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. Last Updated: 07/27/2016

German Firm, IFC Launch Leasing JV

Riding on successes in Eastern Europe, leading German leasing company Gruppe Deutsche Leasing has decided to test the Russian waters by opening a subsidiary leasing company, Deutsche Leasing Vostok, the company said Monday.

Deutsche Leasing has signed an agreement with World Bank subsidiary the International Finance Corporation, which agreed to acquire a 20 percent stake in the joint venture and also put up a loan of $3 million for the project, Deutsche Leasing Group and IFC officials said at a news conference.

Deutsche Leasing Vostok, specializing in equipment leases, will have capital of $3 million.

The German company will provide technical expertise and management, while IFC will take care of the legal aspects of the business, the officials said.

The partners hope that the new company will have a turnover of $20 million in its first operational year.

"We believe that the new company has a good chance of success," Herst Figge, chairman of Deutsche Leasing Group, said.

Deutsche Leasing Vostok is being launched after the German government-owned export agency Hermes slashed its activities on the Russian market after the financial crisis of August 1998. Later, allegations of loan misappropriations under the program were made by Russian politicians.

Hermes guaranteed the largest part of the German government's loans to Russia, which ring in at an estimated $24.3 billion.

"A large part of these loans were misappropriated," said Viktor Gitin, a Yabloko member and deputy chairman of the Duma banking committee.

According to Gitin, the value of the contracts was often bloated. Second-hand machinery was supplied at the price of new equipment and German exporters and Russian businesses would share the profits.

Figge said Deutsche Leasing would lend only equipment that it bought directly from producers.

"Deutsche Leasing is a private company," Figge said. "We do not care what politicians do."

He declined to disclose the names of potential partners in the Russian market, saying only that he would prefer middle-sized private businesses over large companies owned by the government.

Industry insiders said Figge's reluctance to talk about the company's activities probably did not mean Deutsche Leasing was still sorting out its strategy.

"Usually, when foreign companies enter the Russian market, they have particular projects in mind," Igor Freidlin, director general with Interros-Leasing, said.

Freidlin added that direct leasing was probably the best way to invest in Russia.

Deutsche Leasing said it would be looking for a first-class Russian partner that could be offered a stake in a new company.

IFC, meanwhile, will help mold the environment in which the business will operate.

"We have influenced 12 laws that affect leasing over the past 12 months," said Edward Nassim, director of IFC's Second European Department.

In developed markets, leasing makes up a third of investments in equipment and machinery.

In Russia, it accounted for 0.7 percent of investments in equipment in 1997 and 2.4 percent last year, according to the magazine Technology of Leasing and Investments, published by the Association of Russian Leasing Companies.

Leasing of equipment amounted to $503 million in Russia last year, compared with total investments worth 402 billion rubles ($40 billion, calculated at an average rate of 10 rubles per dollar for 1998), according to the association.

Deutsche Leasing provided equipment worth roughly $2.5 billion last year to its clients, $330 million of which came from its foreign subsidiaries operating in Poland, the Czech Republic, Hungary, Austria, Italy and France. Russia is the seventh country in which Deutsche Leasing has opened a subsidiary.