Financing and an export credit guarantee decided a crushering and screening plant deal in Oman
On the competitive international market, financing associated with export trade may give a decisive edge to a Finnish player. The guarantee granted by Finnvera and financing offered by Nordea helped Metso to secure a contract in Oman, where Metso will deliver a crushing and screening installation to Al Tasnim, a local cement company. The project is underway and the first equipment deliveries were made in February 2017.
This is Metso’s first contract for the delivery of an entire crushing and screening plant to Oman, after a break of many years. It is also the first deal in Oman that was decided with the help of a buyer financing arrangement.
Metso gave Al Tasnim an offer where export financing covered 85 per cent of the price of the export contract. The financing was provided by Nordea, and Finnvera covered the credit risks by means of a Bill of Exchange Guarantee.
The Bill of Exchange Guarantee covers the credit risks arising from the buyer and the buyer’s country. The most typical risk is the buyer’s insolvency, i.e. bankruptcy.
The Bill of Exchange Guarantee is well suited, for instance, to individual capital goods transactions, such as purchases of machinery and equipment. The exporter and the buyer agree in their negotiations that the buyer pays the purchase price on credit terms and the debt instrument is a bill of exchange. The exporter receives the payment in cash and the buyer repays the credit to the bank in accordance with the payment schedule agreed. Finnvera gives the bank a Bill of Exchange Guarantee, i.e. compensates the bank if the buyer is unable to repay the credit.
- The Bill of Exchange Guarantee is feasible as a guarantee when the buyer and the buyer’s country are creditworthy and the buyer’s country has working legislation on bills of exchange. The Bill of Exchange Guarantee has the challenge that preparations must be started at a fairly early stage of the transaction. While the exporter and the buyer are negotiating about the product, the financier’s representatives are analysing the terms of financing and the risks associated with the transaction, Eeva-Maija Pietikäinen, Head of Trade Finance at Finnvera, explains.
Finnvera has developed the Bill of Exchange Guarantee and wants to promote its use in projects lasting at most five years and valued at a few million euros. In the Oman contract, the buyer’s repayment period for the bill of exchange is three years.
- From the perspective of competition, an equally matched trading partner offering financing has an edge over a competing enterprise if the latter is unable to offer a comparable financing package. In international competition, the aim of export credit guarantees is always to promote the competitiveness and exports of Finnish enterprises, says Pietikäinen.
The successful Oman contract is a good example of cooperation between the exporter, the export credit agency and a commercial bank.
- Winning a competition is based not only on the solutions we offer but also on seamless cooperation between sales and financing. We are committed to lowering buyers’ threshold for signing a deal by ‘meeting them halfway’ in terms of financing. I appeal to our sales teams across the world so that they really listen to customers in order to understand what would ease their customers’ pain during the purchase process, says Olli Kellokumpu, General Manager, Sales and Services, Metso Minerals, Middle East and Eastern Africa.
More information about Finnvera's export credit guarantees.
Read more about the Bill of Exchange Guarantee.