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!