June 2008

The increasing need of Vendor Programs in Latin America

Luis Schmied, CIT Vendor Finance Latin America

June 2008Agenda

1. Latin America outlook and business environment

2. Latin America leasing industry

3. Vendor Finance Leasing industry

•Meeting parties expectations•Geographic considerations•Implementation best practices

June 2008Latin America key economic indicators

Good times keep rolling in Latin America.

•GDP growth for the region as a whole may reach 4.3%•GDP expected at US$ 3.5trillion •Fifth consecutive year of good economic growth.•Growth is widely based across all countries. •Cyclical factors and structural elements  =

•High commodity prices,•Strong economic growth in Asia, •Strong local economies •Improved risk perception of the region.

June 2008Latin America key economic indicators

GDP growth 2006 2007 2008F

Argentina 8.5% 7.8% 5.4%

Brazil 3.7% 4.7% 4.4%

Chile 4.0% 5.6% 5.1%

Colombia 6.8% 6.6% 5.1%

Ecuador 4.1% 2.7% 2.8%

Mexico 4.8% 3.1% 3.3%

Peru 8.0% 7.6% 6.4%

Venezuela 10.3% 8.3% 5.7%

Region 5.4% 4.7% 4.3%

Brazil 37%

Mexico 30%

Argentina 8%

Venezuela 6%Colombia 5%

Chile 4%

Peru 3%

June 2008Latin America regional risk overview

Macro-economic standpoint:

Many countries in Latam have seized robust global liquidity to create:

Domestic capital markets and

Reprofile their sovereign debt, reducing external vulnerability

5th year of consecutive growth overcoming a legacy of economic crisis and volatility.

Higher commodity prices and growing export income has passed through to higher domestic consumption and investment.

Outlook and trend remains positive with challenges for next 5 years as global economy is not expected to be as benign as in the previous 5.

Micro-economic standpoint:

Sound credit portfolios with reduced delinquencies.

Know your customer and Character remain key to credit analysis in Latam.

Collateral analysis, Commitment, and Cash flow

Middle market with info restrictions requires a special know-how from Credit dept.

June 2008Latin America region sovereign risk ratings

Sovereign Ratings

Argentina B+

Brazil BBB-

Chile A+

Colombia BB+

Ecuador B-

Mexico BBB+

Peru BB+

Venezuela BB-

June 2008Latin America region sovereign risk ratings

Mexico

Brazil

Chile

Investment grade countries in Latin America

Sovereign Ratings

Argentina B+

Brazil BBB-

Chile A+

Colombia BB+

Ecuador B-

Mexico BBB+

Peru BB+

Venezuela BB-

June 2008Latin America leasing industry outlook

The leasing industry in Latin America includes companies operating in different countries under regulated and unregulated companies. Given the type of lease offered and local regulations.

Leasing market most significant players include: Local and international banks, independent leasing companies and captives.

Typically “finance Lease” types are regulated under local control entities (eg: central banks) with some exceptions like Chile and Argentina. “Operating Lease” agreement types are usually unregulated.

Given the unregulated nature of a big portion of the market, it is difficult to precisely track industry performance and volume. Nevertheless major advances have been made in recent years via local and regional leasing associations.

Leasing legal environment has also matured in the last decade, most countries have specific leasing laws that make the transactions safer than in past years.

June 2008Latin America Leasing Industry Outlook

Vendor Finance outlook:

Investments on IT, Telecommunications and Infrastructure in general is growing in the region at the pace of the overall Regional GDP growth.

Construction equipment, Mining, IT, Telco, Printing and Industrial equipment vendors need a financial partner to provide leasing options for their equipments. Captives and Independents are natural players in this markets. Banks also provide “vendor programs” although their approach is more oriented towards the end user and the individual.

Big infrastructure opportunities are in pipeline (Eg: Panama Canal expansion, Mexico highway toll network) represent opportunities for equipment financing.

June 2008Latin America Leasing Industry – Country Ranking

Rank 2006(US$ Billions)

%

1 Brazil $15.9 47%

2 Chile $4.8 14%

3 Colombia $3.7 11%

4 Mexico $3.5 10%

5 Puerto Rico $2.1 6%

6 Peru $2.0 6%

7 Argentina $0.7 2%

Others $1.0 4%

Region $33.8 100%

Assets measured as net portfolio

June 2008Vendor Finance Leasing industry – Meeting parties expectations

Vendors are:

Manufacturers

Importers

Distributors or representatives

Lessors are:

Leasing Companies (captives and independents)

Banks

Brokers / arrangers

End Users are:

Small ticket lessor

Medium ticket lessor

Large ticket lessor

In general individuals and companies.

June 2008Vendor Finance Leasing industry – Meeting parties expectations

Vendors objectives:

Competitive edge vs. Market need.

Sales support.

Minimum Level of service to EU customer..

Customer “lifecycle” control.

Sales increase / sales enabler

Sales Recognition.

Avoid long term AR risk.

Lessors objectives:

Asset Origination

Constant and consistent business flow.

Customer profile predictability.

Programs that fit existing processes

Vendor commitment to program.

Asses Vendor reliance risk and customer profile.

End Users objectives:

Cash flow management.

Tax implications.

Avoid high exposure to equipment obsolescence.

Budget planning and management.

Off balance sheet treatment.

June 2008Vendor Finance Leasing industry – Meeting parties expectations

Lessors negotiate:

Agreement type: Program, Joint Venture, etc.

Right of first refusal.

Term

Co Branding

Investments (IT,HHRR, Marketing, etc)

Geo Coverage

Vendors negotiate:

Agreement type: Program, Joint Venture, etc.

Exclusivity / Preference.

Ease of operation (docs, overall process, etc)

Structures, allow sales treatment. Preferred non recourse deals.

SLA related: turn around times, approval rates, conversion rates

Training schedule.

Systems integration

On site resources.

Origination fee.

The following components are usually present on a negotiation table of any vendor program in the region

June 2008Vendor Finance Leasing industry – Geographic considerations

Outside of US (and EMEA), remote programs suffer from lack of focus at HQ

US/EMEA credit parameters vs. local reality

Lack of involvement in planning process (i.e., US programs “force-fitted” into LA)

Reporting and consolidation

Culture – acceptance of financing

Mismatch geographic capabilities of vendor, lessor

June 2008Vendor Finance Leasing industry – Implementation Best Practices

Mutual understanding of program objectives (SLAs, volumes)

Agree on roles and responsibilities

Prospective customer risk profile.

RVs and remarketing

Closed-loop process and program metric improvement

Vendor executive buy-in

Vendor sales force training

June 2008

Thank you!