How the Export Credit Office assists
The New Zealand Export Credit Office (NZECO) is a Government export promotion agency and operates as a commercial unit within the Treasury.
NZECO's focus is on complementing the private sector to better ensure that New Zealand exporters do not fail to secure export projects and growth due to a lack of finance, or confidence in providing credit terms.
For example, often smaller firms lack the bargaining power to negotiate upfront payment terms, and are faced with a decision whether to send their goods on credit to a new buyer in a new market, or not. Trade credit insurance is one solution, which can provide confidence to an exporter in the event their buyer defaults on their due payments.
An interesting case study is Napier-based NZ Natural Juice Company, who recently undertook their first sale into Taiwan to a large supermarket chain. The buyer was not prepared to pay for the first trial shipments upfront and it was important to NZ Natural Juice Company to ensure that they got paid. Any bad debt would place undue stress on a small business in growth mode.
Given the relatively small value of the shipments, NZ Natural Juice Company's insurance broker was unable to obtain suitable cover for them and recommended that they spoke to NZECO.
NZECO assessed the Taiwanese buyer and provided its short-term trade credit insurance.
“NZECO's due diligence on this new buyer, combined with repayment protection, provided confidence to NZ Natural Juice Company – beginning a new trading relationship in an exciting market for them,” says Peter Rowe, NZECO's head of business origination.
Securing and financing larger export deals is another challenge which NZECO may provide a solution for. For example, companies that deliver international projects which are funded against regular milestone payments often face the requirement to provide bank-issued financial guarantees (or performance bonds).
While these performance bonds provide additional confidence in the buyer's decision to select their New Zealand contractor, they can limit the working capital of an exporter as the bank requires additional collateral. NZECO's general contract bond guarantee can be a substitute for this collateral in support of these performance bonds.
NZECO recently supported a $2 million performance bond which enabled Christchurch-based Hydroworks to secure an $8.5 million contract to refurbish a hydroelectric plant at Somerset dam in Queensland. Hydroworks bank was unable to issue the bonds without additional securities, which NZECO was able to provide via its contract bond guarantee.
“This was a quite a step-change project for Hydroworks, which NZECO was pleased to support,” says Rowe. “And which has subsequently helped them to secure a second major contract in Australia.”