As reported in previous Asset Finance International articles on Sri Lanka, the finance companies and banks are still coming to grips with equipment finance other than vehicles. Consequently, as this is the bulk of their leasing business, the vehicle registrations that rose 90.6% YoY in June is significant for the market.

Tourism arrivals rose 11.9%YoY in June. Broken down further these show:

• India arrivals +29.9%;

• Western Europe arrivals +10%;

• China and Hong Kong +85.6%;

• Russia +7.8%; and

• US +2%.

But at the same time there is a lack of hotel rooms that are required for the forecasted growth. Hence there is a rise in construction and consequently a growing demand for construction equipment.

China-based global hotel chain Plateno Group took over management of Ranna 212 resort in Tangalle. The resort will become part of Plateno’s Portofino Brand as Portofino Resort Tangalle commencing September 2015. This is Plateno’s second hotel in Sri Lanka, after city hotel ZMAX which will open its doors in Colombo in 2017.

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We at Connaught Finance are working closely with the group on one resort development south of Colombo and two resorts in the Maldives, where Connaught will be arranging the finance for the resorts.

An Indian property developer is to build the tallest building in Sri Lanka. Shreepathi Edfice Ltd launched a US$330 million project in the suburbs of Colombo. The mixed development named 1996 Iconic Tower features 96 floors of residential, commercial and shopping mall areas. The tower will be built as a tubular structure in tribute to Sri Lanka’s 1996 Cricket World Cup win.

To cater for the increase in tourism, the country’s infrastructure must be able to cope, although the roads system is improving it is very slow. The Highways and Investment Promotion Ministry is to prioritise road development already identified to be developed by the former government under a US$100 million loan from the China Development Bank.

This also opens new opportunities with new domestic airlines starting with sea planes to transport tourists into the mountains, landing on lakes (reducing travel time by road to Kandy of four hours to 45 minutes) and across the island to the growing  east coast and  the beach resort of Trincomalee.

Shell, Mobil and Exxon have responded to expressions of interest for oil exploration off shore, again a sign of high expenditure on capital equipment be it on shore or off shore this can have an impact on the equipment leasing industry, if the local banks and finance companies can respond to demand or are pro-active in identifying the requirement.

So, all the indicators are there for an increase in demand for equipment leasing but the age-old question still remains “Are local banks and finance companies ready to cater for such demand? Do they have the internal flexible procedures to manage new structures of which they have no previous experience?”

The answers are not black and white. The traditional lenders such as banks are still very slow to respond to change which opens the doors for international companies with overseas experience in equipment leasing. In addition, foreign vendors with captive finance companies or outsourced agreements can enter the market with their vendor finance programs but if they need to be funded in local currency then we revert to the debt products available from local banks. Many vendors still see the Sri Lankan market as being too small and therefore do not offer their own finance programs.

Finance companies based in Sri Lanka do offer a little more flexibility and are faster to respond to changing and increased market demands. Most of these companies are branches of international operations and so have overseas experience and a knowledge base that can contribute to the developing demands for equipment finance.

As an emerging market, Sri Lanka is taking the usual path of funders becoming gradually more comfortable with various types of equipment, structures and credit profiles. As in China, this path can be a slow one but if a pro-active bank (is that an oxymoron?) can lead the way then it will not only benefit the economy but it will help drive the development of equipment leasing in the country.

Paul Errington is CEO of Connaught Finance Investments, Hong Kong