Q2 2015

Equipment Leasing

Insider

Welcome to our newsletter

Welcome to First Equilease's Q2 2015 edition of the “Equipment Leasing Insider”.

In this issue of the newsletter, we focus on Saudi Arabia’s construction sector. Saudi

Arabia, owing to its huge size and its oil reserves, is the largest market for the

construction industry in the GCC region. We look at the areas in which the

government has focused its attention on the Saudi Infrastructure over the years. We

also look at the locations in which the Saudi government has invested in. Over the

last few years the KSA government has focused on education, affordable housing,

widening transport networks and communication infrastructure.

The ELFA monthly confidence index has been on a downward trend with the index

falling throughout the 2nd quarter in 2015. Most of the owners expected their business prospects to remain

unchanged in the next four months.

We are eager to hear your suggestions and feedbacks. If you would like to know more about any of the topics

covered in the Newsletter, please feel free to get in touch with us.

Best wishes,

Mohammad Al-Qahtany

Chairman & CEO, First Equilease

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Table of Contents

Foreword

1

Featured Interview 3

Saudi Arabia Construction Industry 6

Equipment Leasing and Finance Association Monthly Confidence Index

10

Latest from Global Equipment Leasing News 11

Open-End Lease vs. Closed-End Lease 14

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Featured Interview

First Equilease held an exclusive interview with Mr. Mohamad Al Sawan, Managing

Partner, Vestrade Combined Gen. Trad. & Cont. Co.

1. Could you please elaborate on your business model? What are your plans for Kuwait?

Vestrade Combined was established in early 2014 after a year of careful planning and

research. VTC has been carefully built to be a major player in the Kuwait market supplying

carpentries, joineries, component raw material for office, kitchen, home, commercial,

residential and public projects. We have associated ourselves with international high

quality brands that we exclusively represent in Kuwait like Fritz Egger (www.egger.com).

In addition to Egger we have created our own VTC branded high quality product line that

we carefully select from international suppliers for the Kuwaiti market. We aim to

maintain a higher standard in without compromising too much on the price. We plan to associate with several

international brands in our domain. In addition to the retail business, we plan to launch a completely

automated cut to size carpentry service centre. This will cater joinery and carpentry services, for the majority

market share that don’t have the capability to purchase and invest in high end machinery, and supply fast

premium quality service and finished product. This phase will increase demand on our high end quality Egger

Melamine Face Chipboard wood sheets supply, making joinery works easier, faster, and more cost efficient for

our partners in the local market.

2. What are your views on the logistics infrastructure that is available in Kuwait for transporting your

products to the end users?

Out of our short experience in the market, we faced difficulty contracting reasonably priced and reliable

professional logistics service. Being suppliers of heavy and large material like MFC wood sheets, and other

component material we require daily logistics to be able to deliver to our clients their purchases. Let us also

not forget the need to refreshing our city warehouse stock from our distant warehousing facility. At first we

were baring all the expenses for these logistics, till we reached a reasonable overhead expense. This is where

we had decided we had to have our own trucks to insure quality after sales service, and on time delivery with

no damage, at a reasonable cost.

4

3. What % of the housing budget is typically used for kitchen cabinets, wardrobe etc., in Kuwait? How does it

compare with other countries you operate in?

There is no accurate answer to this question, since this all depends on different requirement of each person,

company, or party. Some people generally spend around 20% of their housing budget on kitchens, cabinets,

wardrobes etc., and others even higher. This varies from one person to another and from one project to

another. Nevertheless Kuwaiti nationals allocate a higher% comparing to other countries we operate in, due to

their different living style, and higher purchasing power. In Kuwait, houses are bigger, and families are larger,

and their higher income and government subsidies allow them to spend more in general.

4. For your business what type of equipment are required? What percentage of the equipment is leased?

In our business we require equipment like hand jacks, forklifts, cars, half lorry’s, and trailers, etc... At the

moment all our equipment is leased, and we have plans in leasing additional warehousing equipment soon.

Seeking leasing as an option allows us in utilizing the liquidity we have invested in increasing our stock and

product line, instead of paying upfront on equipment that we could lease to own on a long term for reasonable

interest rates.

5. You have recently started your operations in Kuwait? How easy or difficult has it been to source the

equipment related to your business?

Yes we have recently started our operation in Kuwait, sourcing the equipment was quiet easy as the market is

full of different quality and competitive price options, but leasing the equipment has not been quiet easy at

all. Being a newly established company with no financial history, makes the leasing options directly with

suppliers or associated companies impossible. This is where Equilease facilitated our expansion plan.

6. What type of lease do you usually enter in while leasing equipment and why?

We usually go for the lease to own plan, since most of our equipment can be utilized for around 10 years. For

that reason we prefer to lease for around 2-3 years and own the asset which we will continue to use for

another 7 to 8 years at minimal cost.

