Q4 2014

Equipment Leasing

Insider

Welcome to our newsletter

Welcome to First Equilease's Q4 2014 edition of the “Equipment Leasing Insider”.

In this issue of the newsletter, we focus on Kuwait’s infrastructure sector which has

been given a much needed boost following the Kuwait parliament’s approval for the

2nd phase of the Kuwait National Development Plan (2015-20). This plan takes a two

pronged approach to the development of the Kuwait economy – engagement of the

private sector in the economic development of the country through reforms and

implementation of mega-projects. Higher private sector participation would bring in

diversification to the economy which is largely dependent on oil for its revenues and

would also boost the local employment.

The ELFA monthly confidence index dipped slightly in December 2014, thereby signifying lower confidence exhibited

by the business owners.

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,

Mohammed Al-Qahtany

Chairman & MD, First Equilease

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Table of Contents

Foreword Featured Interview

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3

Kuwait Infrastructure Sector 5

Equipment Leasing and Finance Association Monthly Confidence Index

9

Latest from Global Equipment Leasing News 10

Lease Contract with an Option to Buy 14

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Featured Interview

First Equilease held an exclusive interview with Mr. Ziad Tarek Makki, General

Manager, Saba Group International General Trading & Contracting Co.

1. Your company has been in the logistics and freight forwarding business for more than two decades, could

you please elaborate on how the logistics and freight forwarding business has evolved in this region over

this period?

As the world evolves with time, technology plays a major factor in all industries. In the logistics sector, the

digital world has allowed us to incorporate technological aspects to monitor, control and maintain our fleet of

equipment as well as our client’s commodities.

2. What are some of the methods used by logistics companies in this region to reduce their business risk?

As we are the keepers and transporters of other party’s commodities, our main goal is to deliver in a timely and

secure manner. In order to reduce the risk of Murphy’s Law, we have implemented an IVMS system which tracks

all our clients’ shipments. We also hold a haulier’s liability insurance policy which protects all of our clients’

cargo while in transit.

Furthermore, as well as 3 ISO certifications, all of our Drivers are trained in a periodic manner to the highest

HSE standard policies.

3. Which sectors are your major clientele?

With our vast fleet of equipment, we cater all logistical needs to the major sectors including but not limited to;

construction, oil & gas industry, Government and Military sectors.

SABA Group specializes in the handling and transportation of Heavy lift and over dimension cargo.

4. We understand that you have a whole fleet of trailers. Do you own all of them or do you lease a significant

portion of the fleet?

SABA prides itself with ownership of 95% of its variety of equipment. The other 5% of equipment are lease to

own. Our vast fleet of equipment includes but not limited to Multi-Axel Low Bed trailers, Flat Bed trailers, Fuel

& Water tankers, dump trailers which are all operated with late model Tractor Heads.

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5. What are some of the areas which you would look into when entering into a fleet leasing agreement with a

leasing company?

We look for the long term relationship and the option of lease to own.

6. Could you please comment on the type of equipment that is used in managing your warehouses?

In managing our warehouses and maintenance facilities, we use equipment ranging from forklifts, cranes, wheel

loaders and half lorries.

7. What type of equipment lease is generally preferred by the sector you operate in?

The operational services provided in the logistic sector have no limit. All equipment in classified as operational

in the logistic industry is considered.

8. Could you please provide a brief introduction about your organization and its purpose?

In 1992 SABA International General Trading & Contracting Company was established. The express purpose of the

founding partnership was to provide a professional freight forwarding service to the global business community.

The prime factor in the SABA business modus was and is; cost effective logistic solutions for both National and

International customers in the Commercial and Government sectors.

The SABA ethos is to provide its’ clients with a service that leaves nothing to chance. Planning being 95% of any

logistic challenge, you can rest assured that your business will receive the highest attention to detail.

SABA’s chain of Freight Forwarding alternatives and Logistic Solutions are available to you conveniently, at cost

effective prices. Being one of the leading organizations in the business, SABA is not limited to one particular

region. SABA has developed a global network of professional Freight Forwarding and Logistic agents who are

committed to offer complete supply chain solutions to facilitate worldwide Door-to-Door Services.

