You may have heard that the New Zealand Export Credit Office (NZECO) has recently introduced a number of new guarantees to further assist New Zealand exporters and their banks.
A snapshot of each of the guarantees is outlined below.
Short-Term Trade Credit Guarantee
Introduced in February 2009 in response to the global financial crisis, this product may be suitable for exporters who have had short-term trade credit insurance on creditworthy buyers cancelled by private trade credit insurers, or are seeking short-term trade credit insurance on a single buyer and/or shipments of relatively low value.
This guarantee may also be used where buyers have provided a letter of credit, but a bank is unable to accept this letter of credit or finance against it.
Medium to Long-Term Export Credit Guarantee
As businesses globally are feeling the credit squeeze, offering your creditworthy buyer extended repayment terms of greater than one year may differentiate you from your competitors or help secure a deal that may otherwise have been deferred.
This guarantee is typically suitable for deals of relative scale (e.g. over NZD 1 million) and the extended repayment term should not be longer than the economic life of the exported goods.
Both the short-term and medium to long-term guarantees can be assigned to banks as loan collateral in order to obtain credit facilities.
General Contract Bond Guarantee
Overseas buyers are increasingly requiring different forms of contract bonds in order to provide them with a financial assurance that a supplier (for example a New Zealand exporter) will honour its contractual obligations.
This product is available where an exporter’s bank is unable to issue a bond because the exporter lacks sufficient security for the bond. The NZECO assesses the exporter’s technical and managerial skills and the financial capacity to cashflow the contract in addition to its other commitments. If satisfied, the NZECO will issue its guarantee to the exporter’s bank to issue the bond(s) on the exporter’s behalf.
United States Surety Bond Guarantee
Exporters looking to bid for projects in the United States that have funding from the Federal or State governments, or from city municipalities, may face a requirement to provide Surety Bonds that are 100% of the project’s value.
This product enables New Zealand exporters to have these surety bonds issued, pursuant to an arrangement with the US surety bond provider, Liberty Mutual, in the event the NZECO guarantees the exporter’s performance.
Short-Term Working Capital Guarantee
This bank-led product assists exporters when they have reached their banks lending limits and need an extension to facilities to support export growth. The guarantee is from the NZECO to a bank supporting them to generally lend up to 20% of additional funds to exporters, without requiring additional security.
Similar to other export credit agencies throughout the world the NZECO’s role is to fill a market gap and assist trade credit flows to maintain global trade. The NZECO’s guarantees are designed to help extend the capacity of the banks and private trade credit insurers, and we work with them.
Generally it is the more complex transactions that are brought to the NZECO. The NZECO encourages exporters to approach it as soon as they identify that there may be the need (or opportunity) for using one of the above products.