Presentation on Leaseback

What Is a Leaseback?

A leaseback is an arrangement in which the company that sells an asset can lease back
that same asset from the purchaser. With a leaseback—also called a sale-leaseback—the
details of the arrangement, such as the lease payments and lease duration, are made
immediately after the sale of the asset.
Case study:
Summit Power Limited (SPL) operates in the energy industry and sells power
produced to the government. The company uses heavy-duty generator to
produce power. Last year it bought a generator of capacity to generate 20
MW power for Tk. 80 crore. The generator’s economic life is 20 years. Lanka
Bangla Finance Limited approached SPL with an offer to sell the generator to
Lanka Bangla and take a lease of the generator for 19 years. SPL agreed and
sold the generator to Lanka Bangla for Tk. 79 crore and took lease on the
generator for 19 years.
Question. 1) What type of lease do you think it is and why?

Solution: The lease that Summit Power Limited (SPL) takes from Lanka Bangla
Finance Limited is leaseback. This is because when a company sells an asset it already
owns to another firm, sale and buyback lease allows the selling company(lessee) to
take a lease that particular asset from that company(lessor). Firstly, SPL sells the
generator that they bought last year in Lanka Bangla, and then takes a long term lease
of generator from Lanka Bankla. That’s why it is sale and lease.
Q.2) Identify some of important characteristics of this type of lease

Solution:
 It’s a particular type of financial lease
 There must be a sales transaction, the lessee receive cash today from the sale
(Summit Power Limited (SPL) sell its generator to langka Bangla)
 There must be a lease agreement , a company sells it asset and immediately
take long term lease( SPL take lease the same generator from Langka Bangla
 the lessee agrees to pays a series of installments or cash payments for using
that asset .
Thank you