Leasing in Uzbekistan:

The leasing sector in Uzbekistan is alive and well as lease financing becomes more understood and used as a financial tool.

In most emerging and transitional markets lease financing usually follows traditional corporate finance, project finance and private equity. Uzbekistan is no different, in that while leasing has existed for more than ten years, general acceptance and real growth have occurred in the last three years. While specialized leasing companies exist, most lease financing is currently done by the commercial banks. This will change as the sector continues to expand and companies begin to specialize into such areas as car and/or vehicle leasing, operational leasing (where the leasing company provides the operators/crew as well), construction equipment leasing, and systems leasing where software accompanies the hardware being leased. As the sector grows and fragments, it will also become more sophisticated with the leasing companies (known as "lessor") needing to become more knowledgeable about their clients (known as "lessee") requirements and how those can best be served. An example of this would be in assessing the need to use new equipment versus used equipment, and the comparative merits of each. This also implies a growing closeness between the lessor and the equipment supplier, especially if servicing and spare parts are an important consideration. This is important to the lessee as well, as they will most likely acquire the leased equipment/machinery at the end of the lease term, and they are interested in making sure that the assets useful life is assured by proper maintenance, spares and manufacturers support.

While we speak of leasing machinery and equipment, there is really no limit to the things that can be leased, with real estate being another growing category. Specialized and/or custom built warehouses, production facilities and the like can easy be fit into a lease proposal. The same applies to sale and leaseback or "back leasing" as it's called in Uzbekistan. The asset is sold to the leasing company and then leased back on prearranged terms. Prevailing lease conditions in the Uzbek market provide for three year terms with the lease payments denominated in cither Uzbek Soum or US Dollars (payable in Soum). Interest is charged but it is factored into the lease price that is normally paid monthly. Collateral requirements vary from company-to-company and can be quite flexible. Venture leasing is also being developed, and this will primarily benefit new start-up companies and others that lack an asset base.

In this short article it is impossible to describe the many ways leasing can be used to help finance a company and/or a project, but the combination of terms, currencies, collateral packages and renewal options make it a requirement for all corporate financial officers to know about and explore.

With some sixteen active leasing companies and banks involved, the sector is experiencing high growth that will be further assisted by a recent government decree that exempted leasing companies from income tax for three years. Lessee already enjoy significant tax benefits from leasing and the combination of measures should accentuate the attractive advantages of leasing as a financial option as well as forcing the lessee's to be more competitive and flexible.

Written by Donald Nicholson II, Regional Director of the SEAF Central Asia Small Enterprise Fund that owns Business Leasing in Tashkent