SABA owns a multi-faceted and diverse fleet of vehicles enabling customers to move their products economically

from one country to another. SABA’s fleet has the capability of delivering wide load and oversized shipments of

up to 300 tons. Clients with a need to deliver products or equipment to Iraq are able to minimize their risk by

contracting SABA, whose in-house licensed security force will undertake to guard and deliver to multi

destinations.

Our use of local intelligence ensures your cargo moves when it is safe to do so. Our unique methods give SABA

the positive edge to confidently offer a total END to END Service that once experienced; you will wonder how

you coped without us.

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Market Analysis

Kuwait Infrastructure Sector

Kuwait is one of the largest oil producers in the world having one of the lowest fiscal breakeven oil prices at

$52.3/barrel. The lower breakeven price, along with the large fiscal reserves, allows Kuwait to sustain a longer than

expected lower oil price. Spending on infrastructure becomes all the more important at this time when the oil price

outlook remains subdued and the global outlook has been giving out mixed signals. The Kuwait government has also

stressed that lower oil prices would not cut the infrastructure spending and has urged that investing in infrastructure

projects has got multiple benefits - it stimulates the spending in the economy and increases employment

opportunities for Kuwaiti nationals. Economic diversification is considered as an extremely vital step to ensure a

healthy economy in the future.

The Kuwait government announced recently that they plan spend close to $155 Bn on projects over the next 5 years.

A total of 523 key projects are expected to be covered under the plan and is expected to begin on 1st April of 2015.

Currently there are closer to $ 51.6 Bn worth of infrastructure projects and $10 Bn worth of power and water projects

that are ongoing and are expected to be completed over the next few years. In addition to that, the Kuwait

government has announced their plans to spend close to $100 Bn in oil projects over the next five years to improve

and modernize the most vital sector of the economy. Kuwait plans to increase its crude production capacity to 4.0

million barrels per day by 2020 and maintain it until 2030 from the current level of about 3.2 million bpd.

Figure 1: Infrastructure and Power & Water projects (Ongoing, in USD Mn)

Source: Zawya

51,690.68

10,015.92

Infrastructure Total

Power and Water Total

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Kuwait is at the cusp of change with two major amendments to its laws which would shape the future of infrastructure

investments in Kuwait. Foreign Direct Investment law is expected to allow 100% ownership by foreign companies

while another law governing the PPP (Public Private Partnerships) is expected to streamline the tendering, bidding

and other activities surrounding the infrastructure projects.

Kuwait has been experimenting with the PPP model and it has been quite successful following the final close of Az

Sour North independent water and power project (IWPP). The IWPP had started in January 2014 and is the 1st project

that has been executed under the new PPP law. In August 2014, the executive regulations to the new PPP law was

published, and the comprehensive PPP law is expected to be ready by February 2015 which is expected to give a

much needed fillip to Kuwait’s Infrastructure sector given the need for Kuwait to have mega infrastructure projects

and advanced technology transfers.

Few projects which have been put on hold pending the publication of executive regulation are expected to start

once that has been published. Projects such as the 1500 MW and 100 MIGD Az Sour North IWPP Phase 2, the 2500 MW

and 125 MIGD Al Khairan IWPP and the 280 MW Al Abdaliyah Integrated Solar Combined Cycle Project are examples

of projects that have been put on hold.

Infrastructure Projects

Sheikh Jaber Al Ahmed Al Sabah Bridge

In 2012, Kuwait's Ministry of Public Works awarded Cowi the development contract for the $2.6Bn, 36km-long

causeway that will run across the northern coast of Kuwait Bay. The firm’s full scope of work involves traffic

assessments, alignment studies, design of bridges and embankments, as well as economic and financial studies. The

construction of the bridge is being handled by Abdullah Al Hamad Al Sagar & Brothers Company /Hyundai Engineering

& Construction Company. In April, Hyundai’s CEO Soo Hyun Jung stated that the project was on track to complete as

planned in 2018. Named after late Amir Sheikh Jaber Al-Ahmad al-Sabah, the causeway will link the capital Kuwait

City with the northern Subiyah area, where the proposed $94 Bn Silk City project will be based.

KOC - Small Boats Harbour

Small Boat Harbours project consists of capacity extension of the Al Ahmedi Harbour and a new construction of a

service harbour at Abu Halifa. The project is aimed to be completed within 38 months.The project covers marine

works (dredging, breakwaters, quaywalls, pontoons, ship lift system), buildings, electrical works, mechanical works,

ICT systems (marine and building management systems, telecommunication systems). The project is split between

two main locations, being the North and South projects, 7km apart from each other.

