Kiev, February 21, 2006

1. Kiev, February 21, 2006 Financing Sources for Lessors International vs. Ukrainian Practice Access to Credit Initiative Presented by: Richard Caproni Sponsored by USAID

2. Agenda: • Ukrainian Banking Sector • Need for Capital Market Development • The Tide Is Coming • Preparing Ukraine’s Infrastructure and Institutions (ATCI) • What this Means for Leasing in Ukraine • Typical Funding Sources for Lessors

3. Today, Ukraine’s Banking Sector Cannot Meet the Capital Finance Needs of Ukraine’s Enterprises • There Are Approximately 163 Banks Operating in Ukraine with Total Assets of about 223 Billion UAH • Cumulative Capital of Ukrainian Banks is over 26 Billion UAH • Banks represent over 90% of Overall Financial Market (2005) • Lack of long-term capital is available to commercial banks and non-bank financial institutions • Ukraine needs USD tens of billion in investment just to renew existing depleted fixed assets

4. Capital Markets Direct a Country’s Resources to the Most Productive Areas of the Economy by: • Providing a reliable place for individuals and institutions to invest their money based on term and risk appetite • Personal Savings • Corporate Funds • Pension Savings • Investment Capital • Creating appropriate financial products that match the needs of savers and borrowers • Stocks • Bonds • Mutual Funds • Asset-backed securities • Derivatives • Creating a liquid market for securities to provide financial institutions & enterprises access to the capital they need

5. Important Investment Institutions Are Developing and Will Bring Billions of Dollars into Ukraine’s Financial Markets • Pension Funds • Insurance Companies • Institutional Investors / Mutual Funds • Investment Banks

6. To Keep Institutional Capital in Ukraine, the Financial Market Infrastructure Needs to Be Strengthened • Securities Markets Infrastructure • Legislation and Regulation • SupportingServices • Judicial System • Capacity of Financial Institutions • Commercial Banks • Leasing Companies • Credit Companies • Asset Management Firms • Investment Banks • Insurance Companies • Pension Fund Managers

7. Internal Equity Subordinated Debt (from parent company) ATCI Works with Lessors to Access Capital from Different Types of Funding Mechanisms such as: External Recourse • Term Debt • Wholesale Lines of Credit (LOC) • Warehouse LOC Non-Recourse • LOC / Term Debt • Portfolio Sales • Brokering / Discounting • Lease-backed Securities

8. Type of Owner Independent Lessors Small vs. Large Bank-owned Lessors Captive Lessors There Are Very Different Funding Strategies for Different Types of Lessors Business Strategy • Universal Lessors • Specialized • Vendor-Based • Small-, Medium-, Large-Ticket

9. Sources From Owners From Outside Investors Pools Single transaction Limited investment Limited liability Internal Sources Provide More Flexibility but Limit Growth Potential Advantages • Control of capital • Make own decisions • Flexible structuring / pricing Disadvantages • Limited Growth • Lower ROE

10. Small Owner / Manager contributes equity Typically a small group of outside investors Maximizes leverage with external debt Typically broker transactions to funders In Determining which Funding Sources Are to Independent Lessors, “SIZE MATTERS” Large • Multiple stockholders providing a high level of investment • Higher level of management and staffing • Receive better pricing from recourse lenders • Qualify for recourse lines of credit

11. Types of Recourse Debt Warehouse Lines of Credit Short-term Provides instant funding Term Debt Long-term / permanent funding Matches term of lease The Nature of Recourse Debt Is Different in Ukraine than in the US Advantages for Lessor • Largely available and immediate funds (for strong lessors) • Partial/full control over credit decisions • Lessor uses own documents and remains owner of asset • Lessor maintain image and relationship with client • Bills, collects, monitors

12. Adequate Capital Experienced management and operational capabilities Strong operating and credit history Portfolio performance and credit quality Main Qualifications for Recourse Debt

13. Non-recourse debt focuses on the transaction or pool of transactions being funded and takes assignment of lease payments and leased asset(s) as collateral. Non-Recourse Debt Is Very Different in Ukraine than in the US Advantages • No liability, does not restrict additional borrowing • Available for all lessors Disadvantages • No control over credit decision • Higher cost than recourse debt • Funds not immediately available • Loss of image due to bank taking control of relationship • Use lender documents • Lender bills and collects

14. External Commercial Paper Public Debt (Commercial Bonds) Syndication (includes discounting) Securitization Large Independent Lessors Have Additional Options for Funding Internal • Equity • From Existing Owners • Stock Issuance(Public Company) • Retained Earnings

15. Division Usually exclusively internal funded Funding provided at bank’s cost of funds (pooled rate ) Banks that Establish Their Own Leasing Company Adopt Different Business Strategies Subsidiary • Some internal funds • External funds • Debt and equity • Recourse and non-recourse • Brokering and Discounting

16. Advantages Lowers Liability Off balance sheet Lowers cost of funds Provides Access to more capital and greater transaction volume Receive PV of profits right away. Brokeringis the preferred method of small lessors with weak balance sheets Disadvantages • “One-off” funding • No control over credit decision or documentation • Funder bills, collects, uses own documents, and owns asset

17. Advantages Raises cash and frees availability for ‘better’ customers Method to reduce debt and lower cost of funds for new deals Portfolio Sales May Serve as a Source of Funding as Well as an Instrument for Portfolio Management Disadvantages • Negotiated discount rate may reduce portfolio profits • Limited availability or number of buyers • Often includes some level of recourse

18. Advantages Provides cash and availability for new deals (off balance sheet) Method to reduce debt and lower cost of funds for new deals Securitization of a Lease Portfolio is Only Beneficial or Accessible for Large Lessors Disadvantages • High transaction costs • Need for standardization of transactions and strong credit quality (LTV) • Limited number of buyers • Some level of recourse • Only accessible to large lessors

19. THANK YOU Access to Credit Initiative 72 V. Vasylkivska, 5th floor 03150, Kyiv, Ukraine Tel: (044) 537-0966 Fax: (044)537-0967 David Lucterhand, Chief of Party Richard Caproni, Senior Advisor