UK Export Finance: clearing your path to trade
Vietnam is a growing destination for UK exports.
It has a significant oil production capability and is seeking to rapidly develop its infrastructure, particularly in its major cities. This means that there are areas of opportunity in oil and gas, transport, aerospace, water, energy and telecommunications. It also has an expanding manufacturing sector and supporting industries, and an increasing demand from its growing middle class for products and services in the healthcare and education sectors.
Exporting always requires careful financial management, from securing working capital on competitive terms, to considering export insurance, or fulfilling requirements to obtain performance bonds. Specific financial issues to manage can include:
having to wait for payment, restricting cash flow;
being exposed to the risk that the buyer cannot (or will not) pay for the exports – for example, if the buyer goes bankrupt; or
being asked by the buyer to provide a performance bond in return for an advance payment –the bond would need to be provided by the exporter’s bank which is likely to ask for cash security, another potential cash flow restriction.
Help is at hand
UK exporters can talk to their bank or approach other specialist financial organisations to try to secure working capital, and to insurers or brokers to source insurance against the risk of not being paid. Where they are unable to find all the support they need from these sources, UK Export Finance (UKEF) may be able to help. We can consider support for all exporters, large and small, across a wide range of sectors. As at autumn 2015, UKEF has the capacity to support up to £500 million of new export business to Vietnam and the full range of UKEF facilities can be used. For up to date information search Google for “UKEF country cover”.
Possible types of UKEF support include guarantees to banks providing exporters with performance bonds, letters of credit and export working capital facilities. UKEF can also provide insurance against non-payment or a bond being unfairly called. This shorter term risk cover is available with no pre-determined security requirements. On the buyer side, UKEF can offer guarantees to banks providing loans or finance to overseas buyers of UK exports and, through its direct lending facility, can itself provide loans to finance the purchase of UK exports.
A wide range of support
Types of assistance UKEF is able to offer, in the right circumstances, include:
Bond support – Under our Bond Support Scheme we can offer guarantees to banks issuing performance or other contract bonds in relation to UK exports to Vietnam. This often means the bank can issue the bond and also expand working capital facilities for exporters, as the extra credit is guaranteed by UKEF.
Working capital support – UKEF’s Export Working Capital Schemecan enhance your bank’s ability to lend you working capital to support export-related activity. Under the scheme, we provide partial (typically 80%) guarantees to lenders to cover the credit risks associated with export working capital facilities. The scheme is particularly useful in circumstances where a UK exporter wins an overseas contract that is larger than it typically handles, or manages to win a number of contracts at the same time, but may struggle to finance them all at once.
UKEF recently used this product to support a UK company exporting diving equipment to Vietnam.
Both the bond support and export working capital products are accessed through participating banks. If your bank representative is unfamiliar with the products, they can be referred to our ‘Bank toolkit’, which can be accessed at: www.gov.uk/uk-export-finance.
Letter of credit guarantees – Letters of Credit (LCs) are a form of payment guarantee made by the buyer’s bank to the exporter, subject to certain conditions such as delivery on time and to the specified standards. Exporters will need to consider carefully in each case whether it is worth requesting one, as there is a cost attached. In some circumstances, UKEF can provide exporters’ banks with its own guarantee of payment based on LCs from the buyer’s bank, so again we are a good source of information and support.
Credit insurance – our Export Insurance Policy (EXIP) can insure your firm against the commercial and political risks of not being paid under an export contract, where cover is unavailable from the private sector. There is no maximum or minimum contract value for consideration, and the policy can cover up to 95% of contract value. UKEF can also provide insurance protection to exporters against the calling of contract bonds unfairly or due to political events.
If you think we might be able to help, ask your insurance broker to work through our ‘Broker toolkit’, which can be accessed at www.gov.uk/uk-export-finance.
Buyer loans and loan guarantees – UKEF also works to support the other side of the export equation, providing or guaranteeing loans to overseas buyers of UK goods or services. Buyer credits can be used to fund projects with some foreign content as well, as long as they include a minimum of 20% UK goods or services.
In the aerospace sector for example, UKEF has recently backed loans worth £66 million to Vietnam Airlines to support the purchase of Airbus aircraft.
Export Finance Advisers – your free resource
UKEF’s regional network of Export Finance Advisers (EFAs) stand ready to offer free trade finance information to UK companies who are exporting or considering exporting to Vietnam.
The EFAs act as local points of contact to introduce exporters and prospective exporters to finance providers, credit insurers, insurance brokers, trade support bodies and sources of government support. They can also help explain UKEF’s own product range, complementing what is available in the private market.
For more information and to book a meeting with an EFA, visit: www.gov.uk/uk-export-finance