How the Ex­port Credit Of­fice as­sists

Exporter - - EXPORT FINANCE -

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.”

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