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Exporting to the Pacific . . . Short Term Trade Credit Insurance, US Surety Bonds and General Contract Bonds

Recently the New Zealand Export Credit Office (NZECO) has been supporting export transactions into the Pacific region.

Last year New Zealand exporters, seeking to insure against the risk of a Pacific buyer not paying for their goods on open account terms, found it increasingly difficult to obtain cover from private trade credit insurers. The government extended the mandate of the NZECO to enable it to provide short-term trade credit cover on creditworthy buyers that the private insurers lack the capacity or willingness to insure.

This short-term trade credit guarantee has been subsequently used to underwrite 30-90 day credit terms provided to commercial buyers in Fiji and Samoa. Some exporters are able to access additional credit from their bank, through factoring their NZECO-insured receivables.

The NZECO has also seen an increasing demand for bonds being required by foreign buyers. A bond is a financial guarantee, normally issued by banks on behalf of the exporter, which can be called upon by the beneficiary (e.g. overseas buyer) in the event that the exporter fails to properly perform its contractual obligations.

It is likely that performance bonds may be requirements on contracts relating to the US military buildup in Guam. If you are tendering on a Guam contract that has a 100% performance surety bond requirement, then the NZECO’s US Surety Bond Guarantee may assist. If the NZECO is satisfied with the exporter's ability to deliver on the proposed contract, then it will arrange for Liberty Mutual (a surety bond company licensed to issue bonds in Guam) to provide the surety bonds.

If the bonds are to be issued by an exporter’s bank, and the bank has reached its lending or bonding limits with the exporter, then the NZECO may be able to provide its Contract Bond Guarantee, to enable the bank to otherwise issue the bond. Again this is conditional on the NZECO positively assessing the exporter’s technical, managerial and financial capabilities to perform the bonded contract.

If you would like to discuss further about any of your Pacific trade opportunities that may benefit from NZECO support, please phone us on 04 917 6060.

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