Special products

In case that the other financing instruments are not appropriate, BSTDB may decide to undertake securities by subscribing to specific amounts and values issued by a public or a privately owned enterprise as a way to enhance an issuer’s access to international and domestic capital markets to broaden its financial sources.

BSTDB’s capital market activities include a range of banking activities aimed at promoting the access of borrowing member countries and corporations to the international and domestic capital markets. BSTDB may underwrite the issuance of debt securities on the part of clients in its countries of operations.

Underwriting and other capital market services creating client credit exposure to BSTDB are subject to the same internal approvals required for loan and equity investments.

BSTDB’s exposure arising from these transactions will be assessed and the return to BSTDB on the underwritten instrument will be determined on the basis of BSTDB’s loan pricing policy for an equivalent exposure.
 

BSTDB may also provide its clients with financial management risk instruments either in association with other product or as stand-alone products to hedge their exposure to foreign exchange, interest rate, commodity price or any other project related financial risk. These instruments are used to the extent that BSTDB is able to satisfactorily hedge the risks of such products in the financial markets. 

 A lease is a rental agreement under which the owner of an asset allows someone else to use it for a specified time (usually minimum one year) in return for a series of fixed payments. The difference of financial leasing from the operational leasing is that the ownership title of the goods can be transferred to lessee at a symbolic price after full payment of installments. BSTDB offers mainly four leasing-related products:

• Equity in leasing companies
• Credit lines/loans to leasing companies
• Credit lines/loans to manufacturers, for vendor leasing
• Direct net lease agreement.

In particular, the following goals should be pursued under BSTDB leasing operations:

• promoting transfer of modern technology and know-how to BSEC economies
• supporting private sector development in general- including SMEs
• facilitating and enhancing trade in capital goods among BSEC countries.

As a general rule, minimum BSTDB investment should be US$ 3 million for loans/credit lines and US$ 1 million for equity investments. To the extent possible, BSTDB leasing operations will be based on standardized contract formats, in order to minimize administrative and transaction costs.   

Forfaiting is a technique mostly used for export transaction where the importer needs medium term post shipment financing, but the exporter cannot provide required supplier credit from his own funds and cannot take the repayment risk of the importer. It is the appropriate instrument to use for promotion of intra-regional trade in capital goods, and thus help achieve BSTDB’s mandate. BSTDB may act either as the forfaiter of the exporter or as the avalizer/guarantor of the importer, as appropriate.

Forfaiting is a proven method of providing fixed rate medium term export finance for international trade transactions in capital goods. Generally, export receivables are guaranteed by the importer’s bank. This allows the forfaiter to discount “without recourse” to the exporter, thus taking the transaction off the exporter’s balance sheet. This can have important benefits for the exporting company’s key financial ratios. Typically the importer’s obligations are evidenced by accepted bills of exchange or promissory notes which a bank avals, or guarantees.

Minimum operation size is EUR 5 million with a repayment period of 1 to 5 years. The following types of charges may apply:

• Option fee
• Commitment fee
• Termination fee
• Discount rate

Discounting is a facility/service offered to well-established profitable businesses with an effective and professional sales ledger administration system (accounts receivable administration and collection). Discounting is a procedure through which a company is offered the same real cash flow benefits that factoring offers, but without the client’s obligation of losing control of the sales ledger.

The instrument is therefore more appropriate in trade finance operations, as a form of short-term credit. In particular it can be very helpful as part of a funding package for a new start business dealing with financially stronger customers. As the process is a transactional one, based very much on the strength of the end user, this facility is particularly useful for businesses whose own balance sheet is not strong enough to support the level of funding required.

There are two main charges in invoice discounting agreements:

• Service Fee: This is a percentage charge on the discounted documents value
• Cost of Money: This is an interest charge on the funds advanced by the discounter.