How is pre-export finance used?

A PXF is very different to the more vanilla type facilities; such as corporate loans against the balance sheet of the borrower. In a PXF funds are provided directly from the lender or a syndicate of financiers directly to producers; in order to assist with the working capital needs of the company. Raw materials can be purchased along with processing, storage costs and transportation.

How do you take security in PXF?

We will usually see: - Rights of assignment by the producer under an ‘offtake contract’; - Charge over collection or segregated bank accounts that proceeds from a sale are paid into; and - Security over the goods or commodities.

What is a Prepayment facility?

A buyer will pay for product in advance; so that producers are able to manufacture goods. Therefore a facility is extended to the buyer of goods; that is used to pre-pay for commodities. Thus, providing producers much needed credit and the purchasing party can agree to the long-term supply.

How are prepayments agreed?

- An agreement outlines the prepayment that are to be funded by the off-taker and paid to the producer for commodities (the sales or off-take contract could incorporate this); and - A facility agreement between the off-taker and financier where the loan is financed

Pre Export Finance - What is it and how is it used?

Articles

Pre Export Finance – What is it and how is it used?

By Deepesh Patel

Deepesh Patel is Editorial Director at Trade Finance Global (TFG) and host of Trade Finance Talks. Deepesh regularly chairs and speaks at international industry events held by the IFC, EBRD, IMN, WTO, Financial Times and Economist Impact, as well as industry associations including ICC, FCI, ITFA, ICISA and BAFT.

Last updated on 13 Dec 2022

06 Feb 2017 3 min reading time

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