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A 4km breakwater will be constructed to protect the harbours by using quarried rock material of 2.5mn tons and

26,000 special protective concrete units called Accropode II. A 2.5km quay wall will be constructed by using 12,000

concrete block units in the sea and the quay walls will accommodate all the needs of future marine fleet of KOC. In

order to serve the bigger marine assets of KOC, both harbours will be dredged down seven meters CD, and the landfill

attained during this dredging will be used as for the filling materials in the North and South harbours.

Kuwait University City - Package B5 and A5

The Kuwait University City (KU) plans to build Package B5 and A5 of Kuwait University in Shadidiyah, Kuwait.

The project will consist of infrastructure works including 35 Km roads, secondary power stations and 11,472 car

parkings as well as 5 rest areas and related works. The Consortium of WZMH Architects, Moriyama and Teshima

Architects and Du Toit Allsop Hillier is the master plan consultant. The project would also include extension of sewage

and rain drainage networks, supply water, firefighting, electricity grids and fuel pipeline, central service stations

pipeline network of treated water, as well as the establishment of garden irrigation networks and the reservoirs of

cold water lines.

Top Infrastructure Projects in Kuwait to be completed in 2015

Project Name Primary Sub-Sector

Region Project Value ($ Mn)

Completion Date

Kuwait MPW - Sheikh Jaber Al Ahmed Al Sabah Bridge - Phase 1

Bridges Jaber Al Ahmad

2,600 2015

KOC - Small Boats Harbour Ports Al Ahmadi 483 Q2 2015

KU - Kuwait University City - Package B5 and A5 Education Al Farwaniyah

350 Q2 2015

KNG - Al Raqae Kuwait National Guards Headquarters

Public Building

Al Farwaniyah

290 Q3 2015

KNPC - Mina Al Ahmadi/Mina Abdullah Clean Fuel Project - Civil Works

Refinery Al Ahmadi 136 Jan 2015

Kuwait MPW - Western Jamal Abdul Nasser Street Roads Al Assimah 124 Q4 2015

KU - Kuwait University City - Package 4B Education Mubarak Al Kabeer

97 Jan 2015

KU - Kuwait University City - Package 4A Education Unknown 84 Feb 2015

Kuwait MPW - Nuwaiseeb Highway Temporary Return Openings

Roads Al Ahmadi 45 Q3 2015

Kuwait DGCA - Kuwait International Airport Pavement

Airports Unknown 44 Q4 2015

KNG - Al Raqae Kuwait National Guards Headquarters - Phase 2

Public Building

Al Farwaniyah

19 Q3 2015

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Project Name Primary Sub-Sector

Region Project Value ($ Mn)

Completion Date

KOC - KOC Gate 3 to Subiyah Main Road Roads Al Ahmadi 13 Q1 2015

Kuwait PAHW - Jaber Al Ahmad Residential City Roads

Roads Jaber Al Ahmad

9 Q2 2015

Kuwait PAHW - Jaber Al Ahmad Residential City Roads - Area B

Roads Jaber Al Ahmad

7 Q2 2015

Kuwait MPW - Southern Agricultural Roads Rehabilitation

Roads Unknown 6 Q1 2015

Kuwait MPW - Northern Agricultural Roads Rehabilitation

Roads Unknown 3 Q2 2015

Kuwait PAHW - Jaber Al Ahmad Residential City Roads - Area A5

Roads Jaber Al Ahmad

2 Q2 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 Bn U.S. equipment finance sector.

Figure 2: ELFA Monthly Confidence Index

Source – ELFA

The ELFA monthly confidence index which fell throughout the first two months of the 3rd quarter started to rise in

September and has continued its rise in the till November. The ELFA index ended the year at 63.4 which was slightly

lower than November vale of 64.2. The index has risen throughout the year and 2015 is expected to be positive again

but the credit losses stemming from increased labour and wages could play spoilsport. The unemployment levels in

the US are at 5.6%, its lowest level since July 2008 signaling a higher probability of a wage increase. While the past

three years have seen explosive growth in sales and investments, the magnitude of the growth might be more normal

59.059.6

61.762.1

59.2

48.5

51.5

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49.9

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58.758.0

54.0

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59.4

61.061.3

54.0

56.955.8

64.9

63.3

65.165.1

65.4

61.461.4

58.9

60.260.4

64.263.4

45.0

50.0

55.0

60.0

65.0

70.0

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this year1. The survey indicated that 72% of the executives expected their business prospects to remain the same

over the next 4 months, while 28% expected their business prospects to improve. None of the surveyed respondents

expected business prospects to worsen over the next 3 months. Around 38% of the respondents indicated that they

expected business development activities to increase while 63% expected no change in their business development

activities.

Latest from Global Equipment Leasing News GCC-run Islamic leasing fund signs deal for 9 Airbus planes

A sharia-compliant aircraft leasing fund, run by Dubai-based International Airfinance Corporation (IAFC), has signed a

deal to purchase five A330-300 planes, with an option for four more, Reuters reported on Jan 22nd 2015. The total

value of the nine planes is US$2 Bn at list prices. IAFC has already placed the five planes on long-term leases with

undisclosed Middle East carriers. "We are already in negotiations for placing more than 20 aircraft over the next few

months," Idriss Ghodbane, managing partner and board member at IAFC, was quoted as saying by Reuters. The

formation of the fund was publically announced last June with Airbus and Jeddah-based Islamic Development Bank

the anchor investors.

ELFA Announces Top 10 Equipment Acquisition Trends for 2015

The Equipment Leasing and Finance Association (ELFA) which represents the $903 Bn equipment finance sector,

revealed its Top 10 Equipment Acquisition Trends for 2015.

1. Investment in equipment and software will reach an all-time high in 2015. As the U.S. economy continues to

improve, business investment is forecast to reach a record $1.484 trillion in 2015. As business investment grows,

demand for equipment financing will increase.

2. Businesses will invest in equipment not just to replace aging assets, but also to aid in expansion. The pent-up

replacement demand that has driven equipment investment in previous years may be supplemented by long-awaited

expansion investment as capacity utilization rates in some industries reach or surpass levels historically known to

1 David Schaefer, CEO, Mintaka Financial, LLC

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spur business investment. Industries poised for investment growth include oil and gas extraction and transportation

equipment manufacturing.

3. While some equipment types will see strong growth, others will moderate. In 2014, equipment and software

investment increased 9.6% in Q2 and 9.3% in Q3. Looking ahead, growth in equipment and software investment is

expected to moderate somewhat, as it is unlikely to keep up the strong pace seen in Q2 and Q3. A still healthy growth

rate of 6% is forecast for 2015. Aircraft, trucks and other industrial equipment are projected to be among the higher

growth types, while agriculture, computers and software are expected to see slower growth.

4. Improving market conditions will continue to increase credit supply and demand for equipment acquisitions. As

the economy steadily improves and business confidence continues to increase, credit standards should modestly

loosen. The propensity to finance decreased in the wake of the financial crisis as businesses deleveraged and

refrained from new business investment. Since bottoming out in 2010, the rate at which businesses finance their

capital spending has grown consistently and will continue to increase in 2015 with steady economic recovery and

shifts in Federal Reserve policy.

5. Eyes will be on short-term interest rate increases. Expectations for the Federal Reserve to raise short-term

interest rates in 2015 should spur equipment investment as businesses seek to lock in equipment financing at lower

rates. Despite rate increases, businesses will find that a highly competitive “buyer’s market” will continue to make

financing an attractive option for acquiring equipment.

6. Businesses will use financing for a majority of their plant, equipment and software expenditures. In 2015, 62

percent or $922 Bn of investment in plant, equipment and software in the United States is expected to be financed

through loans, leases and lines of credit. A majority of businesses—seven out of 10—will use at least one form of

financing to acquire equipment.

7. Advances in the use of technology will drive innovative financing options. Equipment finance providers are

streamlining their business processes and improving customer self-service capabilities using digital technologies. At

the same time, some end-users are moving away from traditional equipment consumption models and toward hosted

or managed services based on usage rather than total ownership. To meet customer demand and address evolving

technology equipment requirements, equipment finance companies will tailor innovative financial offerings.

