Unit Seven

Medium Term Export Finance

Parti

Test. Fill in the missing words:

There are many companies who wish to export and are

asked to...... credit terms to the prospective buyer who do

not wish to be concerned with the...... and administrative

burdens involved and this function can be readily under­
taken by the export ...... house. The simple effect of such

"handing over" of the administration can overcome. flow

problems as the export finance ..... is able to arrange for

cash...... to be made upon .......

An..... finance house is well suited to undertake business

involving more than one UK supplier, particularly when one

..... does not wish to be responsible for committing its own

..... for the benefit of sub-contractors or partners in a joint

...... The export finance house in these circumstances can

...... finance in the UK in relation to the customer's require­
ments.

Active Vocabulary:

leasing hire purchase instalment merchant bank down payment

equity

fixed-rate —

bond —

floating-rate note —

interest rate —

trustee —

forfeiting service —

aval —

commitment fee —

eligible —

лизинг

покупка с оплатой в рассрочку взнос при уплате частями торговый банк

первоначальный взнос; первый взнос при покупке

1) маржа

2) доля акционера

3) обыкновенная акция

с фиксированной процентной

ставкой

1) облигация

2)закладная

3) долговая расписка

4) ручательство, гарантия
краткосрочное долговое
обязательство с плавающей
процентной ставкой
процентная ставка
доверитель, опекун
финансирование торговли путем
учета векселей без права регресса
авал (поручительская надпись на
векселе)

комиссионные за неиспользо­ванную часть кредита приемлемый

189

TEXT

Read the text below concentrating on its contents and ter­minology:

Medium-terra finance.An exporting company may find with some contracts that it needs credit for periods longer than two years, which is normally the limit for financing ex­ports by methods so far described. Where credit is required for more than two years, there are other options, the most important of which are described below.

Leasing.Where there is a large item of capital equipment involved, an exporter may find it more beneficial to sell the product to a leasing company which then provides it to the overseas buyer on a lease agreement. The exporter receives immediate payment from the leasing company without fur­ther recourse.

Instalment finance.An exporting company can also finance its export order by arranging hire purchase for an overseas buyer, either through a finance house in the buyer's country or through a UK finance company purchasing the goods from the exporter outright and receiving instalments from the buyer through an overseas finance company.

Merchant banks.Merchant banks have traditionally specialised in arranging medium and long-term export fi­nance. In additon by using their associates and other close banking connections abroad, they are able to advise on and arrange finance for the exports of other industrialised coun­tries under their own national schemes.

Merchant banks can also arrange Eurocurrency loans of all types. Eurocurrency loans are often required to cover the front-enfl finance, i.e. normally the financing of down pay­ments by buyers for large projects abroad. For certain projects it is sometimes possible to arrange other types of finance e.g. equity participations, co-financing loans from

international development agencies or aid funds. In suitable cases arrangements can be made for medium-term, fixed-rate finance in the Eurobond markets by way of private place­ments or public offerings of bonds to finance major overseas projects. Alternatively it is sometimes possible to issue float­ing-rate notes which provide medium-term finance at float­ing interest rates but subject to a minimum fixed rate.

All or some of these elements can be combined to give a complete package which can provide up to 100 per cent of the financing of acceptable projects.

Security for the finance normally involves government, bank or other first class guarantees. However, in appropri­ate cases it is possible to secure the loan and to service the debt from future project income. A merchant bank can acl as agent or trustee for all the lenders in a particular package. In this way it becomes the sole point of contact between bor­rowers and lenders throughout the life of the credit facilities provided.

Forfeiting.Some UK banks oiler a forfeiting service to com­panies exporting capital goods and requiring credit for peri­ods up to seven years. With forfeiting, the bank purchases from an exporter bills of exchange or promissory notes signed by an overseas buyer at a certain discount.

If a buyer has arranged an aval, i.e. unconditional guaran­tee for each bill or note from an internationally recognised major bank, then the exporter can receive finance from the UK bank at finer rates, without having to obtain ECGD-backed sources of finance.

Medium-term ECGD-backed finance.ECGD provides a specific bank guarantee to a bank to finance export credit terms of two years or more. The finance is covered by bills of exchange drawn on the overseas buyer or by promissory notes in favour of the exporter. To obtain a bank guarantee, an exporter must have ECGD insurance, usually the supple­mental extended terms or specific cover.

190

191

Once bills have been accepted on behalf of an overseas buyer and confirmed as valid by a bank abroad there is no recourse to the exporter. Evidence of shipment and an ECGD warranty are required in the same way as for short-term guarantees.