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7. Could you please shed some light on the demand for your products in 2015? What are the growth drivers?

There is a constant demand for our products whether it’s in 2015 or 2016 onwards. In 2015 our main growth

driver has been the public sector in Kuwait which has been undergoing several make overs. The Educational

system is also seeing a sea of new development, the Sabah Al Salem Kuwait University City, which stretches

over 6 million square meters plot of land, is one such example. In addition to that, the development of new

residential areas in Kuwait, to increase the housing supply for locals and expats is another driver. Other growth

factors are the increase of exhibitions held in Kuwait, the launch and expansion of shopping malls which is

increasing the leasable area, and the moderate development of the private medical sector. This all requires

wood and complementary components, to build, decorate, and furnish.

6

Market Analysis

Construction Industry in KSA

Saudi Arabia is the largest construction market in the region and has awarded projects close to USD 385 Bn during

the period 2010-2014. The government of Saudi Arabia roughly spends close to 50% of its budgeted spending

towards developing its human resources. It has budgeted higher sending towards increasing the capacity of schools,

universities and technical institutes. The government also intends to establish research centers of excellence. In

addition to the investment in education, the KSA government has also undertaken many of the development

projects in areas such affordable housing, widening transport networks, communication infrastructure as well as

power and water projects.

Figure 1: KSA - Projects Awarded - 2010-2014 (USD Bn)

Source: NCB, Marmore Research

In 2014 oil and gas sector accounted for USD 12.8 billion worth of projects, comprising a majority share of 21.7%

out of the total value of projects awarded. Power and transportation sector were the other major sectors and

accounted for 15% (USD 13Bn) and 9% (USD 9Bn) of the total value of projects awarded respectively in 2014. The

value of the projects that were awarded in 2014 fell by 25% in 2014 as compared to 2013.

55,188

28,477

72,060 62,670

78,210

58,860

86%

-48%

153%

-13%

25%

-25%

-100%

-50%

0%

50%

100%

150%

200%

0.0

10000.0

20000.0

30000.0

40000.0

50000.0

60000.0

70000.0

80000.0

90000.0

2009 2010 2011 2012 2013 2014

USD

Mn

Value of awarded contract % change over previous year

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Figure 2: Total value of awarded contracts region wise during Q4 2014

Saudi Aramco accounted for all of the contracts that were awarded in the Oil & Gas sector. The majority of the

contracts were in Jizan as part of the Jizan Refinery IGCC power plant. Foreign contractors accounted for a

majority of the awardees as the makeup consisted of mainly European and Asian companies.

Saudi Electricity Company was awarded the majority of the contracts in the electricity segment as it has been

focusing on expanding its power transmission capabilities to newer residential areas. Improvements at the King

Khalid International Airport and King Abdullah Airport in Jizan were the major contributors to the transportation

sector.

Oil & Gas, 17%

Healthcare, 6%

Urban

Development, 9%

Government, 7%

Water, 7%

Power, 15%

Transportation,

11%

Education, 4%

Roads, 8%

Others, 10%

Real Estate , 5% Petrochemical, 3%

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Figure 3: Total value of awarded contracts region wise during Q4 2014

Source NCB, Marmore Research

Region wise Riyadh and Eastern Province accounted for 29% and 20% of the total value of awarded contracts during

2014. Bulk of the Eastern Province’s projects was due to contracts being awarded in the oil & gas sector. Various

infrastructure related contracts were awarded in Riyadh focusing on urban development, water and various

government sectors. Two large contracts were awarded within the urban development and mixed-use real estate

sectors in the Madinah region.

Riyadh, 29%

Eastern Province, 20%

Makkah, 13%

Others, 13%

Jizan, 9%

Madinah, 7%Asir, 5%

Northern Borders, 2%

Al Baha, 1%

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Table1: Top Infrastructure Projects in KSA to be completed in 2015

Project Name Primary Sub-Sector

Region Project Value ($ Mn)

Completion Date

Saudi Arabia Ministry of Hajj - Makkah Grand Mosque Expansion

Public Building

Makkah 21.3 Q4 2015

Sadara Chemical Company - Jubail Petrochemicals Complex

Chemicals Eastern Province

20.0 Q3 2015

SATORP - Jubail Refinery and Petrochemical Complex

Refinery Eastern Province

14.0 01-09-2015

MOPM - Waad El Shammal Mining City Industrial Zones

Northern Borders

6.9 2015

Aramco - Shaybah NGL Recovery Program NGL Eastern Province

6.0 Q3 2015

Aramco - Wasit Gas Development Exploration & Production

Eastern Province

4.6 01-12-2015

GACA - King Abdulaziz International Airport Development Project - Phase 1 - New Terminal

