Companies Reverse Roles

29.10.2008 (18:00)

Transport sector is not charged with banking credits which hamper it. However some companies are exception. They may be merged with their competitors in the future.

Two months ago timber enterprises and scrap metal providers were looking for wagons and operator proposed to pay +25% to price list instead of standard 5% discount. Nowadays “there are a lot of wagons but there is no cargo”, representative of large timber enterprise says.

The reduction of the money supply influenced on sectors depending on bank lending: building, development and retail trade. The situation with transport branch is better. According to the Center of Macroeconomic Analysis and Short-Term Forecasting (CMASF) share of bank lending in the transport branch’s circulating capital amounted 26.3% as of July 1 2008. Transport branch ranks 21 place among 22 non-financial branches listed in CMASF research. The share of credits of machine building enterprises amounts to 38.9%.

According to the experts, business of rolling stock operators doesn’t depend on credit. However, operators carry out big strategic development programs which mean investment into wagon park. The considerable part of wagons is purchased on the terms of leasing and financial crisis impacts on this segment. Leasing business depends on permanent inflow of borrowing costs. Leasing companies have to increase rates and reduce date of competition.

According to the rating agency “Expert”, the share of railway branch in Russian leasing sector reduced by 43.3% in comparison with the results of H1 of 2007. The share of air transport sector increased by 35.3%.

“Lessor has to increase rates in conditions of the crisis. However, these conditions don’t allow develop effective business to both interested parties. I think that lessee may get possibility to advance payment exceeding 10% of the leasing subject cost. Enterprises began to reduce wagons’ release price,” Vadim Zakharov, Chief Specialist of Transfin-M, notes.

“Crisis will impact on small companies’ activity. Earlier they had possibility to compete with large companies providing delicate approach to client. Nowadays the finance access is the most important thing . Small company will not be able to get credit means with good rates. However, these companies will not consolidate quickly with the large companies. Small companies have sufficient quantity of wagons. It will allow to work, then the companies will try to reduce costs”, Grigory Primak, Genaral Director of Rail leasing CJSC, said.

Thus, several companies will not be able to purchase new wagons. Probably, they will sell part of their wagons. There will be available assets which will be purchased by companies having financial resources.

Crisis will expedite process of consolidation. “The companies reverse the roles. Company which developed at the expense of credits was going to purchase another one. Nowadays, the parties continue negotiations, but the second company is going to purchase the first one”, the expert says.

by Ivan Stupachenko
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