This interesting case study involves a trade finance solution which incorporates China and Italy. The case study highlights the specific challenges caused by the different jurisdictions, complex requirements, documentation and processes, and is an ideal example of client centricity.
Photo of Loic Senechal, BNP Paribas and Yang Peng, Shenzhen Kaifa Technology.
First established in 1985, Shenzhen Kaifa Technology Co. Ltd is a core company of China Electronics Corporation (CEC) listed on the Shenzhen Stock Exchange (000021SZ). It employs more than 23,000 staff at its seven manufacturing locations in Shenzhen, Suzhou, Dongguan, Huizhou, Chengdu, Thailand and Malaysia along with branch offices in the United States, Australia, Hong Kong and Singapore.
in partnership with
Kaifa has been working with Enel1 for 15 years and has sold more than 20m smart electric meters to Enel, with a business track record equivalent to about EUR1bn.
Kaifa required financing of smart electric meters for residential electric power utility in Italy. Enel wanted to ensure that:
Kaifa could provide the required quantity of smart meters in the next two years and on schedule.
The smart meters were good quality and the package monitoring system instalment runs well.
Kaifa could provide sufficient warranty for the duration of 26 months, including servicing during this period. As such, Enel required a long-term financing solution.
Differing jurisdictions and regulations
Shenzhen Kaifa, the applicant for the guarantee, was subject to the Law of the People’s Republic of China, while Enel Distribuzione SpA, the beneficiary, was subject to Roman law only. While Shenzhen Kaifa had a comprehensive banking facility for its state-owned enterprise with a listed company background, Enel Distribuzione SpA, could only accept the strong rating of a European bank guarantee.
Conditions for the award of the mandate
The bank guarantee was one of the key conditions for Enel Distribuzione SpA to grant the Final Award and Letter of Order to Kaifa. However, due to the differing legal jurisdictions, banks in general can only offer a guarantee on condition of the availability of full details for the underlying transaction.
Assurance to Enel
In order to issue the guarantee to Enel, Kaifa required their banker to undertake credit and performance risk assessment of their organisation on a longer tenor; the performance guarantee tenor is five years.
BNP Paribas was instrumental in providing advisory and structuring of the trade financing solution involving a total facility of EUR8.9m with a five-year tenor. BNP Paribas China issued a Counter Guarantee to BNP Paribas Milano for their Performance Guarantee reissuance to Enel Distribuzione SpA, (the guarantee beneficiary) of five years tenor.
Kaifa was able to achieve this without taking any risk onto its books, as BNP Paribas had undertaken the relevant performance risk cover. Kaifa had leveraged its long-standing relationship of 18 years with BNP Paribas China, who in turn undertook the coordination with BNP Paribas Milano to perform the relevant cross-checking of the beneficiary’s background and business nature. In addition, obtaining a guarantee tenor beyond a typical period of 24 months was not common. BNP Paribas was able to facilitate the issuance of a guarantee tenor for 52 months, to accommodate the terms of the transaction covering a warranty period of 26 months.
Best practice and innovation
Overcoming the different jurisdictions and conflicting documentation requirements was key to this solution. The legal documentation was tailored to take into account the multiple requirements of the applicant, beneficiary and the respective regulators.
Yang Peng, Finance Director comments, “Despite the challenges of jurisdictions, complex requirements, documentation and process, this deal is an excellent example of client centricity, best practice and partnership.”