Tiếng Việt
- Trends in financial leasing of construction machinery and equipment in the world
For most construction contractors, the problem of mobilizing and effectively using capital to invest in construction machinery and equipment is not simple. According to the development trend of construction contractors in the world, owning construction machinery is not a decisive factor in the contractor’s capacity. Instead, financial leasing has become a medium and long-term capital transmission channel, meeting the needs of investment development, expanding construction activities, improving the capacity of contractors in accessing new construction technology with modern construction machinery systems at reasonable financial costs. In Japan, there are nearly 240 financial leasing companies, nearly 97% of enterprises use this service. In China, the number of financial leasing companies is up to 3,200 companies, nearly 65% of enterprises use this service. In the US, about 80% of large enterprises in the Fortune 500 list lease part of their machinery and equipment in production and business activities.
The financial leasing market has grown rapidly along with the high growth of the Japanese economy. With more than 97% of enterprises in Japan using financial leasing services, the type of financial leasing assets is machinery and equipment in the construction industry, accounting for a significant proportion of the total value of financial leasing. Japanese construction contractors do not prioritize spending money to invest in construction machinery, instead they prioritize the option of financial leasing of construction machinery. The top three reasons why Japanese construction contractors choose to use financial leasing products are:
(i) No need for initial capital when investing in equipment.
(ii) Saving resources for administrative management
(iii) Easily grasp costs, update new construction technology and modern construction equipment at reasonable financial costs.
2. Current status of financial leasing of construction machinery and equipment in Vietnam and development prospects
Vietnam’s construction technology has been gradually catching up with modern construction technology in the region, especially in developed countries in Asia. In recent years, construction technology has made relatively good progress, for example, modern construction methods and advanced materials have been applied by Vietnamese construction contractors such as metro tunnel digging robots, concrete technology for building super high-rise buildings, underground pipe jacking technology, etc. However, the above positive developments have not been widely deployed and popularized. Because some technologies that want to be applied require capital and financial resources to invest in construction technology in sync with the construction equipment system to implement the new technology. The quantity and quality of construction machinery are important factors to assess the potential and health of construction contractors to compete in bidding.
2.1. Current status of mechanisms and policies for the financial leasing market of construction machinery and equipment in Vietnam
In the Vietnamese market, the first financial leasing company was established in 1996, but it was not until 2001, when Decree No. 16/2001/ND-CP dated May 2, 2001 of the Government on the organization and operation of financial leasing companies was issued, that financial leasing activities had a full legal environment and conditions for development. In fact, according to data from the State Bank (2018), the number of financial leasing companies is still quite small, customer access is limited, many businesses in general and construction contractors in particular do not know about this type of credit. Among the 11 financial leasing companies in Vietnam, there are 7 Vietnamese financial leasing companies, 1 joint venture company and 3 companies with 100% foreign investment. However, only 5 domestic companies and 3 foreign companies are operating. The unpopularity of financial leasing services is a big disadvantage for Vietnamese construction contractors. The outstanding financial leasing debt at the end of the first quarter of 2018 was only about 370 million USD. Therefore, financial leasing is considered to have strong development potential in Vietnam, especially in the context of the increasing demand for medium and long-term capital of enterprises for investment and development as at present.
According to Decree No. 39/2014/ND-CP dated May 7, 2014 of the Government on the activities of financial companies and financial leasing companies, the forms of financial leasing that companies are allowed to do business in Vietnam are as follows:
a) Domestic financial leasing
Domestic financial leasing is the act of a financial leasing company representing.
The lessee will purchase assets from a domestic Supplier and lease the assets back to the Lessee according to the payment schedule stated in the Lease Contract.
Domestic financial leasing is also a method of providing medium and long-term credit for investment projects to purchase machinery, equipment, production lines, and means of transport for enterprises.
When leasing finance, the lessee will choose the type of equipment, supplier or manufacturer. They can also negotiate directly with the supplier on the purchase price, warranty policy and necessary after-sales services. Based on the leasing application, the financial leasing company will purchase the correct type of equipment and accompanying services and deliver it to the lessee for use. At the end of the lease term, the lessee will be transferred ownership of the equipment or simply put, during the financial leasing period, the right to use the leased asset will belong to the lessee and the ownership will belong to the lessor.
b) Import financial leasing
Import financial leasing is when a financial leasing company represents the Lessee to purchase assets from a foreign Supplier and leases the assets back to the Lessee according to the payment schedule specified in the lease contract.
Some financial leasing companies such as Chailease financial leasing company also open letters of credit to import leased assets for customers to support small and medium-sized enterprises that cannot perform this transaction.
c) Purchase and leaseback financial leasing
Purchase and leaseback in the form of financial leasing (abbreviated as Purchase and leaseback) is when a financial leasing company purchases assets owned by the Lessee and leases back the same assets to the Lessee in the form of financial leasing so that the Lessee can continue to use them for its operations during the time when the Lessee has financial difficulties in paying the Supplier. In a purchase and leaseback transaction, the Lessee is also the supplier of the leased assets.
