Orix Leasing Pakistan are the pioneer
By SHABBIR H. KAZMI
Dec 18 - 24, 2000
Orix Leasing Pakistan Limited (OLP), ever since its
commencement of operations in Pakistan, has been engaged in developing
new products to cater to the needs of the market. Keeping in line with
this tradition, OLP has introduced operating lease in the local market
in 1997. OLP was the first leasing company to offer this facility in
the country. This arrangement has many advantages for the client.
Operating lease has the potential to be an effective tool to enhance
profitability and operational efficiency. This also improves the
effectiveness of a service provider and/or a manufacturer.
Operating lease is a contract that allows the users
to select products that meet their needs from the leasing company's
inventory of products. Operating lease differ from the direct
financing lease in two ways. First, such a lease is for a short term
and is cancelable at any time. Second, the initial cost of item is not
substantially recouped by the lessor through lease rentals during the
initial lease term. The same asset is leased out to different clients
during its usable life. The lessor work to recover the investment and
ensure the profitability by ultimately disposing of the asset in the
used equipment market.
OLP started its operations in Pakistan in 1986 and
has expanded its operations not only in Pakistan but also established
three joint ventures outside Pakistan. These are, Oman Orix Leasing
Company established in 1994, Orix Leasing Egypt incorporated in 1997
and most recently Saudi Orix Leasing. OLP has also established Orix
Investment Bank in Pakistan with the assistance of International
Finance Corporation and Asia Finance & Investment Corporation.
Giasuddin Khan, Assistant General Manager of OLP
said, "Orix Rentec, a division of Orix Corporation Japan, has
become the top company in Japan in the domestic measuring and
information related equipment rental segment. It maintains an
inventory of more than 300,000 items of electronic equipment.
Realizing the fact that the size of pie has not registered any
significant increase in Pakistan, OLP decided to utilize Orix's
experience in operating lease in Pakistan. The Rentec division was
established in 1997 and the business has grown remarkably. At present
the total portfolio exceeds Rs 250 million."
Explaining the advantages of operating lease, Khan
said, "OLP is responsible for operations, maintenance, insurance
and servicing. The user pays only a flat monthly rental and returns
the asset to the Company at the end of the lease agreement. As the
asset is not completely depreciated and carries higher residual value,
rental is lower. While the client uses the equipment, under operating
lease, he has the added advantage of facilities such as maintenance,
insurance and servicing of the equipment by OLP. Therefore, the client
is able to concentrate on its core activities.
Dilating his point, he said, "For example a
bottler has to keep a huge fleet of vehicles for the delivery of its
product. Firstly, the company has to invest a colossal amount in
procuring the vehicles. Then, maintaining the fleet itself is a full
time operation. By outsourcing this operation to a third party which
has the core business of transport/logistics, the bottler can get rid
of this headache. In Pakistan, some manufacturers of consumer products
have already outsourced their logistics activities."
Explaining the benefits of operating lease, Khan
said, "As the asset is returned to OLP at the end of the
contract, the transaction is a pure operating lease. It remains
off-balance sheet thus improving the return on assets. No capital
budgeting is required. Operating lease allows greater flexibility in
terms of utilization of the capital and insulates the business against
the risks associated with capital investments. Furthermore, operating
lease allows the client complete solution as per user demand, hedge
against technological obsolescence and inflation, asset use without
investment, better utilization of tax benefits, conservation of credit
lines, time to concentrate on core activities."
The current inventory of OLP's assets portfolio
consists of power generation equipment, compressors, commercial
vehicles, data networking and satellite equipment, motorcars and
The monthly rent consist of many components viz.,
financial costs, insurance, maintenance and management charges of the
asset. The financial component of the monthly rentals of the operating
lease becomes low because the residual value of the asset is kept
To ensure the best possible condition of its
assets, OLP maintains its assets and have them managed by qualified
and technically skilled personnel. These people make sure that the
manufacturer's recommended schedule of service is closely being
followed. With emphasis on smooth operation of the equipment,
operations of the client become more efficient.
BENEFITS OF OPERATING LEASE
Off Balance Sheet Financing
As the asset is returned to ORIX at the end of the
contract, the transaction is a pure operating lease, therefore it
remains off balance sheet thus improving the return on assets. No
capital budgeting is required.
As the asset is not completely depreciated
therefore it carries higher residual value, which results in lower
rentals for the user as the financial costs are significantly reduced.
Value Added Comforts
Operating lease can bundle together various
services required with the asset such as maintenance, operation,
insurance and replacement of the asset in one value added package.
The package can be tailored for the requirements of
Resource Allocation Flexibility
Operating lease allows your business greater
flexibility in terms of utilization of the capital and insulates your
business against the risks associated with capital investments.