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8. Several “wild cards” could impact equipment acquisition decisions. In what could be a breakout year for the U.S.

economy, positive and negative external risks could affect equipment investment. Potential political gridlock, global

economic weakness and geopolitical risks could be a drag on investment decisions, but GDP growth from low oil

prices, a potential surge in the housing sector and sufficient capacity utilization could have firms ramping up capital

expenditures.

9. Nontraditional financing will continue to grow and play a larger role in the equipment finance industry. As

regulatory scrutiny increases and some banks’ lending standards tighten for certain credits, nontraditional financing

sources, such as investment bankers, venture capitalists, insurance companies, crowd funders and others, are

exploring opportunities in the equipment finance sector.

10. A final lease accounting standard will be released. The Financial Accounting Standards Board and the

International Accounting Standards Board continue to work on the lease accounting project, which will change how

leases are accounted for on corporate balance sheets. A final standard is anticipated in 2015, with a possible effective

date of 2018 or later. The good news is that the benefits of leasing equipment will remain intact despite the lease

accounting proposal.

Despite Pessimistic Economic Growth Estimates Equipment Leasing Marketplace LeaseQ Announces An Optimistic Outlook For 2015

As 2015 arrives, the equipment leasing and financing industry sets its sights on an optimistic new year. With strong

growth in 2014, lease and finance marketplace LeaseQ weighs in on economic conditions and the state of the industry

for the coming year. There are multiple positives looming on the horizon in 2015. Employee hiring is on the rise, job

openings are at near-record levels, and corporate layoffs are scarce. Unemployment also remains extremely low with

very low rates of initial unemployment claims since May. Spending on consumer services like recreation and

entertainments is likely to strengthen as incomes rise. Despite the predictions of the pundits, health care spending

also will pick up as consumers and health care providers acclimate to the new health care rules.

Macquarie Said to Seek About $350 Million for Lending Division

Macquarie Group Ltd. (MQG), Australia’s largest investment bank, is seeking about $350 million for Macquarie

Equipment Finance, a unit that lends to hospitals and semiconductor makers, people with knowledge of the matter

said.

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Initial offers for the business, which has roughly $950 million of assets, are due in about two weeks, said the people,

who asked not to be identified because the matter is private. Macquarie has reached out to U.S. banks including

EverBank Financial Corp., City National Corp. and Huntington Bancshares Inc. as it seeks buyers, the people said.

Macquarie is asking about twice book value for Macquarie Equipment Finance, which it bought in 2008 from CIT Group

Inc., the people said. It also has approached U.S. Bancorp, Fifth Third Bancorp and KeyCorp about the sale, they

said.

Motor finance continues to grow

The Finance and Leasing Association (FLA) has announced continued growth across car finance, consumer finance

and asset finance. There was a 7% growth in consumer new car finance volumes during November 2014, compared

with the same month the previous year. The percentage of private new car sales financed through dealerships by

FLA members held steady at 75.9% over the same period. Geraldine Kilkelly, head of research and chief economist

at the FLA, said: “Personal Contract Purchase (PCP) has become a popular choice for many consumers, reflecting a

change in attitudes to car ownership. But many customers still want to own their car outright and as a result we have

also seen growth in hire purchase over the last year.” Consumer finance new business grew by 3% in November 2014,

compared with the same month the previous year and increased by 10% in the twelve months to November.

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Educational

Lease Contract with an Option to Buy

An option is a contract that gives the buyer the right to

buy/sell the underlying asset at an agreed upon price during

a certain period of time, or on a specific date. Options can

be classified as call or put options. The holder of a call option

purchases the right to buy the asset at a specific price, while

the holder of a put option has the right to sell the asset at

the agreed upon price.

Combining the lease agreement with an option to purchase the asset, within a specified period of time and at pre-

determined price, results in a lease with option to buy. A very good example of such an option is the $1 purchase

option. A $1 Purchase Option Lease is one of the two most common leases that businesses use to acquire equipment

today. Each type of lease is useful, depending on the type of equipment and the type of anticipated use. A $1

Purchase Option Lease is often used by businesses when they know they will still be using the equipment for an

extended period after the end of the lease term.

Advantages

Provides businesses the ability to purchase the equipment for at the end of the lease term.

Provides additional financial benefits that may include depreciation and interest expense benefits for tax

purposes.

Disadvantages

Since there is an option to purchase, the monthly payments are usually higher.

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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