11507 - BTA Leasing

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Summary of Proposed Investment

Project Number

11507

Company Name

Joint Stock Company SK Leasing

Date SPI Disclosed

Oct 18, 2004

Country

Kazakhstan

Industry

Financial Markets

Projected Board Date

Nov 22, 2004

Status

Completed

Sector

Leasing Services

Department

Global Industry, Financial Markets

Environmental Category

Previous Events

Approved : Dec 10, 2004
Signed : Mar 31, 2005
Invested : Jun 24, 2005

Project Description

BTA Leasing (BTAL) was established in 2000 and is currently a wholly owned subsidiary of Bank Tura Alem (BTA), one of the leading private banks in Kazakhstan in which IFC is a 3.2% shareholder. Headquartered in Almaty with 23 employees, BTAL is the first commercial leasing company in Kazakhstan, with paid-in-capital of $2 million and a current market share of 10%. At end-2003, it had total assets of $11.3 million, and shareholders’ equity of $2.2 million. More information is provided at BTAL’s website: http://www.leasing.kz.

The project comprises of the following components:

- an IFC equity investment of up to $1.2 million equivalent for 10% shareholding in the expanded share capital of BTAL; and
- an IFC senior loan of up to $5 million to BTAL with a tenor of six years.

This project is intended to strengthen BTAL’s capital base, and strengthen BTAL’s institutional capacity and expand its leasing operations, particularly to Small and Medium Enterprises. The proposed IFC loan will provide much needed term funding to BTAL and improve the maturity matching of BTAL’s balance sheet. ORIX Corporation (ORIX) of Japan and ORIX Leasing Pakistan (OLP) will be the foreign strategic and technical partners to co-invest with IFC.

After the proposed investment, BTA’s shareholding in BTAL will be reduced to 45%. ORIX and OLP will take a combined shareholding of 45%, with IFC taking the remaining 10%. Both ORIX and OLP will be actively involved in the management of BTAL. ORIX and OLP will nominate members on the Board of BTAL, and OLP will second about two experienced managers to participate in the day-to-day management of BTAL. IFC is also expected to nominate a Board member.

Sponsor / Cost / Location

BTAL’s current sponsor is BTA, and the technical partners will be ORIX and OLP.

Registered as a closed joint stock company in 1997, BTA is a universal bank licensed and supervised by the central bank of Kazakhstan. BTA provides a full range of banking services and, through its 13 subsidiaries, is engaged in securities trading, leasing, insurance, pension fund management, information technology services and real estate management. Headquartered in Almaty, BTA as of end-2003 had 22 regional branches and 188 cash settlement units, with 3,221 employees. It is the second largest private bank and one of the fastest growing in Kazakhstan, with a market share of about one quarter of all loans in the banking system. It has several credit lines from a wide range of international institutions: EBRD (both equity and loan financing), IFC (both debt and equity financing), ADB, IDB, KfW, FMO (both debt and equity financing), IBRD, and DEG (both debt and equity financing).

Established in 1964, ORIX is Japan’s leading diversified financial services company which has played a pioneering role, first in developing the market for lease financing in Japan and, subsequently, in developing and introducing leasing and other financing products and services overseas. Today ORIX is one of the largest public financial institutions, delivering a wide range of financial services via nearly 200 subsidiaries and more than 70 affiliates through 677 offices in Japan (where it earns about 80% of revenues) and 175 more offices in 23 countries. Its consolidated assets were $50 billion at end-2002. ORIX’s activities include leasing, corporate finance, real estate-related finance and development, life insurance, and investment and retail banking. ORIX carries an international long term rating of BBB by S&P and Baa3 by Moody’s. More information is provided at ORIX’s website: http://www.orix.co.jp/grp/index_e.htm. ORIX has cooperated with IFC to set up joint venture leasing companies in many developing countries.

Established in 1986 as a private limited company, OLP currently has a net worth of $27.4 million equivalent and is listed on the Karachi, Lahore and Islamabad stock exchanges. OLP has been IFC’s client for the past 10 years and is the largest leasing operation in Pakistan. ORIX Corporation Japan is the largest shareholder with a 49.68% shareholding. The remaining shareholding is very diversified and held by various financial institutions, companies, and individuals, including employees. More information is provided at OLP’s website: http://www.orix.pak.com. Over the years, OLP has developed into a relatively mature financial institution and made equity investment (together with ORIX) in several leasing companies in the Middle East. OLP has played the role of a technical partner and assisted the investee companies in improving their management and operations. OLP will be the primary strategic partner to BTAL and will second staff to participate in the day-to-day management of BTAL.

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	5.0
Equity	1.20

Development Impact

This is a category FI type 2 project under IFC''s environmental review procedure. BTA Leasing will be required to establish an IFC approved environmental management system (at minimum covering policy, procedures, resources, and reporting) to ensure that all leased assets or subprojects financed through this IFC project will comply with World Bank environmental, health and safety guidelines and policies, as well as the environmental requirements of the host country. BTAL will also appoint managers/staff to develop and implement the environmental management system and ensure that the designated managers/staff attend IFC''s environmental workshop, and submit annual environmental performance reports to IFC.
Location of environmental documents In locally affected community

The proposed project would represent IFC’s first investment in Kazakhstan’s leasing industry. But IFC has already been playing a very proactive role in the past several years promoting leasing development in Kazakhstan. With funding support from USAID, IFC’s Private Enterprise Partnership has since October 2003 undertaken a major technical assistance program to help improve the leasing environment and develop a vibrant and competitive leasing industry in Kazakhstan. The program’s goals are to create appropriate leasing legislation to create a favorable environment for the sector''s growth, to develop technical expertise on leasing in Kazakhstan among lessors, to expand the knowledge base on leasing among stakeholders (leasing companies, banks, lessees, suppliers, government, auditing firms, etc), and to expand investment opportunities in the leasing sector. All the lessors in Kazakhstan, including BTAL, has benefited tremendously from this TA program.

IFC''s Role in this project is focused in two areas: institutional building and catalytic.

On the institutional building side, the proposed project would help BTAL to:

- acquire a high level of technical expertise (mainly through the transfer of know-how via ORIX) to develop new products and services in a rapidly growing market;
- improve credit and risk management in order to maintain sustained growth;
- expand its existing portfolio and client base;
- provide a new source of funding independent of its parent bank (BTA); and
- improve maturity matching between the Company’s assets and liabilities, and create a better balance between long term lending and long term financing.

IFC''s participation in this private sector company, alongside sound sponsors and strong technical partners, will also set a high "demonstration" standard for the industry and at the same time encourage others to enter.

Contacts

For Inquiries About the Project, Contact

Ms. Lazzat S. Asabaeva, President,
BTA Leasing, 5/F, 38 Tulebaev Street,
Almaty 480004,
Republic of Kazakhstan

This Summary of Project Information (SPI) is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC's activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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