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LEASE,HIRE PURCHASE,AMERICAN AND GLOBAL DEPOSITORY RECEIPT

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LEASE,HIRE PURCHASE,AMERICAN DEPOSITORY RECEIPT AND GLOBAL DEPOSITORY RECEIPT SPL REF., WIT FINANCIAL MANAGEMENT BY I M PANDEY

Published in: Economy & Finance, Business
  • A RELIABLE AND A GENUINE PROVIDER THAT CAN DELIVER BANK GUARANTEE AND OTHER FORM OF BANKING INSTRUMENTS FOR LEASE WHICH ARE MAINLY FRESH CUT.

    Bank instruments which are cash backed can be used as thus; clients looking for loans to finance their businesses also serve as a collateral to get loans from banks in other to engage into any project at hand further details will be emailed upon request.

    Email: mklease.broker@gmail.com
    Skype ID: mklease.broker
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LEASE,HIRE PURCHASE,AMERICAN AND GLOBAL DEPOSITORY RECEIPT

  1. 1. Lease, hire purchase, ADR & GDR Ponmuthu s PONMUTHU S1
  2. 2. Lease Defined  Lease is a contract under which a lessor, the owner of the assets, gives right to use the asset to a lessee, the user of the assets, for an agreed period of time for a consideration called the lease rentals.  In up-fronted leases, more rentals are charged in the initial years and less in the later years of the contract. The opposite happens in back ended leases.  Primary lease provides for the recovery of the cost of the assets and profit through lease rentals during a period of about 4 or 5 years. It may be followed by a perpetual, secondary lease on nominal lease rentals.PONMUTHU S2
  3. 3. Types of Leases 1. Operating Lease 2. Financial Lease 3. Sale-and-lease-back PONMUTHU S3
  4. 4. Operating Lease  Short-term, cancelable lease agreements are called operating lease.  Tourist renting a car, lease contracts for computers, office equipment's and hotel rooms.  The Lessor is generally responsible for maintenance and insurance.  Risk of obsolescence remains with the lessor. PONMUTHU S4
  5. 5. Financial Lease  Long-term, non-cancelable lease contracts are known as financial lease.  Examples are plant, machinery, land, building, ships and aircrafts.  Repay the cost of the asset over the terms of the lease–Capital or Full pay-out leases. PONMUTHU S5
  6. 6. Sale and Lease Back  Sometimes, a user may sell an (existing) asset owned by him to the lessor (leasing company) and lease it back from him. Such sale and lease back arrangements may provide substantial tax benefits.  In April 1989, Shipping Credit and Investment Corporation of India purchased Great Eastern Shipping Company bulk carrier, Jag Lata, for Rs 12.5 Cr and then leased it back to GESC on a 5 years lease, the rentals being Rs 28.13 Lakh per month. The ships WDV was Rs 2.5 Cr. PONMUTHU S6
  7. 7. Cash Flow Consequences of a Financial Lease  Avoidance of the purchase price  Loss of depreciation tax shield  After–tax payments of lease rentals PONMUTHU S7
  8. 8. Commonly Used Lease Terminology 1. Leveraged Lease 2. Cross-border lease 3. Closed and open ended lease 4. Direct lease 5. Master lease 6. Percentage lease 7. Wet and dry lease 8. Net net net lease 9. Update lease PONMUTHU S8
  9. 9. Myths about Leasing  Leasing Provides 100% Financing  Leasing Provides Off-the-Balance-Sheet Financing  Leasing Improves Performance  Leasing Avoids Control of Capital Spending PONMUTHU S9
  10. 10. Advantages of Leasing 1. Convenience and Flexibility 2. Shifting of Risk of Obsolescence 3. Maintenance and Specialized Services PONMUTHU S10
  11. 11. Evaluating a Lease  Equivalent Loan Method  Net Advantage of a Lease Method  IRR Approach PONMUTHU S11
  12. 12. Lease Benefits to Lessor and Lessee  A lease can benefit both when their tax rate differs.  In fact in a lease, the lessee sells his depreciation tax shield to the lessor.  In the absence of taxes it is hard to believe that leasing would be advantageous if the capital markets are reasonably well functioning.  Gain of both is loss to the government in form of taxes. PONMUTHU S12
  13. 13. Leasing Benefits Come from…  Both, lessor and lessee, gain at government’s expense because of the difference in their tax rates.  The government gains from the tax on lease rentals while it loses on depreciation and interest tax shields.  The implicit principal payments in a lease rental are shielded by depreciation, while interest deductions provide for implicit return on the lessee’s capital. PONMUTHU S13
  14. 14. Hire Purchase–Conditions  The owner of the asset (the Hirer or the manufacturer) gives the possession of the asset to the Hirer with an understanding that the Hirer will pay agreed installments over a specified period of time.  The ownership of the asset will transfer to the hirer on the payment of all installments.  The Hirer will have the option of terminating the agreement any time before the transfer of ownership of assets. ( Cancellable Lease) Hire purchase financing PONMUTHU S14
  15. 15. Difference between Leasing and Hire Purchase Financing PONMUTHU S15
  16. 16. Installment Sale  Installment Sale is a credit sale and the legal ownership of the asset passes immediately to the buyer as soon as the agreement is made between the buyer and the seller.  Except for the timing of the transfer of ownership, installment sale and hire purchase are similar in nature. PONMUTHU S16
  17. 17. Evaluation of Hire Purchase Financing  The hiree charges interest at a flat rate, and he requires the hirer to pay equal installments at each period.  The sum-of-years-digit (SYD) method is the most commonly used methods for calculating interest over a period of time. PONMUTHU S17
  18. 18. American Depositary Receipt (ADR)  Raising funds from American Markets  NRI & foreign nationals can invest  Normally traded like stocks in US stock exchange  Company has to deposit their shares in the American bank  Eg JPMorgan Chase, Bank of America, Citi bank, The Bank of New York Mellon  They issue the ADR & where American people can buy & sell them freely in normal DP account PONMUTHU S18
  19. 19. ADR Cont..,  Indian companies to adopt US Accounting Norms which is also called as GAAP(Generally accepted accounting principles)  Maintain accounting practices as per American Financial Year (Which starts in January and ends in December of any particular year),  Also follow variety of stringent standards as per American norms Indian company would have to follow two different set of rules simultaneously,  One to comply with the laws of Indian Companies Act,  And the other to comply with the American LawsPONMUTHU S19
  20. 20. Global Depositary Receipt (GDR)  Same like ADR  But raising fund from global market  Indian companies prefer to get GDR due to its global use for getting foreign investment for own business projects  GDR is negotiable instrument all over the world  (A) Bajaj Auto (B) Hindalco (C) ITC ( D) L&T (E) Ranbaxy Laboratories (F) SBI PONMUTHU S20
  21. 21. THANK YOU ????? PONMUTHU S21

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