Stoke-based manufacturer Ham Baker has partnered up with NatWest and UK Export Finance to finance a groundbreaking deal in Abu Dhabi.
Successive UK governments have made no secret of their desire to promote an export-led growth agenda. Indeed, Chancellor George Osborne set UK companies the ambitious target of achieving £1tn in exports by 2020. Osborne also recognised that businesses needed support to reach that, and in recent years that support has grown to include businesses large and small. However, it’s fair to say that smaller businesses are wary of taking on the risks involved with overseas trade: uncertainty over who they are doing business with, the threat of non-payment, the perceived complexity of regulations governing overseas contracts, and of course the strain of a large contract can place pressure not only on management time and expertise, but also on vital company cashflows. In short, with great opportunity comes considerable risk, and without support many SMEs are simply unable to join the export party. There are some, though, that manage to break through to success.
About the customer
Ham Baker is a Stoke-on-Trent-based company that designs and manufactures precision-engineered valves for the waste water industry. It has built on its Potteries heritage to become a respected supplier of products to a number of clients across the world, having worked on projects in the UK, the US and China. In recent years, the company has had particular success in a number of projects in the Middle East, where the rapid pace of economic and industrial development has led to a surge in demand for high-end engineering solutions. Infrastructure projects abound across the region, from transport and telecoms to roads and airports.
It is in this region that Ham Baker has secured its most recent – and, to date, most lucrative – contract. But it hasn’t been simply a matter of bidding, winning and signing on the dotted line. Winning the tender was just the beginning; ensuring Ham Baker was able to adequately fund the project, secure the necessary collaboration with its supply chain, and mitigate the risk that comes with such a deal proved a challenge. And it wouldn’t have been met without the assistance of NatWest.
What did the company need?
Having worked with NatWest in the past, in 2014 Ham Baker approached the bank with the news that it had secured a multi-million pound contract to supply 18 knife gate valves to German subcontractor Passavant Energy & Environment, which is currently undertaking the Strategic Tunnel Enhancement Programme (STEP) pumping station project in Abu Dhabi. The STEP project is considerable: once complete, it will constitute one of the largest tunnelled sewerage systems in the world, with depths ranging from 20 to 85 metres, and sewers measuring up to three metres in diameter. The project as a whole involves an investment of over US$2bn, and forms a crucial part of Plan Abu Dhabi 2030, a framework
for developing Abu Dhabi to accommodate its growing population.
But, while STEP represented an enormous opportunity for the company, Ham Baker’s success in the tender process meant that it required support to cope with the significant pressures that it would face delivering the project. Those pressures took several forms and involved a range of risks; indeed, such was the size of the project that NatWest brought in UK Export Finance (UKEF) as a partner in order to share the risk across the project. This created a triangular arrangement where NatWest would work with Ham Baker to understand the company’s financing needs, and with UKEF to put in place the necessary funding support to make the deal happen.
The barriers to success were clear: Ham Baker would need considerable upfront capital to fund the start of work on the project and to ensure that suppliers – vital to the success of the project – were brought on board and paid on time; the necessary guarantees demanded by the client in Abu Dhabi would need to be in place before any work could begin; and the company would need a stable funding structure in place throughout the life of the project.
How NatWest helped
Having worked with Andrew Williams, MD of Ham Baker, and his fellow directors to fully understand what the company needed, Ian Fletcher’s NatWest team were able to put together a mixed set of funding solutions that addressed each of the company’s needs, each one with a specific purpose.
The terms of the contract required Ham Baker to issue an advance payment guarantee (APG) bond for 10% of the total value. In addition to that, the company also had to issue a performance bond for the same amount to cover the first 12 months. In total, that meant £750,000 worth of bonds issued upfront to guarantee Ham Baker’s participation in the STEP project.
As with most of these types of bonds, these would only be drawn upon in the event that problems arise, but they needed to be there to give comfort and reassurance to all partners.
Given the size of the bonds, NatWest approached UKEF with a view to accessing its Bond Support Scheme. The scheme is designed to provide guarantees to banks issuing bonds for their exporting clients. UKEF stands as the ultimate guarantor of the bond, adding its strength to that of Ham Baker and NatWest. Issuing the bonds at the beginning of the project allowed Ham Baker to begin with a clean slate and the full confidence of its client and its suppliers.
Pre and post-shipment working capital facility
As is typical on a contract of this size, Ham Baker spent a lot of time working on its project plan, and central to that was the detailed project cashflow forecast that outlined the company’s needs leading up to delivery and beyond. The forecast estimated that the company would require pre- and post-shipment working capital of £2.5mn to enable payments to be made to key suppliers and for keeping up to date on the payment of carriage costs.
Under the Export Working Capital Scheme, an 80% guarantee was requested from UKEF, with the proposal that 100% of the cash received against the APG was released into working capital for the project. Those facilities, along with the surety provided by the UKEF-backed bonds, have been instrumental in Ham Baker meeting every milestone on the project so far.
How will this benefit Ham Baker?
As the United Arab Emirates continue to grow and develop, any company with an established track record and good contacts in the region will find itself in an excellent position. The STEP project represents a genuine step forward for Ham Baker. It allows it to consolidate its place as a go-to partner in the growth story of the Middle East.
“This project will serve as a real calling card for us, not only in the Middle East but beyond,” says Williams, who makes it clear that the highly engineered elements that Ham Baker will contribute to the STEP project are right at the cutting edge of technology. “So the ability to offer 100% payment terms to our customer, to finance the deal throughout its life, to protect and work with our suppliers closely – they’ve all been big parts of the deal, and have been made a lot easier by NatWest,” he says.
“The support we got from the bank – and UKEF – was instrumental in our successful STEP contract work,” Williams continues.
“They worked with us to understand the pressures and risks of the deal, and were there as a source of support and advice from the start. The oversight from the bank is perhaps more than you might experience in other deals, but we found that working closely with our finance partners helped take some of the pressure off and allowed us to really focus on what we do best: build and supply the very best equipment”