Leasing of agricultural machinery from KazAgroFinance. Answers on questions

Question 1. How, as a rule, does your company determine the seller of the property to lease it?

Answer: According to the Law of the Republic of Kazakhstan "On Financial Leasing" (Article 11), the choice of the seller and the leased item is made by the lessee, that is, the Lessor is obliged to acquire ownership from the seller of the leased item agreed with the lessee for transfer to the lessee under the terms of the lease agreement. At the same time, notify the seller in writing at the conclusion of the purchase and sale agreement that the leased item is intended for leasing to a certain lessee.

Question 2. Do you set any conditions for lessees in choosing a supplier of equipment, purchase prices, choosing the brand and class of a particular agricultural machinery?

The answer is no. The choice of the leased asset, as noted
above, is the prerogative of the lessee himself. There are only certain requirements for potential Suppliers of agricultural machinery, including:
- to have civil legal capacity to implement the purchase agreement and to have certificates, licenses necessary to carry out activities for the supply of the Leased Item.
If the potential Supplier is not a manufacturer, have the right to sell, supply, warranty and service of the Leased Item on the territory of the Republic of Kazakhstan, documented by the manufacturer;
- be able to carry out warranty, post-warranty and service maintenance of the supplied Leased Item on their own or through their service centers in the Republic of Kazakhstan or with the involvement of third competent persons, etc.

Question 3. Do you refuse lessees if KazAgroFinance JSC is not satisfied with the seller they have chosen, the terms of delivery and prices?

The answer is no. However, as a rule, KazAgroFinance conducts negotiations with the proposed supplier. The purpose of these negotiations is to achieve the most optimal conditions and acceptable prices for the lessee. If the supplier refuses to meet the company and meet the established requirements, the lessee, with his consent, may be offered alternative options, since the type of equipment he needs can be supplied by other suppliers that meet the necessary requirements of the lessor and offer acceptable conditions and reasonable prices.

Question 4. Does KazAgroFinance JSC monitor the pricing process for agricultural machinery in the process of its movement from the manufacturer to the end consumer. Does the company conduct a marketing analysis of the transaction when buying and selling equipment before signing a leasing agreement? Or is it only the lessee who does this?

The answer is yes. When supplying any type of equipment, the company first of all examines its selling price from the manufacturer. This is a common and constant practice of KazAgroFinance. In order to prevent annual price increases (although, as is known, this trend is observed all over the world), the company has repeatedly concluded memoranda, agreements and framework supply agreements with manufacturers. The purpose of such events is to fix and apply last year's prices for next year's purchased equipment. The realizable cost of equipment is constantly monitored not only on the territory of Kazakhstan, but also compared with prices on the market of neighboring countries. It should be noted that in the history of the company there has not been a single case when equipment was supplied above market value. The equipment supplied by KazAgroFinance is always 5-10% lower in price than what is sold on the market. The analysis of the market is carried out by the lessees themselves, who are always aware of the real cost of the purchased equipment.

Question 5. Why does KazAgroFinance JSC formalize agreements for equipment purchased from intermediaries, whose price is higher than that of direct manufacturers, who, in turn, have a price close to the cost of production. Is it not profitable for a company to lease cheap equipment, for which the rental price is lower and the lessee can buy it out faster? Or does the company have strict exclusive contracts and is limited in choosing a supplier?

Answer: KazAgroFinance JSC does not work with intermediaries. All machinery and equipment are purchased either from the manufacturer or from its exclusive dealer in Kazakhstan. It should be noted that some global brands work exclusively through their dealers or trading houses. Therefore, before purchasing any agricultural machinery or equipment, the company monitors the market and studies the conditions of all suppliers of this equipment.
Assumptions about the benefits in the case of leasing expensive equipment are erroneous. Over the entire period of activity, the company acquired and leased more than 19 thousand units of equipment to agricultural producers of the republic. Of these, more than 9 thousand units of ownership have been transferred to lessees, that is, on average, about 1-1.5 thousand vehicles are bought out per year. As mentioned above, the company has no strict exclusive agreements with either manufacturers or suppliers. The choice of equipment remains only for the lessees.

