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Deal information

Borrower: Hyundai Motor Dealers in Latin America
Amount: US$260mn
Mandated lead arranger: Bank of America Merrill Lynch
Date signed: Throughout 2010
In 2010, Bank of America Merrill Lynch (BAML) created a financing package for Hyundai Motor Group in Korea to help their dealers in Latin America reduce their overall banking and financing charges for their trade transactions.

BAML’s trade team in Korea and Latin America worked collaboratively to win the deal, which added new countries and new counterparties throughout the year, resulting in a total trade flow of US$260mn.

“We created a dealer financing package that gives dealers in Brazil, Chile, Colombia and Ecuador improved access to a dedicated network of banks in Latin America. The package will provide negotiation and confirmation of letters of credit (LCs) issued by local banks in favour of Hyundai for exports of vehicles from Korea to Latin America,” says Bruce Proctor, senior vice-president and head of Bank of America Merrill Lynch’s global trade & supply chain solutions group.

Before implementing BAML’s solution, Hyundai’s dealers needed to search for banks to confirm their LCs and perform negotiation. As the growing expansion of Hyundai in Latin America continues, the volume and dollar amount of LCs has grown extensively, leading to challenges in finding suitable banking partners that can provide such exposure.

Moreover, most of the local banks in Latin America that Hyundai’s dealers were working with were small banks with credit ratings below A. As such, the dealers were having difficulties in finding a global financial institution partner to support their trade finance needs. Consequently, Hyundai found that these constraints were curtailing sales volumes in the region.

BAML was able to provide LC confirmation with better pricing structure to most of the local banks the dealers were using.

However, BAML was unable to support credit exposure for LC confirmation by some of the local banks due to risk considerations. The implied risk for Hyundai to deal with these banks was also high.

To lower counterparty risk, BAML offered a list of its local partner banks with better or equivalent convenience and pricing and less risk, in substitution. These local banking partners were then able to offer immediate assistance and service to dealers.

“The pricing and financing options provided by BAML to our institution has given us an advantage over our competitors,” says Luis Eduardo Heredia Diaz, sales manager – international division, at Colombia’s Banco Davivenda, one of the seven banks that BAML worked with on the programme.

Yong Hyun Chung, deputy general manager at Hyundai Motors’ international finance team, comments on the success of the deal: “Gaining credit support from a global one-stop bank for the trade business in Latin American countries that have dealers mostly banking with very small banks could be one of the main challenges facing a corporation.”

“BAML has provided ample support in terms of confirming the letters of credit and negotiating with the local banks on pricing structures to offer best available services to our dealers,” he continues.

Korea’s Hyundai Motor Group grew to become the world’s fifth largest automaker as of 2009.