Supporting Exports with HERMES Export Credit Guarantees
by Micha Christian Härcke, Head of Finance Division, and Yuri Paco José Vetkamp, Export Finance Specialist, CCC Machinery GmbH
German exports are on the road to recovery. Despite different expectations at present, economists agree on one thing: exports will resume growth in 2010. This indicates good prospects for small and medium enterprises (SMEs) to benefit more from the international markets – especially since the protection offered by the German’s export credit guarantees (HERMES cover) has been strategically widened in response to continued economic difficulties. One example of the opportunities this cover makes available is protection offered by a revolving finance facility cover.
The revolving HERMES - covered finance facility was found to be the best solution for CCCM and its customers.
CCC Machinery GmbH (CCCM) faces the challenge of how to finance individual short-term and recurrent business transactions with the same customer, without burdening the company’s existing credit facilities. For decades, this Hamburg based company has been exporting capital equipment, raw materials and intermediate products. CCCM focuses on markets where export-financing products are common, such as but not limited to Brazil, Indonesia, Russia, Thailand and the Philippines. Previously CCCM discounted its HERMES-covered receivables to Commerzbank on a non-recourse basis apart from 15% representing the non-covered portion. The disadvantage is that the company’s credit line is burdened with a 15% residual (corresponding to the remaining risk under the HERMES cover) for each business transaction. Even after the introduction of the second package of economic stimuli, there is still a residual risk of 5%. For this reason the aim was to devise a form of finance that could be applied to short-term payments, thus mitigating all remaining risks for the exporter and relieving pressure on the company’s own balance sheet, helping to establish and develop a long-term supply relationship with the customer concerned.
During discussions between CCCM and its relationship manager and the Senior Specialist in International Business at Commerzbank in Hamburg, the revolving HERMES-covered finance facility was found to be the best solution for CCCM and its customers. The discussion was followed by the detailed design of the revolving finance facility carried out together with the Structured Export Trade Finance unit. Similar to the APG (Ausfuhr-Pauschal-Gewährleistung, the HERMES Wholeturnover Policy) the revolving finance facility cover is a scheme whereby Commerzbank provides financing for a large number of the exporter’s individual transactions. However, unlike under the APG, all export transactions that are covered must be with one specific foreign importer. This importer is granted a revolving loan over a maximum of six to twelve months (up to 24 months in exceptional cases): once delivery has taken place, the importer will make the necessary repayment to Commerzbank and a corresponding amount will then be freed up, enabling the repaid loan amount to be available for the next shipment. An individual credit approval for each financing of a delivery is then no longer necessary. A revolving finance facility usually is economically feasible for transactions with a yearly average of EUR 5m or more.