Thanks to the reinstatement of tax incentives for equipment investment in Colombia, leasing in the industry has been growing by leaps and bounds. Lessors have yet to securitize their portfolios, but the fast-paced expansion bodes well for that option in the future, according to Rafael Castillo-Triana, a principal at the Alta Group, a consultancy specializing in the leasing business worldwide.
"Once they reach the threshold of their own funding capacity, they'll start securitizing their portfolios," he said. Equipment leasing volume has been swelling at a clip of 40% annually, according to Colombian business magazine Dinero. As of December 2003, Suleasing, the country's largest leasing company, had a portfolio of roughly Ps155 billion (US$57 million) in machinery equipment leasing and Ps56 billion (US$21 million) in computer leasing, said a company sales representative. Suleasing has a market share of slightly below 30% in Colombia's entire leasing business.
In effect since Jan. 1, the tax perk establishes bonus-accelerated depreciation of assets, which allows Colombian business to deduct 30% of the cost of new equipment from their taxes over the first year. Tax incentives for equipment investment existed before in Colombia, having buoyed strong growth up until the elimination of the incentives in 1995. During those happy days, clients of Alta actually weighed the benefits of securitization, but regulators were discouraging. "They didn't think it would work in terms of protecting investor rights," Castillo-Triana said.
As the ABS industry in Colombia was taking its baby steps in the mid-1990s, it's not surprising that equipment leasing would have met regulatory resistance. But since then, securitization has proliferated in the domestic market. Unfortunately, the bureaucratic embrace of ABS came just as equipment leasing was languishing with the absence of the tax perk.
During the pre-1995 boom in leasing, there were 35 lessors active in Colombia, according to Castillo-Triana. He added that the crowd has dropped to 14, but should edge beyond 25, as players that had dropped out dust off their leasing operations. "You can expect some [of the old lessors] will come back to the marketplace," he said.
Besides the tax incentive, the desire to parcel out risk in large projects should spur lessors into ABS, Castillo-Triana said. As in other markets around the world, the ability to transfer equity and residual value risk to investors would no doubt help stimulate the industry.
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