Financing secured a major order from Romania for Kewatec – the risks of the transaction were brought under control
Financing is an important part of exports and sometimes even a must for closing a deal. This is especially true if the terms and conditions of the deal are highly unusual. Finnvera, Nordea and the boat manufacturer Kewatec AluBoat worked closely together for months to manage the financial risks associated with the export transaction.
Kewatec participated in a public procurement procedure for five patrol boats for the Romanian Border Guard. The Kokkola-based enterprise finally managed to secure the order.
Kewatec will deliver patrol boats from the Kokkola factory to Romania by next September.
Kent Björklund, Chairman of Kewatec’s Board of Directors, describes the public procurement procedure as one of the most peculiar in his career.
“The client wasn’t used to making deals like this. On the other hand, the transaction is mostly EU-funded, so the client wanted to apply strict terms and conditions to filter out those operators who are not financially sound,” Björklund notes.
The list of particular details is long. For instance, it is significant for the seller that this is an order of millions of euros but without any advance payment. The boats must be delivered to Romania in a single batch, after which the 45-day payment term enters into force. At the same time, the buyer requires guarantees from the manufacturer that the boats will be delivered in accordance with the agreement.
In addition, the trading currency is the Romanian leu instead of the euro.
“When assessed in advance, the most important thing was to ensure that the enterprise will receive the money after the delivery,” says Tom Siegfrids, Finance Manager at Finnvera.
According to Tom Härmälä, Client Executive at Nordea, the transaction entailed many more challenges than usual. In addition to commercial risks, the country and currency risks had to be resolved. A further complication was that all the documents were in Romanian.
“We were definitely several times on the verge of despair on behalf of the client. However, we left no stones unturned and fortunately found ways to cover the risks. As a result, financing could eventually be granted,” Härmälä says.
Financing closed the deal
The breakthrough was Finnvera’s Credit Risk Guarantee, which compensates Kewatec for costs if the transaction is cancelled or the client fails to pay. Nordea was responsible for currency risk hedging.
“This is a good example of excellent cooperation between Finnvera, the bank and the enterprise. The enterprise communicates its plans well in advance and discusses them openly, making it possible to react to different situations,” comments Siegfrids.
Björklund admits that Kewatec would have lost the boat order if it had no providers of financing.
“We have a framework agreed with our financing partners, but this transaction did not fit in it. We made a conscious decision to involve the providers of financing even before the tendering stage. We wanted to make sure before the agreement that there were solutions in place to manage the risks. This was a prime example of how various parties in Finnish society work to promote exports and employment,” he says.
In recent years, the Kokkola-based enterprise has grown at an average annual rate of 35 per cent. Last year, its turnover was nearly EUR 17 million.
In the summer, the enterprise also grew through a corporate acquisition when Weldmec Marine became a wholly-owned subsidiary of Kewatec.
“The timing of the Romanian transaction was optimal. It was a clear boost for this year, with a direct employment effect of 30 person-years,” Björklund says.
You must know the target country
Kewatec has been involved in export trade for years and 50–75 per cent of its turnover comes from outside Finland. Aluminium boats tailored according to the clients’ needs are sold for professional and official use, mainly to European countries. There is business in Asia, too.
There are only two markets that Kewatec is currently not actively seeking entry into: Africa and America.
According to Björklund, competition in public procurement is global. The competitive situation is complicated by countries’ tendency to favour domestic manufacturers.
“It is important for us to find a contact person in the target country, who knows the client’s ways of working. In addition, the contact person knows when the public procurement will be opened for tenders. Participation in a procurement procedure is expensive and demanding. We need to identify transaction-related risks early enough,” he notes.
However, Finland’s reputation as a manufacturer of high-quality boats is internationally recognised.
“We do well in competitive tendering especially when the boat quality requirements are high,” Björklund says in summary.
Text: Kimmo Koivikko