Question 6. Until the equipment is fully repurchased by the lessee, the lessor has property rights to it. Who, according to your agreement, is responsible for the proper repair of equipment in case of malfunction or defect?

Answer: According to article 7 of the Law of the Republic of Kazakhstan "On Financial Leasing", the lessee is provided with the protection of his right to the leased asset on an equal basis with the protection of property rights. The lessee has the right to sue and otherwise defend the rights belonging to him on his behalf during the term of the lease agreement. Since the type of leasing activity of the Company is net leasing, according to paragraph 4 of Article 3 of the above-mentioned law, maintenance of the leased item and its current repair are carried out by the lessee. This provision is also provided for in article 12 (see below).

Question 7. At the expense of whom is the replacement of equipment units or its complete replacement in case of its failure (in the case of the manufacturer's warranty period and in case of expiration of this period)?

Answer: Warranty service (repair and restoration of hidden and revealed defects in the factory during operation) of equipment is carried out at the expense of the supplier, that is, all costs for the restoration of equipment are borne by the supplier. In the post-warranty period, as indicated above, at the expense of the lessee. According to article 12 of the Law, the Lessee is obliged to:
clause 4. clause 2. maintain the leased item in the condition in which it was transferred to it by the lessor, taking into account normal wear and tear and those changes in the leased item that are agreed by the parties;
p. 5 p.2 at their own expense to carry out maintenance (including payment of necessary utility bills related to the leased item) and maintenance of the leased item, its current repair, unless otherwise provided by the lease agreement or legislative acts;

Question 8. How is the rental rate of equipment formed? What is its size?

Answer: The leasing lease rate is formed on the basis of credit risks, indicators of the share of administrative expenses and the planned margin of profitability.

Question 9. How is the purchase of leased equipment made, in what time frame and in what shares?

Answer: The purchase of equipment is carried out during the leasing period by paying off lease payments in equal shares. The lease term of the equipment is up to 7-10 years.
At the moment, the conditions for financing the purchase of agricultural machinery are as follows:
At the expense of own funds
Intended use: agricultural machinery, including used (used), special equipment that does not require installation, and includes:
1) mounted and trailed agricultural machines (conveyors, loaders and grain sweepers, seeders for sowing vegetables (with the introduction of mineral fertilizers) and row-to-row processing of vegetable crops, vegetable universal seeders, weeding units, cultivators, feed spreaders, machines for transporting and distributing feed (feed mixers-feed spreaders), mowers (two-three-tiered, rotary, flatteners, etc.), rakes, trowels, balers, balers and transporters, travois, haulers, loaders and tractor trailers, mounted long-range sprinklers, sprinkler machines, aggregates and installations, mobile irrigators, trailers, including trailers with mounted special equipment, devices for harvesting corn, harvesters, seeders, plows, tillage machines and implements (harrows, huskers, rollers, cultivators, etc.), sprayers, pollinators, seed picklers, machines for applying fertilizers, machines for crop care and crop protection) of domestic and foreign production;
2) other equipment not provided for in subparagraph 1) this paragraph (including equipment and machines for the acceptance, transportation, storage and primary processing of agricultural products, fish and forestry products, vegetable cultivation, mechanization of livestock, poultry farms, forage harvesting, sprinkler and irrigation machines) domestic and foreign production.
Interest rate: 8.0% per annum
Lease term:
subparagraph 1) of the intended purpose – up to 5 (five) years;
sub-paragraph 2) of the intended purpose:
- at the cost of one unit of the leased item up to 25 million tenge – up to 7 years;
- at the cost of one unit of the leased item over 25 million tenge – up to 10 years.
Effective rate: from 8.2% per annum
The amount of the advance payment:
subparagraph 1) of the target purpose - 25% of the value of the leased item, without the provision of collateral;
sub-item 2) of the intended purpose:
with the provision of security for the upcoming payment - 15% of the value of the leased item;
without providing security for the upcoming payment: