Trade Finance Forfaiting

Fueling the Global Economy

Offering financial instruments to facilitate international trade.

Overview

Forfaiting

Structured Trade Finance

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Overview

Export Finance is the extension of financing to an importer for the purchase of certain goods, such that the exporter receives the full value of the goods at the point of shipment. The importer will repay the loan and interest over an agreed period and terms. The benefit for the exporter is that there is no receivable from the importer, whilst the importer obtains financing to complete the transaction.

Export Credit Agencies

Export finance normally involves the export of capital goods such as plant and machinery, telecoms networks, power generation equipment, etc. Typically, governments in the country of the exporter provide support to exporters through various programs. One such mechanism is through Export Credit Agencies, who, for eligible goods and countries, provide insurance, and in some cases guarantees, against specified political and/or commercial risks.

Risk Mitigation

Commercial risk protection normally covers default, insolvency or failure to take delivery in accordance with the supply contract by the importer. Export Credit Agencies typically cover between 75% and 100% of the risk amount involved, and have conditions regarding acceptable term, value, type of goods, importer country, and other environmental/social aspects.

Forfaiting

While your customers in some emerging foreign markets may or may not be able to provide satisfactory financial statements on their own companies, they may be able to obtain payment guarantees from their local banks in support of international trade finance.

Non-Recourse Discounting

Rothwell offers non-recourse discounting, also known as forfaiting, of bank-guaranteed promissory notes, bills of exchange, letter-of-credit drafts, and similar debt obligations with repayment terms of up to five years. With a pre-approved forfaiting commitment in hand, you can offer vendor financing to your customer and then sell the foreign debt obligation immediately, without recourse, and receive cash payment for the full amount of your contract.

Expedient Processing

Export finance for transactions from $500,000 to $10,000,000 can usually be approved in less than a week and can cover 100% of the contract amount; most often at interest rates much lower than those available in your customer’s country. Besides bank-guaranteed notes and drafts, other term receivables, which may be eligible for forfaiting, include debt obligations issued or guaranteed by foreign governments, state-owned entities, or major overseas corporations.

Structured Trade Finance

There are many producers located in emerging markets whose credit ratings are below investment grade and are therefore unable to readily obtain lending on a clean, unsecured basis. The ability of these producers to raise cheap finance is usually hindered by the rating of the country in which they are situated. In order to support their activities, international banks extend to eligible entities structured trade finance loan facilities such as pre-export, prepayment and tolling finance, using structuring techniques that have evolved over the past 25-30 years to either mitigate or eliminate entirely the transfer and payment risks associated with the borrower and the borrower’s country of operation.

Reducing Risk Profile

By using these structuring techniques, the credit profile of the borrower is substituted by the risk profile of the structure itself and the lending bank is only exposed to the performance risk of the borrower as the payment risk has been switched to another more credit worthy counter-party located in a more stable country.

Expanding Trade Markets

Such structures are commonly utilized in many markets, including the CIS, South America and parts of Africa and Asia. Financing can be given on both a short and medium term basis, principally to producers of fungible commodities (softs, energy, ferrous and non-ferrous metals that can easily be converted to cash), including related by-products, semi-finished and finished goods. The purpose of the finance may be to refinance existing financial indebtedness, working capital needs and investments in connection with the production and export of products.

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