Involving a trillion scale, financial leasing companies withdrew from the urban investment business

In cooperation with the financial leasing company, the leased property also used to have pipe network equipment for public hospitals. Visual China / Figure

"Promote financial leasing companies to actively and steadily withdraw from the financing platform business." On May 9, 2024, the Department of Non-bank Institutions Supervision of the State Administration of Financial Supervision and Administration issued a statement stating that it is strictly forbidden to restructure and continue unqualified leased properties.

Financial leasing companies (hereinafter referred to as "financial leasing companies") are one of the two major sectors of financial leasing, and the other type is commercial leasing companies. Both collect rent from the lessee by providing leased equipment.

According to the joint credit report, as of September 2023, there are 9,170 financial leasing enterprises in the country, with a balance of about 5.76 trillion yuan. Among them, there are 72 financial leasing companies, and most of the major shareholders are banks.

As part of the non-standard financing of urban investment, the interest rate of financial leasing is higher than that of bank loans, but lower than that of directional financing. In the past decade, as the financing demand of urban investment platforms has continued to rise, the urban investment business of financial leasing companies has also expanded rapidly.

According to the data of Enterprise Early Warning, from 2014 to 2021, the scale of financial leasing business of urban investment platforms (including subsidiaries) increased from 124.9 billion yuan to 1.46 trillion yuan.

Subsequently, urban investment financing was subject to multiple restrictions, and the scale of financial leasing business also began to decline, reaching 1.2 trillion yuan in 2023.

Why is it now proposing the withdrawal of the financial leasing company? What about commercial rental companies?

The urban investment gameplay of financial leasing

Compared with commercial leasing companies, financial leasing companies have a higher threshold for establishment, so the number is also smaller.

According to the current regulations, the establishment of a financial leasing company with the approval of the former China Banking Regulatory Commission requires that no unit shall use the word "financial leasing" in its name without approval. In contrast, commercial leasing companies are managed by provincial-level local financial regulatory authorities.

A number of people in the financial leasing industry told Southern Weekend that the business models of financial leasing companies and commercial leasing companies are basically the same, but the difference is that financial leasing companies have stricter requirements, such as requiring the lessee to have cash flow and not be a shell company, so the interest rate is lower than that of commercial leasing companies.

Generally speaking, there are usually two forms of financial leasing: direct lease and sale-leaseback.

Direct leasing means that the lessor (financial leasing company) directly purchases the leased property according to the lessee's (urban investment platform, etc.) and provides it to the urban investment platform for use, and the urban investment platform then pays rent to the financial leasing company.

In layman's terms, it means that a company does not have enough money to buy things, and it needs the help of a financial leasing company to buy it, and it will rent it.

For example, Company A will build a photovoltaic power station and need to purchase 500 million yuan of photovoltaic module equipment. Company A can bear a certain percentage of the down payment, and the remaining funds are paid by the financial leasing company, and Company A pays the rent, deposit, financing interest rate, handling fee, etc. In addition, the lease term, payment method, guarantee, etc., can be negotiated according to the specific project.

After the expiration of the lease, the lessee can pay a small amount (e.g. 100 yuan) to purchase the leased property.

Sale and leaseback refers to a financing method in which the lessee transfers its own assets (leased property) to the lessor, and then leases the assets back from the lessor. At the end of the lease term, ownership of the leased property will pass to the lessee.

To put it simply, in order to obtain cash flow, a company sells its assets to a financial leasing company and leases them back for use.

For urban investment companies, it can revitalize existing assets, adjust the debt structure, and convert part of short-term borrowings into medium- and long-term debts to reduce debt risks. In the past, sale and leaseback was a form of financial leasing commonly adopted by urban investment platforms.

An employee of an urban investment platform told Southern Weekend that in 2022, they signed a sale-leaseback agreement with a financial leasing company, and the leased property was mainly the pipe network equipment of a public hospital in the jurisdiction for two years, because the hospital's continuous cash flow was used as a guarantee, and the comprehensive financing cost was about 6.5%, which was at least 2 points lower than that of the commercial leasing company.

