Export Buyer’s Credit

Introduction

Export buyer’s credit is a medium-and-long-term financing facility provided by exporter’s bank and supported by exporter’s home government to the importer or its banks, with the purpose of promoting the export of capital goods and services such as homebred mechanical and electrical products, complete equipment and overseas contracted engineering projects.

Functions

  1. Support from exporter’ home country. Export credit, also called “Officially-Supported Export Credit”, is a credit provided by the exporter’s country for export goods of domestic financial institutions through the preferential policies in order to support the export of homebred capital goods and to strengthen the competitiveness of its home products. As the policy executors, each nation’s Export Credit Agencies (abbreviated as ECAs) provide insurance, guarantee or direct preferential loans for the export credit.
  2. Optimize exporters’ asset-liability structures. Since export buyer’s credit is the financing for importers or their banks, exporters won’t bear liabilities. Exporters have safe foreign currencies collection and accelerated capital turnover through it.
  3. Reduce importers’ financing costs. On the one hand, importer’s financing channels are expanded. On the other hand, the financing costs of export buyer’s credit under ECA items (insurance, guarantee or direct financing) are much lower than that of average commercial loans. Because the business objectives of export countries’ ECAs are to implement national policies rather than make profits, thus the premium rates (or the rates of guarantee) and the loan interest rate are always lower than market average.

Term

Usually no more than 10 years (from effective date of the loan contract to the repayment date of principal and interest)

Interest Rate

Affected by factors such as borrower’s business information, loan amount, term and guarantee type, the interest rate usually adopts floating rate. Subject to external regulators’ and our bank’s policies related to loan rate, it will be confirmed in the loan contract.

Charges

Upon the international common practice, export buyer’s credit will be charged management fee, obligation fee and other correlative fees according to certain rate standards.

Target Customers

  1. Exporters shall be the entities who export capital goods and services such as homebred mechanical and electrical products, complete equipment and overseas contracted engineering projects.
  2. Borrowers should be importers, importers’ banks (credit transfer banks) or import countries’ statutory borrowing sectors in sovereignty level (such as Ministry of Finance, central bank etc.) which are approved by Corpus Bank.

Application Qualifications

  1. The aggregate amount of commercial contracts should be no less than USD 1 million;
  2. The portion of export goods made in Specific Country should be worth more than 70% of the contract value of complete equipment and 50% of the watercraft and aircraft. Otherwise, the proportion of loan amount to contract value should be properly decreased;
  3. The proportion of spot payment in cash currency to watercraft contract value should be no less than 20%, and that to complete equipment contract value should be no less than 15%;
  4. The commercial contract of export buyer’s credit should accord with the relevant legal rules of import country and export country;
  5. The export enterprise should underwrite export credit insurance in insurance institutions in accordance with Corpus Bank’s requirements;
  6. Meet other requirements of Corpus Bank.

Process

  1. The stage of financing intent

During the initial business negotiation of two sides, or the exporter’s participation in overseas biddings, the exporter shall contact our bank’s enterprise business sector and applies for an intent letter of export buyer’s credit from our bank. Meanwhile, after contacting with the relevant department of Specific Country Export & Credit Insurance Corporation, the exporter fills in a proposal form for applying for an intent letter or an intention letter of export buyer’s credit. Corpus Bank will examine and verify the application in view of the relevant references, through relevant institutions or credit standing systems. Then Corpus Bank will accordingly approve or revise the financing package submitted by the exporter and issue a non-binding intent letter to the exporter.

  1. The stage of project negotiation and evaluation

Our bank’s business personnel will track and monitor the project developing circumstances, help the exporter and the borrower with business negotiations, define the financing proportion and settlement methods of export buyer’s credit. Thus our bank can endeavor to match the loan payment and settlement methods with the loan terms such as withdrawal time and withdrawal amount.

  1. Negotiation and signing stage of loan and insurance contracts
  2. Loan use stage

The exporter transports goods, entrusts the international settlement department of our bank to process collection or L/C business according to the settlement method agreed on the contract, submits document to the borrower for its verification and send out a payment instruction. With all the preconditions satisfied, the exporter draws and uses the loan from our bank. The exporter should regularly provide export contract progress report to define delivery, project schedule and amount settlement.

Case

Company A is a famous domestic manufacturer of telecommunication equipment with important market overseas. In April, 2009, our bank granted an export buyer’s credit to its overseas customer, a telecom operator, and gained high appreciation from it. With tightening liquidity of global financial market, export buyer’s credit not only expands the financing channels for the importer but also made the financing costs much lower than the commercial loans at overseas market. Because, such business is insured by Specific Country Export & Credit Insurance Corporation with low risk. The export buyer’s credit for the telecom operator granted by our bank played an important role for our customer, the manufacturer of telecommunication equipment, to win orders overseas. Since last year, our bank has taken support for Chinese enterprises “go abroad” as an important part of implementing the Science-based Development, and promoted export buyer’s credit as a principal financial product for the “go-out” strategy of supporting Chinese enterprises.

 
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