This is a way of financing to restructure capital sources for medium and long-term enterprises. The assets that the enterprise has invested in and used will be transferred to the financial leasing company for a certain period of 2-5 years. In addition, this enterprise can be financed up to 90% of the remaining value of the equipment. With this special method, enterprises will be supplemented with working capital, rebalance capital sources or make new counterpart capital for other projects, other purposes…
Or when they need working capital for production and business, they can also use this service for any existing machinery and equipment at the enterprise. This service helps enterprises to depreciate and convert equipment into cash while still having full rights to use the equipment.
d) Financial leasing form of operating leasing
Also known as operating leasing, is a form of asset leasing, in which the customer uses the leased asset of the financial leasing company for a certain period of time and will return the asset to the lessor at the end of the lease term. The financial leasing company retains ownership of the leased asset and the customer is responsible for payment according to the lease contract.
A business does not necessarily need to own the asset to generate profit. For some specific industries, it is only necessary to use the right to use the asset for a certain period of time to serve production and business activities. Moreover, technological achievements are developing more and more rapidly, so buying specific machinery and equipment may make the business obsolete or out of date and cause many obstacles to business development. This is considered an effective solution to help businesses limit risks in technology, price, maintenance costs, repair costs, asset liquidation costs, etc. This type of service is very suitable for businesses that need to use leased assets for a not too long period of time and always need to update technology. For the construction sector in developed countries, this is a form of financial leasing of construction machinery and equipment chosen by construction contractors to have construction machinery with modern technology, meeting the maximum needs according to the construction period or implementing each specific construction package.
2.2. Current situation of the financial leasing market for construction machinery and equipment in Vietnam
A current situation in the construction machinery market in Vietnam is that while the construction machinery market is diverse and vibrant, financial leasing companies have not developed and have not become an attractive address for construction enterprises in the field of leasing construction machinery.
In reality, to construct large-scale construction projects such as hydropower, thermal power, mines, oil and gas, large-scale technical infrastructure investment projects require a very large initial investment to import heavy trucks, construction machinery, special equipment such as cranes with large lifting capacity, modern drilling systems, etc.
In the context that the financial leasing market for construction machinery in Vietnam is still underdeveloped and not really attractive, for construction enterprises, investing in purchasing equipment from financial leasing companies is cumbersome due to cumbersome procedures and very high transportation costs. That is not to mention the financial leasing companies and agents operating in this field, who are often just brokers who earn commissions. According to domestic experts, financial leasing companies have not yet met the needs of large construction enterprises. That is why many enterprises have to spend a large amount of foreign currency to buy equipment and machinery that are only used a few times or a few years and then left there. Especially for specialized equipment such as tunnel drilling systems, super-load crane systems, etc. This is a huge waste of construction machinery resources, weakening the competitiveness of domestic construction contractors in the period of deep integration of the construction industry along with the fierce competitive pressure of foreign construction contractors in the Vietnamese construction market.
3. Causes of the problems and some solutions to promote the development of the financial leasing market for construction machinery and equipment
3.1. Causes of the problems and limitations
According to experts, along with the integration of the construction industry, the trend of financial leasing of construction machinery and equipment will be a development trend in Vietnam in the coming time. However, through the analysis in section 2 above, it is possible to identify the causes of the problems and limitations in the development of the financial leasing market of construction machinery and equipment according to the following 3 reasons:
First, the legal policy mechanism has not created a complete and open legal corridor that takes into account the specific characteristics of the construction machinery market associated with the specific characteristics of construction works.
Second, the number of financial leasing companies in general and specializing in the financial leasing of construction machinery and equipment is still limited.
Third, the interest and understanding of construction contractors in the financial leasing of construction machinery and equipment is still at a certain level. Not yet creating trust and attractiveness with contractors.
3.2. Some solutions to promote the development of the financial leasing market for construction machinery and equipment
To promote the development of the financial leasing market for construction machinery and equipment in the coming time, some specific solutions are proposed as follows:
Firstly, in the coming time, state management agencies, relevant ministries such as the Ministry of Construction, the Ministry of Finance, the State Bank need to have policies and mechanisms to create conditions for further development of the financial leasing market in general and for the field of construction machinery and equipment in particular in Vietnam. Create conditions and legal corridors for foreign financial leasing enterprises to operate in Vietnam, provide financial leasing services on an equal footing with domestic service providers, creating a transparent and healthy financial leasing market for construction machinery and equipment.
Second, domestic banks or financial enterprises themselves need to invest resources in management technology, human resources, accompanying services in technology consulting, asset maintenance support, etc. With the position of intermediary in the purchase and sale of leased assets, financial leasing companies can develop relationships with large suppliers to bring many benefits to customers.
Third, there needs to be an attractive mechanism to attract the interest and demand of domestic construction enterprises to realize the effectiveness of the financial leasing model of construction machinery and equipment in the development strategy, improving the competitiveness of enterprises in integration.
In the coming time, the Ministry of Construction needs to have solutions and ways to coordinate with relevant authorities to create a legal corridor for the development of this type to diversify the Vietnamese construction market and also create conditions to improve the competitiveness of domestic construction contractors.
(Source: Construction Economics Magazine)
