Hill Dickinson Event

The CEO of Connaught Finance, Paul Errington, was pleased to attend the recent celebration of the final bringing together of two law firms.

Currently operating as Hill Dickinson Hong Kong LLP in association with Laracy & Co, the transition will marry the two firms together as one single Hong Kong firm under the name Hill Dickinson Hong Kong, taking effect from 1 April 2017.

http://www.hilldickinson.com/insights/news/hill-dickinson-set-complete-successful-transition-hong-kong

Now, this truly international firm offers a full range of legal services with offices in London, Singapore, Greece, Monao and Hong Kong.

http://www.laracyco.com/

December News Letter

Is Regional Politics in Asia putting the brakes on Equipment Leasing?

Political fragility whether real or perceived will always impact foreign investment as well as domestic growth and hence equipment leasing. The recent US election also casts a shadow of doubt over the region as president elect Trump currently advocates an approach of isolationism and moving away from Obamas policy of a Pivot in Asia for the USA. Trump has threatened to pull out of Trans Pacific Partnership which plays directly into China’s hands as they have their own regional trade agreement called the Regional Economic Partnership (RCEP)

Chinas regional investment grows rapidly along with their own domestic leasing market (2015 US$115 billion)

We have chosen 4 countries in Asia as all have had elections of some sort, democratic or otherwise in the last 12 months.

Thailand, Philippines, Myanmar and Maldives are all suffering from their own political fluctuations but the initial impact on investment and growth varies from country to country.

GDP Growth Rates (source CIA)

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In Thailand the recent passing of their King caused some immediate market reactions but in preparation for this, the Junta held a referendum in August which offered only semi-democracy and in fact tightened their own position in the country. The time frame between now and when the Prince takes the throne may continue to be a volatile time in the markets.%e6%9c%aa%e5%91%bd%e5%90%8d

Like most leasing emerging markets there are very few solid statistics to review and as such it is more speculation about the leasing growth. Connaughts, “on the ground” experience indicates that the political uncertainties have not had a negative impact on the equipment leasing market. But from a tax point of view, withholding tax (5%), VAT (7%) and Specific Business Tax (SBT 3%) continue to cause difficulties in the market.

New finance companies are entering the market which is always a good sign and traditional funders are being forced to consider different finance structures to meet the market demand as well as to match their competitors product range.

However, the same cannot be said for the vehicle leasing market which has been impacted by the lowering of family incomes and political uncertainties. This has resulted in a 20% to 30% rise in vehicle repossessions. (source White Clark Group)

The 2016 election of President Rodrigo Duterte in the Philippines was greeted enthusiastically by the citizens but his abrasive commentary and war against the drug lords caused international concern. As he pointed out himself “the UN, USA and other countries cannot be involved in domestic matters, this is our sovereignty” The rhetoric between Duterte and the Obama administration has pushed the Philippines towards China for trade and investment. They recently secured US$24 billion worth of investment and financing from Chinas President Xi Jinping.

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Whilst international opinion may be against Duterte the economy is very healthy with GDP growth in Q2 this year at 7%, the highest it has been since 2014. Thailand only grew by 3.5% in the same quarter and China by 6.7%. What does this mean for equipment leasing? Domestic and foreign banks and finance companies are growing their leasing portfolios with marked increases in vehicle finance (26% increase in auto loans to US$5 Billion) and in mining equipment with such companies as Marubeni being a major lender.

 

Myanmar underwent a transition from military dictatorship in November 2015 to their first elected government in decades. President Htin Kyaw, the proxy of Nobel laureate Aung San Suu Kyi, is struggling for reform as the military still hold a substantial number of seats and therefore control in the government.

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International sanctions are gradually being lifted and foreign investment is increasing with international banks such as ANZ from Australia, Singapore’s OCBC and Japans Sumitomo Mitsui gaining their licenses in the last 12 months. But recent human rights are carefully watching the military action of violent discrimination causing a major refugee crisis against the minority Rohingyas of western Myanmar.

Myanmar has recently entered into talks with Thailand to grant access to designated banks in each others countries. Myanmar’s largest lender, Kanbawza Bank, opened a representative office in Bangkok in August, becoming the first Myanmar bank to venture abroad.

Equipment leasing does exist here for those banks and finance companies that have representation, otherwise the only alternative option is cross border structures backed by letters of credit. Possible repossession of equipment is seen as an issue even when government owned borrowers are involved.

The major set back to leasing is the lack of regulations and little legal framework. Talks are expected to start in the near future to address these issues says the IFC. As with all emerging countries the funders are starting with vehicle leasing or Hire purchase. Connaught are in the process of finalizing a cross border lease through Singapore for IT equipment to the value of US$12m.

The idyllic island nation of the Maldives had a brief brush with democracy but elected President Mohamed Nasheed was ousted from power (and arrested) in 2012 to be replaced by Abdulla Yameen Gayoom. (Widely regarded as dubious) He recently announced that they will be leaving the Commonwealth amid rumors of an impending coup and allegations of money laundering.

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Investment in this tiny nation is mostly for the tourism industry and their fishing industry but recently China invested US$800m for the expansion of the airport and are in talks to link the airport island to Male, the capital island with a bridge.

