NZ Export Credit Office guarantees to be widened to include yuan

Monday 7th November 2011

The New Zealand Export Credit Office, which provides guarantees to exporters and banks in the event of defaults on contracts, is to widen its criteria to include the yuan, a reflection of China’s increasing importance.

Under the changes, NZECO will be able to underwrite its trade guarantees in a broader range of currencies, including China's yuan and will have more flexibility in applying a benefit to New Zealand test's trade guarantees, Trade Minister Tim Groser said in a statement.

Under the current rules NZECO is restricted to providing guarantees to companies exporting products with at least 30 percent New Zealand content though that could be less with the changes. If the guarantees are oversubscribed, the NZECO will prioritise exports with the most New Zealand-value added content.

"New Zealand exporters are increasingly under demand from their buyers to trade in the buyer’s local currency,” Groser said. “This will give them greater scope to do so.”

“This is about the internationalisation of local companies, which generally operate outside the traditional primary export sector, have a strong local design component and bring profits and other benefits back to New Zealand,” he said.

China’s currency will be among those that can be included in the guarantees, with the full range of currencies aimed at mirroring those available to the Treasury’s Debt Management Office.

As it stands, the NZECO can provide guarantees in the NZ dollar, Australian dollar, US dollar, euro, British pound, Canadian dollar, Japanese yen and Chinese renminbi.

It can also add the Swedish konra, Mexican peso, Singapore dollar, Swiss franc, Norwegian krone, Thai bhat, Danish krone, Polish zloty, South African rand, and Hong Kong dollar, which are approved by the DMO.

To help speed up the process, the NZECO will go through the Minister of Finance to add a new currency, where previously the decision was made by Cabinet.

The NZECO has a maximum risk exposure of $740 million for its guarantees in the event of an unrecoverable default. The cap is being kept unchanged.

The body’s full range of products includes: Short-term trade credit guarantee, US surety bond guarantee, contract bond guarantee, short-term working capital guarantee, pre-credit guarantee, supplier credit, buyer credit and project finance, according to its website.

BusinessDesk.co.nz

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