Margaryta Kuznetsova
Head of structured trade finance at Oschadbank
Nowadays nearly all agricultural companies work with foreign suppliers and customers, from the purchase of spares, materials, raw stuff and equipment to the sale of finished products in foreign markets. Currently, the dynamics of Ukrainian exports to the EU, the Middle East and China is gradually improving, with agricultural and food products making their largest share. Therefore, the instruments of foreign trade financing, as well as payments with the help of documentary instruments, are in demand. Entering new markets, Ukrainian exporters face a number of issues they need to tackle, including how to insure the risk of non-payment, how to get working capital for the production of goods for export.
In both cases, the best solution is to use the tools of documentary business and trade finance. For example, by using advance payment guarantees, they can receive advance payments from foreign customers, while letters of credit offer a perfect hedging solution against the risk of non-payment by customers because it is the customer's bank which obliges to pay rather than the customer. A documentary letter of credit gives exporters the greatest advantage because it is a bank's obligation (not a buyer's) which gives sellers the highest guarantee of receiving the payment in comparison with collection or payment upon delivery/shipment of goods. During collection, the risk of the loss of goods for exporters is very low, but there is a risk that importers may refuse to accept the goods and to pay. In this case, exporters should immediately ensure the sale of the goods to another importer or return the goods back to their country.
If a foreign counterparty is not an international holding company with an ideal payment discipline, which has been on the market for many decades, it makes sense to use letters of credit and guarantees regardless of the country. Banks' obligation (a letter of credit or guarantee) to pay for the non-fulfillment of any contractual obligation is many times more reliable than the counterparty's obligation under the contract. Unfortunately, customers sometimes do not pay for the delivered goods. If a guarantee of payment in favor of an agricultural company is received from the bank of the customer's country, the risk of non-payment is close to zero. A guaranteed payment will certainly be made during the guarantee period because no self-respecting bank will risk its reputation by delaying the payment.
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Hans Broucke
Deputy board chairman and head of corporate banking at UkrSibbank
Banks have long been eyeing agrarian clients and now that Ukraine's economy is on the rise, there is a certain competition for them among the largest banks. Banks are offering more than just loans to agricultural companies. Often, they are ready to provide a full range of services to such a business or a group of companies. Banks have a full range of solutions to finance agrarians' operating liquidity. Among them are transaction banking, borrowing base facilities (for corporations with high current assets) and expertise in trade finance transactions.
Our bank's model agrarian client is a company with a land bank of 10,000-20,000 ha (a farm or a combination of agriculture, processing and trade alone), transparent ownership, an impeccable credit history and audited financial reports. We believe it is important that agrarian companies meet our social and ecological standards. Working with agribusiness, it is important to fully cater to customers' needs.
Usually, in addition to analyzing a company's financial performance, banks seek to understand its inner workings and assess its strengths and potential problems. Therefore, a very important aspect of the loan procedure is a report by the bank's agronomist which he files after visiting the company's fields and assessing its efficiency, something that "classical" bankers would find rather difficult to comprehend. When we work with agrarian companies, we rely on BNP Paribas industrial experts who visit our clients' infrastructure assets such as grain elevators, port terminals and processing facilities. Recommendations by agronomists and industrial experts are a mandatory part of any lending process.
Photos provided by Margaryta Kuznetsova, Hans Broucke.
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