designed a public education campaign aimed to increase awareness of leasing among entrepreneurs and, therefore, the number of lessors. To reach potential lessees in the regions, the Project hit the road, with the help of partner agencies, and conducted seminars in over 15 regions with journalists and entrepreneurs.
One such seminar was held in May 2007 in Odessa with the Association of Lifting Equipment Operators. IFC convinced the association that leasing presented a good opportunity for construction companies to grow their businesses. At the seminar, which was co-organized with IFC and the Ukrainian Union of Lessors, IFC presented an overview of leasing, and 10 leasing companies provided short presentation about different aspects of leasing and their services.
At the conference, Levitski met Denis Vasilenko, director of FinLeasing Group, a leasing company that specializes in construction equipment, with a total leasing portfolio of around $25 million.
As Vasilenko says, the conference was an “excellent opportunity” for FinLeasing Group to meet directly with potential clients. After all, the hall was filled with a captive audience of potential customers. After FinLeasing Group’s presentation, Levitski approached Vasilenko for advice on financing equipment. This meeting led to a $650,000 leasing deal for three steam rollers and one asphalt layer.
Facilitating access to leases for SMEs
The deal only took 3 weeks because both parties came to the seminar ready to do business. Vasilenko says that it normally takes about two or three months to complete a deal, mainly because the client needs to evaluate the technical specifications of available equipment and legal documentation. In this case, though, INDOSTROI already had signed contracts to prove future cash flows and knew exactly what equipment was needed to satisfy these contracts.
Vasilenko said that it is possible to measure the effectiveness of such an event: in fact, this event was “better than an ad for reaching potential clients, because we are not working with pictures, but with people, so we are able to build trust. For a $650,000 deal, one needs to meet with a person.”
He adds that “banks work with clients, we work with people. IFC helps us find the right people.” Unlike banks, leasing companies like FinLeasing Group have a good understanding of their clients’ business and are therefore in a better position to offer more industry-specific services, particularly when it comes to recommending equipment and suppliers, and can offer financing based on future cash flows, rather than existing collateral. Leasing is the ideal financial instrument, therefore, for a company like INDOSTROI which needs more equipment to increase capacity and revenue.
IFC’s Public Education Campaign on Leasing:
- 15 regional seminars throughout Ukraine for entrepreneurs
- 5,000 unique visitors to project’s website every month (www.leasing.org.ua)
- 15 issues published of bi-monthly business journal on leasing (circulation 1,000)
- 22 press clubs for journalists on leasing
- 200% increase in media coverage of leasing throughout Ukraine.
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