Airports Makkah 4.0 01-09-2015

SAR - North-South Railway Railways Riyadh 3.6 01-06-2015

SEC - New Jeddah South Power Plant Power Generation

Makkah 3.1 Q2 2015

Injaz Development Company - Al Marina Community Development

Eastern Province

2.7 Q3 2015

Dar Al Arkan - Shams Al Arous Residential Makkah 2.0 Q4 2015

Sadara Chemical Company - Jubail Petrochemicals Complex - Offsites and Utilities

Chemicals Eastern Province

1.8 Q3 2015

Saudi Binladin Group - Housing Project 5,000 Villas

Residential Eastern Province

1.5 Q4 2015

Saudi Arabia MOPM - Jazan Refinery and Terminal - Tank Farms

Refinery Jazan 1.4 01-11-2015

Sadara Chemical Company - Jubail Petrochemicals Complex - Polyethylene and Specialty Elastomer Facilities

Olefins & Aromatics

Eastern Province

1.3 Q4 2015

Saudi Arabia MoH - King Fahad Medical City Expansion

Healthcare Riyadh 1.3 01-09-2015

Petrorabigh - Rabigh Refining and Petrochemical Complex Expansion - Cumene, Phenol and Cychlohexanone Plants

Olefins & Aromatics

Makkah 1.2 01-09-2015

Source: Zawya

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Trends

Equipment Leasing and Finance Association Monthly Confidence Index

The Equipment Leasing and Finance Association (ELFA) Monthly Confidence Index

is one of the most widely known index which is used by industry leaders

worldwide to gauge the business confidence. The Equipment Leasing and Finance

Association is the trade association representing financial services companies and

manufacturers in the $827 billion U.S. equipment finance sector.

Figure 2: ELFA Monthly Confidence Index

Source – ELFA

The ELFA monthly confidence index has fallen during the 2nd quarter of 2015, dropping from 72.1 in March 2015 to

63 in Jun 2015. In the survey, 17.9% of executives responded saying that they believed business conditions will

improve over the next four months, down from 30.8% in May. 82.1% of respondents believe business conditions will

remain the same over the next four months, up from 69.2% in May 2015. 21.4% of survey respondents believe

demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, down

from 34.6% in May. 21.4% of survey respondents believe demand for leases and loans to fund capital expenditures

(capex) will increase over the next four months, down from 34.6% in May. 78.6% believe demand will "remain the

same" during the same four-month time period, up from 65.4% the previous month. None believe demand will

decline, unchanged from May.

59.059.6

61.762.1

59.2

48.5

51.550.2

53.053.3

49.948.5

54.2

58.758.0

54.0

56.757.3

59.461.061.3

54.0

56.955.8

64.963.3

65.165.165.4

61.461.4

58.960.260.4

64.263.4

66.166.3

72.170.7

67.5

63.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

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Latest from Global Equipment Leasing News

Hertz Equipment Rental Depot Opens in Doha, Qatar

The Hertz Corporation (NYSE: HTZ) has announced that Hertz Dayim Equipment Rental has opened its first Qatar

location in Doha, which is operating under the Hertz Equipment Rental Corporation (HERC) brand. The move is part

of a joint venture agreement between HERC, Dayim Holdings and Phoenix Project Development WLL of the

Al-Attiyah Motors & Trading Group, building on the success of the Dayim Holdings and HERC partnership in Saudi

Arabia. HERC Qatar rents and sells small tools, heavy equipment and industrial machinery to construction,

industrial, and energy firms as well as contractors working within those environments. Chairman of Hertz-Dayim

Equipment Rental, HRH Prince Khalid bin Bandar bin Sultan, added: "As regional expansion beyond Saudi Arabia is a

major strategic objective for Hertz-Dayim Equipment Rental I believe that Qatar is the right place to begin, given

the country's heavy demand for construction equipment and related services. We are confident that we will

replicate the success of the Saudi business across the GCC. We have been able to put a very experienced and

professional team in Qatar, which I believe will serve the demands of the industry and reshape the competitive

landscape there."

Mac Rentals Dubai Expands Service Range to Include All of UAE and GCC Region

Mac Rentals Dubai, one of the Middle East's top information technology rental companies, has significantly expanded

its service area. Thanks to the new expansion, customers throughout the United Arab Emirates can now take

advantage of Mac Rentals Dubai's industry-leading selection of Mac computer rentals and other IT rental offerings.

With a focus on personal, customized service, mac rentals Dubai works with customers needing anything from a

single iMac rental to 50 or more iPads for special events, and will now do so throughout Dubai, Abu Dhabi, Sharjah,

the rest of the United Arab Emirates, and the GCC region generally.

