Leasing firm looks to maintain heady growth rate with offering
Wroclaw-based leasing firm Europejski Fundusz Leasingowy (EFL) plans to raise zl. 250 million-zl. 290 million ($61 million-$70.7 million) through an initial public offering (IPO) slated for this month.
EFL's IPO will see 36% of the company floated publicly on the Warsaw Stock Exchange (WSE) and in London through global depository receipts (GDRs). The company intends to sell 2 million shares at
zl. 125-zl. 145 each.
EFL president Leszek Czarnecki, said the company needs fresh capital to invest in leased assets and to fund debt payments.
After the IPO, Czarnecki will hold the remaining 64% stake in the company. The projected price range gives EFL a market capitalization of zl. 687.5 million-zl. 797.5 million ($167.7 million-$194.5 million).
EFL, one of the dominant leasing firms in Poland, is attracting interest from both foreign and domestic institutional investors, said Artur Kozieja, vice president of Credit Suisse First Boston (CSFB), the lead manager in the IPO. He said that investors find the company interesting because of its position as a leader in leasing to the rapidly growing small and medium-sized business sector.
The company has set aside an extra 300,000 shares to meet oversubscription needs, meaning EFL could raise as much as zl. 287.5 million-zl. 333.5 million ($70.1 million-$81.3 million), said Marcin Matura, an analyst with BIG Bank Gdanski's brokerage house, co-manager in the offering. The subscription period for EFL's shares runs March 21-24.
EFL is ranked second among Polish leasing firms in terms of the value of its leased assets. Last year its net profit hit zl. 76.3 million ($19.6 million), up 42.4% from 1998, and up 365% from 1996. Based on 1999 results, EFL will carry earnings per share of zl. 13.63 and a price-to-earnings ratio (P/E) of 9.2-10.6. That compares to the WSE average P/E of 27.1 on March 2, based on 1999 earnings.
EFL is not the first leasing company to tap public markets; Kopex Leasing System is already traded on the WSE's parallel market. However, Czarnecki said that he doubts the market will see many more leasing companies go public. He said that a few large firms are now beginning to dominate the market, squeezing out smaller competition.
"We'll probably be one of the last (to go public because) most companies are suffering because of us," he said. "The problem will be resolved due to our growth. There will be nothing left to be floated."
Czarnecki said EFI wants to use the money raised in the IPO to further invest in leased assets. The company also needs the extra capital to meet its fast-growing debt requirements. The company's leased assets grew about 60% last year, and rose 60% more in the first two months of 2000. Thus far the company has turned to domestic and international banks to finance that growth, knocking on the doors of institutions such as Bank Handlowy, Wielkopolski Bank Kredytowy (WBK), Rabobank and Deutsche Bank.
The firm also tapped the debt market via commercial papers. But despite its relatively low debt-to-equity ratio of 4.5, bank credit is still hard to obtain, Czarnecki said.
"If we had the possibility to finance our growth via credit we would," Czarnecki said. "If we found a bank that could give an additional $100 million we probably wouldn't have made the decision about the IPO, but it's very difficult to obtain this financing."
Leasing is similar to renting, allowing clients to obtain use of a piece of equipment without the delays inherent in applying for credit or the expense incurred by buying up front. When a leasing contract expires, unlike renting, the customer can take ownership with a relatively small additional cost.
Much of EFL's revenue comes from leasing commercial vehicles, which accounts for around 90% of its activity. In the first half of 1999, EFL enjoyed a market share of 21.1% in this area alone, up from 16.8% in all of 1998, Czarnecki said. The remainder of its business comes from leasing equipment, primarily computers and systems, where the firm has a 3-5% market share.
Key to the company's strategy and recent success is the growth of its target group small to medium-sized enterprises. These companies accounted for roughly 50% of Poland's gross domestic product (GDP) last year, Kozieja said. While a few years ago only about 500,000 of these businesses existed, the country now has 2.4 million of them.
EFL controls about 14% of the market for lease-based financing to small to medium-sized companies, Kozieja said. "They have great exposure to a growing sector in Poland and this is a great market for the company," he said.
