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“Leasing is more than a rent”
«Big Business» Magazine, March 2007
Over 80% of freight traffic in Russia is carried via railroads. The lack of rail cars remains the main issue. In global
practice leasing is considered as the most effective in every respect form to receive required rolling stock. Vladimir
Lelekov, Brunswick Rail General Director tells «Big Business» (BB) about trends and perspectives of Russian rail
leasing market.
Mr. Lelekov, your company was established in 2004. Please describe entering the Russian market experience
and results that were accomplished over these years of activity.
Brunswick Rail was practically the first international company who draw attention to the rolling stock leasing
opportunities. Company was established by a group of international investors consisting of Brunswick Group,
Japanese Corporation Sumitomo and International Finance Corporation (IFC/ World Bank). We hold a leading
position on the Russian rolling stock leasing market. Our company is the major purchaser of freight rail cars after
RZD. We are an absolute leader among companies providing operating lease of freight rolling stock in terms of freight
fleet size and its growth rate. Over the past 6 months our own fleet size doubled comparing to September 2006
measures and now compiles to about 5000 units.
What services does BRL provide?
Our company positions itself as an all-purpose or system-based provider which means we can offer a solution that
meets all client’s requirements related to rolling stock as well as optimization of asset profile involved in leasing
transactions.
Our core services are operating and financial lease and lease-back. Operating lease basically represents rolling stock
rent. This service is quite popular in the Western countries. It gives lessee carte blanche in decision making. Lessee
based on its business development has an opportunity to continue renting rolling stock at the end of lease contract or
abandon it without consequences.
Financial lease is a type of hire-purchasing of rolling stock when client receives certain tax advantages.
Third lease type is lease-back. We buy rail cars from an owner, which are not they core asset and lease their rolling
stock to them. Thus, a company keeps access to the rolling stock and at the same time receives cash funds to
reinvest in their core business.
We also combine these types of leasing and form the offer depending on the client requirements.
More and more Russian companies lunch an IPO. What type of lease will be in demand in Russia in this
connection?
We see growing interest in lease-back on the part of major incorporations and industrial holdings that plan to lunch an
IPO. This is related to the asset profile optimization. International investors who participate in share purchase during
IPO attach great importance whether a company is focused on its core business. Historically, a lot of local producers
either have its own transportation department or a affiliated freight forwarding company. As far as investors are
concerned having non-core assets on the balance-sheet is a significant disadvantage. Considering that fact that most
of major Russian companies need substantial investments for modernization of their core operations, lease-back
could become one of the most demanding services in the nearest 5 years.
As a rolling stock leasing market pioneer would you say that the competition improved?
Competition has become stronger lately. Foreign banks subsidiaries operating in Russia as well as Sberbank, VTB,
etc., are dynamic market players on the freight rolling stock market. We see a growing interest from international
corporations such as Citigroup, General Electric, as well as from specialized European and American leasing
companies. So far, the market is pretty loose and there’s enough space for everyone. In the perspective, those
companies that have industry expertise and have significant financial opportunities, would become competitive.
Brunswick has strong positions in this business and we are intended to keep and strengthen them.
What are the market advantages of your company?
Firstly, our advantage is our expertise on the rolling stock. This is convenient to our clients. We are in charge
of all the issues related to the rolling stock purchasing, registration, exploitation and disposal. Brunswick
technical expertise is certainly qualified the highest on the market among leasing companies. «We see the
growing interest from major corporations towards lease-back. It is possible that it becomes one of the most popular
among other leasing services in the nearest 5 years.»
Secondly, our advantage is our financial opportunities. We are based on the funds from our investors, an
international banking syndicate, and are able to provide competitive financial conditions.
Our third significant advantage is the fact that we’re one of the major rolling stock purchasers. We hold production
shares, long-term contracts with producers, which allow our clients to receive an opportunity to obtain required rolling
stock in shorter period of time comparing to the standard for the moment offers.
Why in your opinion a lot of major companies prefer to purchase rail cars, when there’s such a convenient
type of long-term rent as leasing?
It is a question of transport security. Warehouse of own cargo costs them much more than any expenses on
the transportation services market. Operating lease provided by an independent large reliable company was
unavailable on Russian market for a long time. Therefore most of the companies preferred to build up their own fleet.
Inertness of thought still works and companies tend to purchase rail cars.
«Leasing companies entering the market with their financial resources will help freight forwarders to obtain modern
rolling stock and thus improve competitiveness.»
How would you evaluate an opportunity to extend volume of leasing deals with traction equipment?
Traction equipment lease business is very interesting, although I think there will be no conductive
environment for its development in Russia. The case is that RZD is lacking a huge number of both diesel and
electric locomotives. All the contracts that have been signed with locomotives producers are long-term contracts with
RZD. There’re no spare volumes of locomotives for forwarding companies to purchase independently or through
leasing companies. It’s difficult to discuss perspectives of the traction equipment leasing for this reason.
How do you grade perspectives for rolling stock leasing in Russia?
What trends would bedetermining in the coming years?
Leasing market formation was influenced by RZD reform which implied separating of a cargo forwarding company
and structural changes on the shipping operations market. We expect consolidations on the market in the nearest
years. 5-7 private forwarding companies will remain on the market, including ones that have separated from RZD
already as well as affiliated forwarding companies of major industrial producers. These companies will operate in the
open market and compete between each other, access to the modern, economically effective rolling stock is
important for them.
Significant fleet renewal is expected. Fundamental purchasing expenses on rolling stock could compile to tens of
trillions USD as a conservative estimate. Certainly currently existing and recreated forwarding companies will not be
able to accumulate such great funds out of profits. And here comes out good opportunities for leasing companies,
who enter the market with their financial resources and help cargo forwarders to obtain modern rolling stock thus to
improve their competitive advantage. We consider that Brunswick has strong position in this context. We have a
better understanding of rolling stock technical development and work closely with our clients to understand their
requirements and satisfy them to the utmost.
What are the nearest plans and perspectives of your company?
We plan to build up our fleet up to 7 thousand units at least and strengthen our market leaser’s position. In
perspective we plan to create the product packages that would be the most competitive on the market out of all the
excising leasing products. I’m sure, in 10 years Brunswick will be more like major American leasing companies with
own fleet of 50-100 thousand rail cars, repair depots, technical services, engineering departments that design rail
cars according to the market demand. We discuss opportunities of purchasing our own service capacities. That will
allow a more convenient usage of our services for those companies with rolling stock operating as a non-core
business.
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