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The Wave, Muscat introduces new resale and leasing service

The Wave, Muscat has launched its own resale and leasing service to better serve the growing number of investors

in the project as well as people looking to move into or buy at the integrated tourism complex. “The Wave, Muscat

has over the years worked diligently to establish itself as a trusted brand and has set the benchmark in Oman's

property market. As part of the vision and mission of the organization, we aim to offer premium real-estate

services that bridge developer, landlord and tenant as well as buyers and sellers and make the customer

experience easy," added Nasseri. The entire team has worked at The Wave, Muscat for a number of years and

understands the different precincts and current property values, providing a wealth of knowledge to both tenants

and landlords, and delivering a one-stop-shop of expertise at The Wave, Muscat.

Ibdar Bank Wins the "Aircraft Finance Deal of the Year" Award for landmark leasing agreement with Ethiopian

Airlines

Ibdar Bank ("Ibdar"), the Bahrain based Islamic wholesale investment bank, together with Dubai-based Palma

Holding received the African Aviation Awards' "Aircraft Finance Deal of the Year" for their successful structuring of

a 12-year agreement for acquiring four brand new Bombardier Q400 Next Gen aircrafts and leasing them to the

Ethiopian Airlines. The Bank competed with other institutions from all over the world, and was voted the winner by

an independent panel of international and regional judges designated by the Africa Aviation Magazine, a

specialized institution in aviation business events and media. The African Aviation Awards were introduced by

African Aviation Magazine in 1999 in order to give International recognition to those individuals, companies and

organizations who have made significant contributions to Aviation Development in Africa. It recognized efforts and

professionalism of leading firms, highlighting excellence in performance, service, management, personnel, and

operations serving the African aviation industry.

Quantum Investment Bank and Palma Capital Limited Mandated for the Largest Aircraft Leasing Deal in Saudi

Arabian Airlines History

International Air Finance Corporation ("IAFC") has appointed Quantum Investment Bank Ltd ("Quantum") and Palma

Capital Limited ("Palma") both DIFC based and regulated by the Dubai Financial Services Authority ("DFSA") as

exclusive Arrangers for Saudi Arabian Airlines ' ("SAUDIA") largest aircraft leasing deal in history. The deal consist

arranging debt and equity financing to acquire 30 Airbus aircraft of A320-200 model and 20 aircraft of A330-300

model to be leased to SAUDIA. Mr. Ammer Al-Selham, Chairman of the Board of Quantum Investment Bank Ltd

added: "Quantum aspires to strengthen its relationships with public and private institutions in Saudi Arabia in the

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near future and provide them with Shariah-compliant financing solutions. We consider this as our modest

contribution to the development of our economy and in line with the vision of our wise leadership towards a

stronger Saudi economy and the well-being of its people."

Dubai Parks and Resorts begins leasing retail, dining units in Riverland

Dubai Parks and Resorts, developer of a mega theme park project in Dubai, has begun leasing retail and dining

units in Riverland, the project’s entrance plaza. About 220,000 square feet of retail and dining units have been

made available at Riverland, which is also the connecting point between the three theme parks. The plaza has

been inspired by other global attractions such as New York’s Times Square, London’s Covent Garden and

Barcelona’s Las Ramblas, all of which combines retail and dining outlets. Riverland is expected to have over 50

dedicated outlets, the company said in a statement. “Every visitor to Dubai Parks and Resorts will pass through

Riverland Dubai on their way into our four parks,” said Raed Al Nuaimi, CEO of Dubai Parks and Resorts.

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Educational

Leasing with and without a 3rd party

Single Investor Lease and Leveraged Lease:

In single investor lease, there are two parties – lessor and lessee. The lessor arranges the money to finance the

asset or equipment by way of equity or debt. The lender is entitled to recover money from the lessor only and not

from the lessee in case of default by lessor. Lessee is entitled to pay the lease rentals only to the lessor.

Leveraged lease, on the other hand, has three parties – lessor, lessee and the financier or lender. Equity is

arranged by the lessor and debt is financed by the lender or financier. Here, there is a direct connection of the

lender with the lessee and in case of default by the lessor; the lender is also entitled to receive money from

lessee. Such transactions are generally routed through a trustee.

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About First Equilease

We were established in 2005 as a Kuwaiti closed shareholding company.

We aspire to be the market's first choice in equipment leasing in the Middle East, recognized for the

innovative trend-setting solutions, Client-centric approach, ethical standards, and dedicated towards

the sustainability of our community and the environment.

CopyRight© FIRST EQUILEASE 2015 All rights Reserved

@FirstEquilease FirstEquilease

P.O.Box 23444, Safat 13095, Kuwait Tel. : (965) 2224 8558 Fax : (965) 2224 8559 Email : info@firstequilease.com

Url : www.firstequilease.com