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Financing guarantee paved the way for two Egyptian orders for FLSmidth

Until now large companies such as FLSmidth have had difficulties obtaining financing for small orders from foreign buyers, but a financing guarantee from EKF paves the way for new export opportunities.
What
FLSmidth supplies a system to handle alternative fuels and a coal mill to Arabian Cement Company in Egypt
How much
EUR 2.7 and 5.7 million.
EKF's role
EKF covers up to 90 per cent of FLSmidth’s risk on Arabian Cement Company.
EKF product
Financing Guarantee
When
2013-2016
  • Quote

    B/E provide an easy and simple way to finance small orders. EKF´s B/E guarantee will increase our chances of getting new orders and speed up delivery.”

    Tine Bremholm Kokfelt, Department Manager of Project Financing, FLSmidth
    ​When unrest broke out in Egypt in spring 2011, the Egyptian cement producer Arabian Cement Company had problems getting sufficient supply of natural gas for the company´s cement factory near the Suez Canal. The factory´s production line is from FLSmidth and is considered one of the best functioning systems in the country.

    Cement production requires a large and stable supply of energy which is the single largest expense in connection with production. This is why Arabian Cement Company ordered a system from FLSmidth in autumn 2012 to handle and fire with alternative fuels. The equipment can replace natural gas with energy from source-separated household waste.

    ”We have supplied two cement production lines to Arabian Cement Company, who is a good customer. At the same time this provided an important reference for our newly developed system for alternative fuels,” says Tine Bremholm Kokfelt, Department Manager of Project Financing at FLSmidth.

    The Egyptian company, however, needed financing for the order covering the new burner worth EUR 2.7 million (DKK 20 million).
  • ​Arabian Cement Company did not wish to increase its commitment with the company´s local Egyptian bank, whereas the foreign banks showed no interest in financing the cement company, because the workload related to documentation, loan agreement and approval of a relatively small loan amount would be too extensive.

    The Egyptian cement company therefore asked whether FLSmidth would finance the order.
    ​”It is against our policy to act as a bank for our buyers, even when the order amount is relatively small. We contacted EKF to find another solution, and EKF suggested using a financing involving bills of exchange and an adapted financing guarantee”, says Tine Bremholm Kokfelt, who proposed this solution to Danske Bank.

    ”EKF’s B/E guarantee offers larger export companies the same advantages as those obtained by smaller companies through EKF´s SME guarantee. The guarantee allows the bank to offer liquidity at an attractive price, when EKF and the exporter stand together to vouch for the buyer´s ability to pay,” says Helen Taylor, Advisor for Export Financing at Danske Bank.
  • ​​Danske Bank purchases the bills of exchange from FLSmidth, who will receive the money when the equipment has been delivered. With a B/E guarantee EKF covers 90 per cent of the bank´s risk, in case the foreign buyer fails to pay as agreed. FLSmidth has to cover the remaning 10 per cent in deductible towards the bank.

    ”The financing solution from EKF allowed us to  kick-start the order which we expect to deliver in early 2014. At the same time, the solution caused Arabian Cement Company to expedite an order for a coal mill, which will make the cement factory less dependent on natural gas as an energy source”, says  Tine Bremholm Kokfelt.
    ​The order covering the coal mill is worth EUR 5.8 million (DKK 43 million), and it will also be financed by bills of exchange and a B/E guarantee from EKF.  FLSmidth intends to make use of EKF´s B/E guarantee to sell more units of coal mills, systems for alternative fuels and other small orders for other customers.

    ”The B/E guarantee is a new way to finance smaller projects which the banks have been reluctant to finance until now. Besides, this solution strengthens the relationship with the customer,” says Tine Bremholm Kokfelt.
    The guarantee covers small projects involving loan amounts up to EUR 5 million (approx. DKK 37 million).
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