tpcc inter-agency trade officer training financing and risk management for international trade...
TRANSCRIPT
TPCC Inter-Agency Trade Officer Training
Financing and Risk Management Financing and Risk Management for International Tradefor International Trade
Presented by Steven W. Howlett
Managing Director
Government Agency Funding and Advocacy
GE Capital Markets - Corporate
September 26, 2012
Training Overview:
- Introduction to GE Capital Markets Corporate Function
- Spectrum of Risks Associated with International Trade
- Private Sector Tools for Mitigating Risks
GE Expertise in Multiple Product Areas
• Private
• Bank guarantees
• Letters of credit
• Deferred payments
• Forfaiting
• Short-term
TradeFinanceTrade
FinanceProjectFinanceProjectFinance
• SPC (special purpose company)
• No guarantees, limited guarantees
• Financing dependent on cash flows/off-take agreements
• Frequently requires ECA/MDB support
Leasing/Lending
Leasing/Lending
• Financing typically equipment specific
• Applicable for more developed markets
• Financing frequently requires int’l bank support
Export/Structured
Finance
Export/Structured
Finance
• Public Sector Buyers (Sovereign, Non-Sovereign, etc.)
• Private Sector Buyers
• ECA loans/ guarantees
• ECA Co-financing
• MT/LT
• Sourcing issues
Political RiskInsurance (PRI)
& Credit
Insurance
Political RiskInsurance (PRI)
& Credit
Insurance
• Insure against expropriation, political violence, currency inconvertibility. etc.
• Insure against corporate risk
• credit default swaps
Spectrum of Certain Risks Associated with International Trade
Spectrum of Risks: The Balance Between U.S. Exporter and Foreign Buyer
Exporter Wants Payment as Soon as Possible at time of Contract Signing or at Time Of Shipment. Buyer Wants to Delay Payment as Long as possible until Sale of Goods, Receipt & Processing of Goods, Collection of Receivables.
Background: Incoterms• The International Chamber of Commerce ("ICC") created “INCOTERMS” in 1936 to uniform
global trade. The ICC periodically revises publications of INCOTERMS. The latest version was released in January 2011.
• Set of uniform terms applicable to all the various types of purchase agreements and shipping agreements, which also serve as a “global language”.
• Defines the responsibility of the Buyer and the Seller - conveys “risk” and “responsibility”; which party is to pay which charges, and where delivery takes place.
Movement of Goods: Scope of Seller and Buyer Responsibilities
(Ex Works)
(Free Alongside Ship)
(Free Carrier)
(Free On Board)
(Cost & Freight)
(Cost, Ins, Freight)
(Carriage Paid To)
(Carriage & Ins. Paid)
(Delivered at Frontier)
(Delivered Ex Ship)
(Delivered Duty Unpaid) (Delivered Ex Quay
(Delivered Duty Paid)
Tools to Mitigate Risks
Document Collection
Buyer Seller
MailMail
Presenting Bank Remitting Bank
(1) Shipment of Goods
(2) Documents(4) Exchange
(3) Documents
(6)
(5)
Buyer
Open Account vs. Letter of Credit Terms
Buyer
Open Account
Letter of Credit
Sales Contract
Sales Contract
Letter of Credit
+
Payment risk reduced with a Letter of Credit
Credit Insurance
• Protects U.S. exporters against loss should a foreign buyer default due to commercial or political risks.
• Private Sector vs. Public Sector policies (e.g. Ex-Im Bank, OPIC etc.)
• Types: Single Buyer, Multi-Buyer, Lease cover, PRI, etc. • Use Brokers
Summary• There are many risks associated with cross-border transactions (e.g. payment, shipping,
foreign exchange, etc.)
• Particularly problematic for low-resource exporters or inexperienced exporters
• Key government and private sector institutions and programs are available to deal with these risk issues
Take Advantage of What’s Out There!