Equipment Leasing Insider

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1 Welcome to our newsletter Welcome to First Equilease's edition of the Equipment Leasing. Globally, 1 st quarter of 2014 has seen some positive developments on the equipment leasing front. The ELFA index which serves as a gauge of business confidence, has risen to its two year high. In this issue of the newsletter, we focus on Kuwait s construction sector. The overall infrastructure development in Kuwait is governed by the 3rd Kuwait Master Plan review which was completed in Infrastructure and Retail related construction projects account for 43% of the top 10 projects that are currently underway in Kuwait. Demand for affordable housing has been increasing in Kuwait over the past few years and the current housing shortage is 100,000 housing units. Kuwait government has initiated a number of new construction projects aimed at reducing this shortfall presenting a huge business opportunity for construction companies and equipment leasing companies. We are eager to hear your suggestions and feedbacks. If you would like to know more about any of the topics covered in the Newsletter, please feel free to get in touch with us. Best wishes, Mohammed Al-Qahtany Chairman & MD, First Equilease

2 Market Analysis Construction Industry in Kuwait The overall construction and infrastructure construction activities in Kuwait have been guided by the 3rd Kuwait Master plan review which was completed in The master plan encompasses a variety of major and minor infrastructure projects that need to be completed such as housing, commercial/ leisure space and transportation facilities. Development of urban areas have been given more importance as land as most of the land areas are already constructed on or come under the control of Kuwait Oil Company s concession area. Table 1: Top10 projects awarded in Kuwait 2013 Contract Value (US$Mn) Shadadiyah industrial area 298 Al Kout Mall 250 Jaber al-ahmed Township, section N1 and N3, residential package 203 Al-Shaheed Park 125 Kuwait Institute for Medical Specialization (KIMS) headquarters 73 Municipal Council Secretariat building 63 West Kuwait mega-complex 61 American University School of Kuwait 45 Marina and wave breaker at Police Officers Club at Abul Hasaniya area 45 Multipurpose hall at Al-Mubarakiya camp 34 Source: MEED Projects Construction activities have been focused in Northern part of Kuwait in Subiya peninsula and Bubiyan Island areas and far south near the Saudi Border. Some of the key projects that have been proposed in the Southern border include Subiya Casueway, Silk City and Bubiyan port. Of the three mentioned above only Bubiyan port s construction has made solid progress since Hyundai was awarded the contract in 2010.

3 Figure 1: Sector wise contract breakup for top 10 projects (USD Mn, 2013) EarthworkCultural Terminal4% 3% 4% Eduation 5% Infrastructure 23% Commercial 7% Public Space/Buildings 8% Leisure 10% Retail 20% Residential 16% Source: MEED The demand for affordable housing in Kuwait has been steadily increasing owing to growing population, rising housing prices and increasing urbanization. According to the London School of Economics the waiting period for affordable houses in Kuwait is currently is in the range of years giving construction companies a huge visibility into the future for their business. The affordable housing construction has a cascading effect that spills onto other areas such as: power, water, road and other transport network infrastructure. As a result of this, construction activity in Kuwait is expected to be healthy for the next few years. Oil & Gas Projects Some of the major Oil and Gas projects that are underway in Kuwait include the Upgrades for the Mina Abdullah and Mina Ahmadi refineries which has been done under the Clean Fuels Projects. The Clean Fuels Project is part of Kuwait s USD 30 Bn development plan announced in In addition to the major upgrades, Kuwait has also sanctioned the building of a refinery at Al Zour with a total estimated budget of USD 4 Bn.

4 Table2: Top 10 Oil & Gas projects in Kuwait (in USD Bns) Project Name Primary Sub-Sector Project Value ($) KNPC - Al Zour Refinery Refinery 15.0 KNPC - Mina Al Ahmadi/Mina Abdullah Clean Fuel Project Refinery 12.0 KOC - Lower Fars Oil Fields Processing & Separation 7.0 KOC - Lower Fars Oil Fields - Phase 1 Processing & Separation 4.3 KNPC - Al Zour Refinery - Package 1 (Process Plant) Refinery 4.0 KNPC - Al Zour Refinery - Package 2 (Process Plant) Refinery 2.6 KJO - Al Khafji Oil Processing Facilities Expansion Exploration & Production 2.0 KNPC - Al Zour Refinery - Package 3 (Offsites & Utilities) Refinery 2.0 KOC - LSFO, FG and Gas Oil Pipelines from Mina Al Ahmadi Transportation 2.0 KOC - Gathering Centers (GC) 29, 30 and 31 Processing & Separation 1.5 Total 52.4 Source : Zawya Projects With long periods of construction involved, it can be difficult for the construction companies to own and maintain their equipment. Leasing even a part of their huge arsenal of equipment can translate into better margins for the construction companies.

