Leasing company looks to European share issue

Firm unable to raise funds with local banks Centralne Towarzystwo Leasingowe (CTL), Poland's largest private leasing company, is planning to raise €100 million ($87 million) though a European share issue this fall. CTL is the first domestic leasing company to seek financing through securitization - the pooling of assets to back the issue of securities. The search for funds on foreign markets stems from the unwillingness of banks to finance the Polish leasing industry, company officials said. "Our group used to generate revenue of more than zł. 400 million ($97 million) a year on leasing, while last year we managed only half of this," said Jacek Smoleński, chairman of CTL. "We aim to return to that level within two to three years." Poland's leasing industry has room to grow as the percentage of fixed assets financed through leasing is only 8% compared to 20-30% in Western Europe, said Grzegorz Zawada, a banking analyst at Erste Securities. But unclear accounting and taxation laws, and the impact of the collapse of BG Leasing last year has undermined the confidence of banks in the leasing industry as potential borrowers. BG went under with losses of zł. 132 million ($31.4 million) in 2001. "The fact that most banks in Poland operate their own leasing companies has definitely been a factor in their attitude to financing outsiders," Zawada said. "Since independent leasing companies are unable to make banks change their position they are forced to change their sources of finance," Smoleński said. "We see this in a share issue on the euro market that will allow us to expand our leasing portfolio." The value of assets leased by CTL has fallen from zł. 423 million ($100 million) in 2000 to zł. 128.2 million ($30.5 million) in 2001, according to the Polish Association of Leasing Companies (KPL). To improve its standing, the company is reducing its staff by 30% and merging its three regional concerns. CTL is also making its assets attractive to investors by restructuring the company's portfolio to increase its number of contracts and lower their average value. "For our portfolio to reach this ideal state, in the next few days we will approach clients with leasing contracts of significant value to terminate their contracts early on preferential terms," Smoleński said. He explained that financing leasing through a group of shareholders is cheaper than borrowing from a bank and would reduce CTL's exposure to the investment decisions of a single creditor. Smoleński said the company hasn't decided where to float the issue. Although smaller leasing contracts offer investors smaller potential returns, in the current economic climate the issue will be more attractive for offering a lower level of risk, Zawada said. "Given the macroeconomic situation … the risk issue is much more important than the return," he said. "If (the portfolio) is too focused on one company or industry it would be much more prone to the economic downturn." Zawada predicted that foreign investors would become increasingly interested in Poland, given its convergence with the European Union and the government's infrastructure development plans. "These will definitely trigger a lot of fixed-asset investment," Zawada said. "If the project is structured in an attractive way … there should be a lot of interest."