Equipment leasing is a hot trend
By Richard Fu |
November 19, 2012, Monday
|
Print Edition
Print Edition
DEMAND from Chinese power plants for leased large equipment is strengthening, with the companies turning to leasing finance to ease capital burdens.
Although leasing finance is not new in many businesses and in many developed nations, it has only recently come into play in China's power industry, sector officials said.
"Power plant developers just didn't get the idea of leasing finance in the past," said Zheng Sixiong, general manager of Shanghai Electric Leasing Co. "But there is strong demand today, particular in western regions such as Xinjiang."
The company is a unit of Shanghai Electric Group, China's leading power-equipment maker, which competes with Chengdu-based Dongfang Electric Corp from Sichuan Province and with Harbin Power Equipment Co in the northeastern province of Heilongjiang.
Project developers look not only at technology and price but also at financing mechanisms when they want equipment, Zheng added.
Under leasing finance, a power plant owner hires equipment, such as turbines and generators, from a finance company that which arranges for the asset. The borrower will pay a series of rental installments for use of the equipment, while the lessor will recover the cost of the asset plus earn interest from the rentals.
Shanghai Electric Leasing has won two lease-financing deals that are the first of their kind in China's thermal power generation and wind power industries, Zheng said in an interview on the sidelines of the 9th China International Finance Forum.
In the wind project, Shanghai Electric Leasing signed a 280 million yuan (US$44.8 million) contract with Hong Kong-listed China WindPower Group Ltd to jointly build a windmill farm in Anhui Province.
"It broke the limitations of traditional finance leasing, which was restricted to equipment financing, and went into project financing, providing funds to complete the project through a method of leasing back the whole project," China WindPower said in a release, calling the contract a "financial innovation."
Shanghai Electric Group aims to make its leasing unit one of its key growth engines in the next five years and to inject the assets into its flagship-listed unit, Zheng said.
Still, the company is seeking stable growth with the aim of serving its state-owned parent company as part of efforts in risk control, he added. Currently, about half of the company's business comes from inside the group.
For the group company, the leasing unit could help abate the risks of unpaid bills, especially in the machinery equipment segment, he said.
In addition to its core business, Shanghai Electric also makes machinery equipment, printing and packaging equipment, textile machines and machine tools. Shanghai Electric Leasing has also been serving these smaller industries, which currently comprise half of its 2.2 billion yuan worth of equipment leasing last year.
Unpaid bills are common in the machinery-equipment industry, which tends to feel the effects of an economic slowdown that cuts demand for excavators and cranes.
Sany Heavy Industry Co, China's largest machinery equipment maker, has reported a 59 percent drop in third-quarter earnings. Sany said its accounts receivables as of September 30 - the money owed by its clients - rose 83 percent from a year earlier to 20.7 billion yuan.
Shanghai Electric Leasing won't provide leasing for equipment unrelated to its parent company's business and doesn't intend to compete with other bank-backed leasing companies or third-party finance companies, Zheng said.
"As a vendor-based leasing company, we have expertise in areas where other pure finance companies don't," he said. "We aim to be a professional service provider."
There were around 500 leasing finance companies in China at the end of the third quarter, with combined assets of 1 trillion yuan, or more than 30 times the level in 2007, according to Yang Zaiping, executive vice president of the China Banking Association.
But the penetration rate for the sector still lags that of developed nations, leaving great growth potential, Yang said.
Although leasing finance is not new in many businesses and in many developed nations, it has only recently come into play in China's power industry, sector officials said.
"Power plant developers just didn't get the idea of leasing finance in the past," said Zheng Sixiong, general manager of Shanghai Electric Leasing Co. "But there is strong demand today, particular in western regions such as Xinjiang."
The company is a unit of Shanghai Electric Group, China's leading power-equipment maker, which competes with Chengdu-based Dongfang Electric Corp from Sichuan Province and with Harbin Power Equipment Co in the northeastern province of Heilongjiang.
Project developers look not only at technology and price but also at financing mechanisms when they want equipment, Zheng added.
Under leasing finance, a power plant owner hires equipment, such as turbines and generators, from a finance company that which arranges for the asset. The borrower will pay a series of rental installments for use of the equipment, while the lessor will recover the cost of the asset plus earn interest from the rentals.
Shanghai Electric Leasing has won two lease-financing deals that are the first of their kind in China's thermal power generation and wind power industries, Zheng said in an interview on the sidelines of the 9th China International Finance Forum.
In the wind project, Shanghai Electric Leasing signed a 280 million yuan (US$44.8 million) contract with Hong Kong-listed China WindPower Group Ltd to jointly build a windmill farm in Anhui Province.
"It broke the limitations of traditional finance leasing, which was restricted to equipment financing, and went into project financing, providing funds to complete the project through a method of leasing back the whole project," China WindPower said in a release, calling the contract a "financial innovation."
Shanghai Electric Group aims to make its leasing unit one of its key growth engines in the next five years and to inject the assets into its flagship-listed unit, Zheng said.
Still, the company is seeking stable growth with the aim of serving its state-owned parent company as part of efforts in risk control, he added. Currently, about half of the company's business comes from inside the group.
For the group company, the leasing unit could help abate the risks of unpaid bills, especially in the machinery equipment segment, he said.
In addition to its core business, Shanghai Electric also makes machinery equipment, printing and packaging equipment, textile machines and machine tools. Shanghai Electric Leasing has also been serving these smaller industries, which currently comprise half of its 2.2 billion yuan worth of equipment leasing last year.
Unpaid bills are common in the machinery-equipment industry, which tends to feel the effects of an economic slowdown that cuts demand for excavators and cranes.
Sany Heavy Industry Co, China's largest machinery equipment maker, has reported a 59 percent drop in third-quarter earnings. Sany said its accounts receivables as of September 30 - the money owed by its clients - rose 83 percent from a year earlier to 20.7 billion yuan.
Shanghai Electric Leasing won't provide leasing for equipment unrelated to its parent company's business and doesn't intend to compete with other bank-backed leasing companies or third-party finance companies, Zheng said.
"As a vendor-based leasing company, we have expertise in areas where other pure finance companies don't," he said. "We aim to be a professional service provider."
There were around 500 leasing finance companies in China at the end of the third quarter, with combined assets of 1 trillion yuan, or more than 30 times the level in 2007, according to Yang Zaiping, executive vice president of the China Banking Association.
But the penetration rate for the sector still lags that of developed nations, leaving great growth potential, Yang said.
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