5 Trends Equipment Leasing and Finance Foundation Monthly Confidence Index The ELFA Monthly Confidence Index is one of the most widely known index which is used by industry leaders worldwide to gauge the business confidence. The Equipment Leasing and Finance Association is the trade association representing financial services companies and manufacturers in the $827 billion U.S. equipment finance sector. Figure 2: ELFA Monthly Confidence Index Source ELFA The Equipment leasing and finance foundation monthly confidence index has risen throughout the 1 st quarter of Ending at 55.8 during December 2013, the index has risen by 16% to reach 65.1 at the end of March The ELFA Monthly confidence Index serves as a barometer in judging the confidence of businesses in taking up long term leases, higher index value representing higher confidence. The ELFA confidence index is at its two year high level signaling better prospects for the future of leasing industry and the general economy as a whole.

6 Educational Step Down Lease Rental Leasing involves a fixed/ variable stream of payments that needs to be paid to the lessor for continuation of the lease. Lease rentals can be structured based the duration of the lease. One of the most popular types of lease rentals that is used in equipment leasing is the step down lease. Step Down - The lease payment comes down as the lease moves forward which is the opposite of a step up lease rental. This type of an arrangement is used for equipment that suffers from technological obsolescence. The step down arrangement is fairly common medical and computer technology related field. Economics of Step down lease rental Lessor s Perspective - Medical and Computer technology related equipment require quick upgrade cycle. In a step down lease rental a higher rental is charged at the beginning of the contract to recover the heavy upfront cost while this is more helpful to the lessor. Lessee s Perspective - The lessee can get their hands on technologically advanced products and devices without incurring huge capital costs. This is very important for lessees in high technological turnover industries such as Medical equipment and computers.

7 Latest from Global Equipment Leasing News Hanco acquires Byrne with GCC subsidiaries for SR600m (GCC News) Hanco, a major asset rental and leasing company in the GCC, announced that it has acquired Byrne Investments Ltd. and its subsidiary companies - Byrne Equipment Rental and Spacemaker (collectively Byrne ) from Havenvest Private Equity Middle East Ltd. Partnership and HSBC Bank Middle East Ltd., for a transaction value of around AED600 million. Byrne is one of the largest and most diversified equipment rental and modular space providers in the GCC region. Established more than 20 years ago, Byrne is the largest general rental company in the Middle East with 450 employees and 13 offices and rental depots all over the GCC. With over 20 years of experience, Byrne provides tailor-made engineering solutions for complex purpose-built structures that require fast track turn around and innovative transport solutions. Hertz Will Spin Off Equipment Rental Unit to Focus on Cars Hertz Global Holdings Inc. (HTZ: US) will spin off its equipment-leasing division to focus on car rentals, a move analysts have pushed for since Hertz went public in Hertz, based in Park Ridge, New Jersey, will separate into two publicly traded companies. The car-rentals business will keep the name Hertz and get cash proceeds of about $2.5 billion to pay down debt and support a $1 billion share buyback. The spun-off company will be called Hertz Equipment Rental Corp., or HERC. Analysts have pressed executives to outline plans for the unit. The business, which rents bulldozers, backhoes and road graders, ties up capital Hertz, could otherwise use to repay loans or pay dividends. Arvest Equipment Finance grows loans, leases 8.1% in 2013 Arvest Equipment Finance, a division of Arvest Bank, tallied $132.3 million in loans and leases during 2013, up 8.1% from the prior year. The equipment finance division has grown its loans and leases from $54.9 million in 2009, according to the release. In 2013, AEF ranked among the top 100 largest equipment finance and leasing companies in the United States by MonitorDaily, a trade publication for the industry. US business borrowing for equipment rises in January ELFA Companies signed up for $6 billion in new loans, leases and lines of credit last month, up 2 percent from a year earlier, but fell 44 percent from December, according to data from the ELFA. Washington-based ELFA, a trade association that reports economic activity for the $827 billion equipment finance sector, said credit approvals totaled 76.9 percent in January, down from 78.3 percent in December. ELFA's leasing and finance index measures the volume of commercial equipment financed in the United States. It is designed to complement the U.S. Commerce Department's durable goods orders report, which it typically precedes by a few days.

8 PMB (Pelaburan Mara Bhd) injects RM200m on equipment-leasing Majlis Amanah Rakyat (Mara) investment arm Pelaburan Mara Bhd (PMB) is venturing into the commercial leasing business following the purchase of KFH Ijarah House (M) Sdn Bhd (KISB). The investment for RM1 million will see PMB injecting RM100 million into KISB, which was renamed PMB Tijari Bhd, while Mara will also invest RM100 million in the leasing firm in the later part of the year. The RM200 million will be used for funding leasing of oil and gas equipment as well as machinery to companies that have government contracts. FASB, IASB Differ on Accounting Model for Leasing The Financial Accounting Standards Board and the International Accounting Standards Board began the arduous task of working through a mountain of criticism and other feedback to their May 2013 joint proposals for how to bring leases on to corporate balance sheets in both U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. After two days of joint meetings, IASB and FASB are yet to come across a singular way of accounting for leases. FASB has favored the dual approach for lease accounting while IASB sticks to its single approach. About First Equilease We were established in 2005 as a Kuwaiti closed shareholding company. We aspire to be the market's first choice in equipment leasing in the Middle East, recognized for the innovative trend-setting solutions, Client-centric approach, ethical standards, and dedicated towards the sustainability of our community and the environment. Newsletter Archive 1 st Edition Copyright FIRST EQUILEASE 2014 All rights Reserved