Contracts with a minimum value of Jl million can be fi­nanced in foreign currency, usually US dollars or Deutsche-marks. Interest is payable at a preferential rate, depending on the length of credit and the particular country of the over­seas buyer. The UK bank charges a commitment fee. Con­tracts with buyers in EEC countries are not eligible.

An exporter must, at the earliest possible moment in con­tract negotiations, check that ECGD is willing to provide in­surance cover and a specific bank guarantee, and at the same time check with the UK bank for its agreement in principle to provide the finance, given ECGD backing.

Preshipment finance is also available on contracts of over Jl million, subject to certain limitations imposed by ECGD.

Comprehension .Answer the following questions:

1. List finance facilities when export credit is required for
more than two years.

2. When is it advisable to sell a product to a leasing company
rather than to an overseas buyer? Why?

3. How is payment made when the goods are exported on a
hire purchase basis?

4. What are the advantages of selling goods on hire purchase
through a finance house:

a) for .the exporter?

b) for the overseas buyer?

5. What part do merchant banks play traditionally in ex­
port/import trade?

6. In what cases are Eurocurrency loans usually required?

7. List different types of credit facilities available for certain
projects.

8. To what companies and in what contracts do some UK
banks offer a forfaiting service?

9. How does a forfaiting service operate?

10. What is an aval?

11. What are the advantages of an aval arrangement for the
exporter?

12. What does ECGD provide for British exporters?

13. Do Russian exporters enjoy similar facilities? If yes, what

bank are they provided by?

14. What is the export finance provided by ECGD covered

by?

15. How does a bank guarantee protect the exporter?

16. What export contracts can be financed in foreign cur­
rency?

17. What does a preferential rate in interest payment de­
pend on?

18. What must the British exporter do when negotiating an
export order?

Comprehension. Complete the, following on the basis of the information given in the lext:

1. Selling to a leasing company is best suited when....

2. When the goods are sold on hire purchase through a fi­
nance house, the exporter ...... and the overseas buyer

3. Medium and long-term export finance may be arranged
through .......

4. By private placements or public offerings of bonds in the
Eurobond markets, money..... to.......

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193

5. Medium and long-term export credits are usually secured

by......

6. Sometimes future project income can be taken as...

7. Under an aval arrangement, the exporter.......

8. Under an aval arrangement, the exporter doesn't need to
have ......

9. Bills of exchange or promissory notes cover. provided

by...... to.......

10. When the bills have been accepted by an overseas buyer

and confirmed by his bank....

11. It is risky for the British exporter to enter export nego-

tiations without ......

3. They help to avoid difficulties with domestic leasing.

4. Paying in partial payments.

5. Financing of down-payments by buyers for large projects
abroad .

6. Opposite of "fixed rate".

7. A firm or individual to whom something is entrusted.

8. Penalty or fine for neglect or causing losses.

9. An unconditional guarantee for a bill.

10. Bills recognized by the bank as good.

1 1 . Finance cannot come back to the exporter. 12. Money paid for bank operations.

Ill

The text you have just read introduces several terms which are either already known to you (e.g. hire-purchase, instal­ment, interest rate etc.) and listed in the Active-Vocabulary section to remind you, or terms meaning the same in Russian (e.g. leasing). Hence, there should be no difficulties in un­derstanding its contents.

On the other hand, however, there are some points to be discussed: first the meaning of financewhich may be both a noun or a verb. Then the term optionmeaning here choice or possibility. Equityparticipation means here shareholdingNotice also combination with "Euro"(e.g. Eurobond, Eurocurrencies, Euromarket). Remember also that similarly to a cheque drawn ona firm or an individual, you can also draw a bill of exchangeon the buyer.

Give the proper financial term for their following descrip­tive definitions listed below:

r

1. Payment which is not settled immediately.

2. Leases made by a company to an overseas buyer.

194

Complete the following:

1 . At the earliest possible moment in export contract nego­tiations the exporter applies to ..... and ..... to make sure that the bank ......

2. When ECGD agrees to ..... and the contract ..... the ex-

porter ......

3. When the exporter's application has ..... ECGD ......

4. On receipt and acceptance of the bank guarantee, the ex­
porter ..... and .......

5. After signing a recourse agreement with ..... the ECGD
..... which in turn ......

6. When the goods have ..... and the shipping documents
with ECGD insurance warranty ..... to ..... the UK bank

7. Once the documents and bills sent by the UK bank have
.... by finance ......

195

Test. Fill in the missing words: