Leasing Professionals

Paul Errington asks if regional politics in Asia are acting to put the brakes on equipment leasing?

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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 Obama’s policy of a pivot in Asia for the US.

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).

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

Four countries in Asia have all 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)

  Thailand Philippines Myanmar Maldives
2015 2.8% 5.8% 7% 1.9%
2014 0.8% 6.1% 8.7% 6.5%
2013 2.7% 7.1% 8.4% 4.7%

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.

thailand temple

Like most leasing emerging markets there are very few solid statistics to review and as such it is more speculation about the leasing growth.

Connaught’s, “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, US 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.


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 (a 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 its 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.


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 recently human rights activists are carefully watching the military action of violent discrimination which is 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 other’s 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 setback 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 International Finance Corporation. As with all emerging countries the funders are starting with vehicle leasing or hire purchase.

Connaught is in the process of finalizing a cross border lease through Singapore for IT equipment to the value of US$12 million.

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.


Investment in this tiny nation is mostly for the tourism industry and their fishing industry but recently China invested US$800 million 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 borrower’s 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 then 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.

Paul Errington is CEO of Connaught Finance Investments, Hong Kong