Stricter regulation

As early as the end of 2021, the urban investment business of financial leasing companies began to be restricted.

At that time, the former China Banking and Insurance Regulatory Commission (CBIRC) issued a notice requiring banking and insurance institutions to dispel the illusion of fiscal back-up, strictly prohibit the addition or false resolution of local government hidden debts, and properly resolve the existing local government hidden debts.

An employee of a leading financial leasing company told Southern Weekend that due to this policy, his financial leasing company has stopped adding new urban investment business since 2022.

In February 2022, the General Office of the former China Banking and Insurance Regulatory Commission (CBIRC) issued a notice, emphasizing that some financial leasing companies have problems such as fictitious leased properties, low-value and high-value leased properties, and suspected of adding hidden debts of local governments, and required them to optimize their business models and structures and strengthen the management of leased properties.

An employee of a commercial leasing company explained to a reporter from Southern Weekend that when cooperating with urban investment platforms, because there is no suitable subject matter, they often fabricate leased objects, and it has become an unspoken rule of the industry.

In November 2023, the State Administration of Financial Supervision and Administration announced an administrative penalty information, and ABC Financial Leasing Co., Ltd. was ordered to make corrections and fined 700,000 yuan.

When the financial leasing company engaged in the sale-leaseback business, there were illegal acts such as incomplete ownership of the leased property owned by the lessee and the fact that the leased property was not genuinely owned by the lessee.

In October 2023, the State Administration of Financial Supervision and Administration issued another notice, requiring some financial leasing companies to correct the improper intervention of major shareholders, deficiencies in corporate governance and internal control mechanisms, and inadequate management of leased properties in some financial leasing companies, strengthen financial supervision, and promote the standardized operation and compliance management of financial leasing companies.

The regulations require that the business growth rate and leverage level be reasonably controlled, and the quota management of the sale-leaseback business in the new business shall be strengthened. Among the new business in 2024, the proportion of sale-leaseback business will decrease by 15% compared with the first three quarters of 2023.

According to the data of Enterprise Early Warning, the scale of financial leasing business of urban investment platforms peaked in 2021 and then began to decline. From 2022 to 2023, it will decline by a total of 260 billion yuan.

Compared with financial leasing companies, commercial leasing companies are subject to fewer policy restrictions.

The employee of the above-mentioned commercial leasing company explained that the number of financial leasing companies is small, and most of the shareholders are banks, so it is relatively easy to manage; There are a large number of commercial leasing companies, and the specific management is delegated to the local financial regulatory departments, which is prone to interest involvement.

However, with the tightening of financing channels for urban investment and the control of financing costs in various localities, many urban investment platforms have been unable to afford the interest rate of financial leasing and have had to suspend this business. In addition, the debt of urban investment platforms in some regions is overdue, and the risk control department of financial leasing companies is also narrowing its business scope.

Under the influence of multiple factors, commercial leasing companies also have to face transformation.

According to an employee of the above-mentioned commercial leasing company, in the past few years, his company has gradually lowered the funds invested in the urban investment platform. At the beginning of the year, the company considered cutting the urban investment business and turning to the industrial end of the enterprise, but found that the market was not good, compared with the financial leasing company, there was no cost advantage, so the urban investment business was left.

The employee of the above-mentioned head financial leasing company also said that the company was able to cut the urban investment business because the business is relatively diversified, and now it is mainly turning to manufacturing and new energy enterprises. Compared with the previous urban investment business, the industrial side has higher requirements and needs to be familiar with the upstream and downstream of the industrial chain.

At present, the regulatory authorities have not yet set a timetable for the withdrawal of financial leasing companies from the urban investment business, and have not announced the detailed rules.

According to the employees of the above-mentioned financial leasing companies, the main business of some small and medium-sized financial leasing companies still comes from urban investment platforms, and the new policy has a greater impact on such companies.

Southern Weekly reporter Wu Chao

Editor-in-charge: Zhang Yue