Of the four countries in this article, the Maldives probably has the greatest political instability but also has the least demand for equipment leasing due to its size and geography.

In summary across these four countries there has been a noticeable trend of finance suppliers either entering a country or expanding. Specifically, these are the Japanese funders such as Orix, Mitsubishi UFJ Lease and Finance, Century Tokyo Leasing, Sumitomo Mitsui Finance, Hitachi Capital and NEC Capital. Some of these companies are still weighed down with legacy policies and lack any regional management structure or standardisation in products but others are more open to different structure to achieve a finance solution for clients.

Thailand and the Philippines are gradually moving away from only lending 80% of asset values and accepting the importance of the borrowers strength and not market value of equipment as the driving factor for credit approval.

Interest rates also vary drastically across these countries and not just with the base currency being either local or US$ but the perceived risk profile of the client, economy, politics and lastly the possible residual value of equipment on the market.

This is like stepping back in time to when leasing of IT equipment started, the funders were concerned about there being no second hand market value. We are now seeing this frequently when it comes to financing of green energy products. Waste to power, recycling of electronic waste, bio-mass power all fit into this category of concern for future value of equipment. The same will occur as it did with IT and funders will gradually recognize that this market for Green equipment is not going away and they need to get on board.

Written by

Paul Errington

CEO

Connaught Finance Investments

Hong Kong

www.connaughtfinance.com

Mongolian Investment Summit 2014

Mongolia-Projects-Investment-Summit-HK-2014-18-19-Nov_950x152The Mongolia Investor Forum 2014 was held recently in Hong Kong to attract further FDI in this emerging economy.

Mongolia has one of the richest untapped natural resources in the world.  Development of the economy requires substantial investment not only in mining and equipment, but also infrastructure, construction, logistic and major railway projects.

In 2013, the country’s GDP grew by 17.5%, one of the largest in the world at that time. Due to change in legislation, the country’s largest mine, Oyu Tolgoi came to halt. In 2012, the country’s GDP only grew by 7.6%.  The importance of OT to the economy was obvious and it was essential to have the legislation changed to allow phase two of the mine to commence.

At the investor forum last year in Hong Kong, this legislation was apparently imminent and expected within a month.  At the investor forum this year, we are still talking about when the legislation would be forthcoming. The Mongolian government last month voted their President out with a vote of no confidence and this could be viewed as a positive step toward passing the required legislation.

Although the importance of Oyu Tolgoi is not disputed for the country, there are many projects, mines and construction which can be supported with additional FDI. Hopefully the country would take this opportunity to build upon their infrastructure to allow movement of products by roads and rail.

Equipment leasing is therefore and integral part of this growth.  High interest rates domestically are forcing borrowers to look for cross border transactions. There are numbers of problems facing the growth of equipment leasing in Mongolia today. This includes the political instability, the lack of a registration system for movable equipment and transparency of financial accounts.

In my previous article on equipment leasing in Mongolia written 4 years ago, this was exactly the same problem. At some point, an emerging market needs to do just that, emerge. Unfortunately, Mongolia is still held back by the same factors which were there four years ago.

When and if, Oyu Tolgoi commences phase 2 of its mining project, demand for equipment leasing will increase substantially. The question is still remaining – if the domestic funders have the knowledge and financial capacity to respond to such demand. We can only hope that at the investor forum next year we will not be having the same discussion.

Wing Ding 2014

The annual charity squash Wing Ding competition was played this month at the Hong Kong Football Club. Connaught Finance participated for the sixth year in a row, which last year raised HKD $2.1 million for the children in need of Hong Kong.

The game format is that each team is given a color and must then choose a fancy dress outfit to match, in which they then have to play squash.

This colorful event consists of 14 teams of ten players. Each participant plays against his equivalent in the opposing team for 3 minutes. Then they run to the next court for further 3 minutes non-stop  if you get to the next court first you start serving for points.

This spectacle sees outfits such as chickens, monks, cowboys and Vickers running from court to court, pushing their squash limits to help to raise funds for the charity.

All funds are fed into operation Santa Claus which is also supported by the other events in Hong Kong operated by Standard Chartered Bank, JP Morgan and HSBC.

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Sri Lanka

The FDI (Foreign Direct Investment) between January and August 2014 reached US$1.06 billion in Sri Lanka (+22.2% YOY) and with government expenditure to reach record highs in 2015, the recent visit of the Chinese President Xi Jinping, all bodes well for the blooming economic future.

Minister for Petroleum    In a recent visit to Colombo, the CEO of Connaught Finance, Paul Errington, met with the Minister of Petroleum Industries, Anura Priyadarshana Yapa, to discuss the future of the oil and gas industry in the country. Paul was accompanied by the Reverend Wijayapura. The existing oil refinery’s are going through major upgrades with new pipeline being laid across the country to increase efficiencies and Connaught Finance hope to assist with the development.

 

 

PereraOther government meetings were held with the Secretary for Transport, Dhammika Perera, for infrastructure growth discussions. Mr Perera has many business interests in the country which stretch from hotel chains and finance companies to casinos.

Another reflection of the economic performance is the growth in tourist numbers, with an increase of 13.8% (YOY) in August, according to the Sri Lankan Tourist Development Authority. China became the third largest source of tourists, surpassing Germany. The new airport in the south of the island is ready for the anticipated surge in volumes over the next 12 months.

In any growing economy the need to finance is essential and not just for SME’s but also the listed companies, multi –nationals and government bodies. Equipment finance is therefore integral to growth right across the market sectors, whether in tourism, infrastructure, green power or tea production and manufacturing.

One of the major issues holding back this development through local banks is their willingness or lack thereof, to look at product development. FDI is increasing but will the local banks miss out due to their preference to stay within their comfort zone of financing vehicles.

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Reverend, Galagama and his associate met with the CEO of Connaught Finance on the arrival of Colombo.

CFI were mandated by the Ensis Group

Connaught were recently mandated by the Ensis Group in The  Maldives to arrange expansion finance for their fish processing factory and for the development of a resort island. Paul Errington, CEO of Connaught, visited the factory and met with Ensis management, Abdullah Saeed – Director, Mohamed Waseem – Managing Director and Hamid Ahmed – Product Manager.

Ensis Tuna Filleting Process Ensis Tuna Filleting   Ensis Tuna on Ice Ensis Yellow Fin Tuna arriving from the dock   Ensis Buildings Ensis Management -from left Saeed Director Ensis, Waseem MD Ensis, Paul CEO  of Connaught and Hasim from Ensis

Indonesian Oil and Gas Fields

Connaught is assisting with funds for a local engineering firm just outside of Jakarta.

They have been operating for 15 years and manage many of the oil and gas fields for the state owned Pertamina

Expansion plans have created a requirement for debt and equity to be invested in the company.

Westindo Team Pertamina Oil Field

ClaudiusConnaught Finance are pleased to welcome Claudius Grossmann to their global team.

Claudius has spent most of his life and career in Asia, namely Japan, China and Hong Kong working in commercial as well as investment banking, project financing, but also in real estate, alternative financing and many years in industrial leasing.

In his time in Asia he has built-up business units in China such as Dresdner Bank AG Shanghai Branch back in 1993 and Deutsche Leasing (China) Co., Ltd. in 2006, following the economic cycles in Asia, Claudius also gained extensive experience in the professional restructuring of business units.

While Claudius started out in Risk Management, his role soon expanded into managing whole back office operations as well as increasingly working also on the sales side.

With this objective in mind, he has joined Connaught to contribute to the expansion and success of CFI, building up among others good and extensive relationships with German/European SME and vendors operating in Asia and beyond.

Besides his working experience we also welcome his good understanding of different cultures in Asia, sufficient political as well as economical insights into Asian and European affairs and effectiveness dealing within a dynamic multicultural business environment.

Claudius Grossmann
Associate Director
Connaught Finance Investments
Office: +852 3796 5390
Mobile: +852 62324319
Email: claudius@connaughtfinance.com
Germany, Country mobile +49 177 485 7364
Skype: grossmc21
Web: www.connaughtfinance.com

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USA is Fourth Office for Connaught Finance

“The mature equipment leasing market of North and Central America as well as Canada has always appealed to Connaught Finance for expansion” said the CEO of Connaught.

“But expansion is not just one of opportunity you need the right people with the right skill sets and that’s the challenge. That is why we are very pleased to announce that Sandy Garrett has joined our group as President of Connaught Finance USA.”

Sandy has nearly 30 years experience in structured finance, and vendor finance for equipment in the Americas. His wealth of experience will greatly enhance the company’s presence in the US as well as creating a link into Asia for existing as well as new clients with a focus on the Far East.

The New York office will provide the full suite of financial solutions that are offered from the other Connaught offices in Hong Kong, Frankfurt and Sri Lanka.

The company’s main focus stems from structured finance for equipment through vendor relationships and direct to end users but also project finance and private equity investments.

Sandy Garrett
President
Connaught Finance USA
200 Central Park South, Ste 3M, New York, NY 10019
Office: +1.212.956.3590 (New York) / +1.267.544.0255 (Philadelphia)
Mobile: +1.212.586.0049
Email: sandy@connaughtfinance.com
Skype: sandygarrett
Web: www.connaughtfinance.com

Connaught Finance Expand into Europe

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The Managing Director of Connaught Finance, Mr. Paul Errington, announced today the opening of their new office in Frankfurt.

 

“We are very pleased to have Michael Vander joining our team and heading up the new office which will also cover EMEA”

Michael has over 20 years in the asset finance market and brings a wealth of international experience to the company.

 

The Frankfurt office will provide the full suite of financial solutions that are offered from the other Connaught offices in New York, Hong Kong and Sri Lanka.

The company’s main focus stems from structured finance for equipment through vendor relationships and direct to end users but also project finance and private equity investments.

 

Michael Vander

Associate Director

Connaught Finance Investments – Frankfurt Office

Spessartstr. 14, 61273 Wehrheim, Germany

Office: +49 6081 966 54 79
Mobile: +49 173 46 56 705
Email: michael@connaughtfinance.com
Skype: michaelvander
Web: www.connaughtfinance.com