BBVA successfully closed a multi-tranche structured trade finance transaction financing the building of a railway electrical line running across China from Xinxiang in North China, via Heze and Yanzhou, terminating at Rizhao in the southeastern province of Shandong.

The financing agreements were signed in March and July 2009.

A Spanish consortium headed up by Balfour Beatty Rail Iberica-Cobra won the contract to provide China’s ministry of railways with the equipment required for the project.

The total contract amount was €75.5mn, which consisted of an advance payment of €11.3mn; payment on delivery of €60.4mn; and buyers’ acceptances of €3.8mn.

The process of first winning this contract and then creating a suitable financing structure was a challenge.

It involved an intricate series of negotiations between the Spanish and Chinese governments, ultimately resulting in sole arranger BBVA creating a long-term multi-tranche trade finance facility, which included both private and public financing facilities.

The deal package consisted of a €49.2mn bridge loan arranged by BBVA and signed in March 2009; a €37.7mn loan from government agency Fondos de Ayuda al Desarrollo (FAD) and a €37.7mn buyer’s credit guaranteed by Spanish export credit agency (ECA) Cesce and solely arranged by BBVA, both signed in July last year. Cesce provided 99% cover on the buyer’s credit portion.

The borrower was Chinese bank Citic, although the Chinese ministry of railways acted as the borrower in the on-lending agreement signed by Citic in all the facilities.

Commenting on the deal, Nicholas Shaw, managing director, structured trade finance at BBVA, remarks: “This transaction has brought together many challenging factors that make this business fun and which play into the hands of our bank when it comes to capacity to deliver.

“This was a complex transaction where we made use of our presence, our unrivalled experience in the Spanish export credit business, our partnership with CITIC and ultimately our capacity to bring together the many different parties involved, both internally and externally. So, in summary, we are delighted to be rewarded for what we do best, take on challenges and deliver.”

The deal is particularly significant for the Spanish export market in that it is the first time funds from the Spanish government body Fondos de Ayuda al Desarrollo have been used to finance a non-public Chinese borrower, Citic. Although a time-consuming component of the deal, it has set a benchmark for future export transactions.

The timeframe of the deal process was also challenging in that the bridge loan, closed in March 2009, had to be closed rapidly due to financial and commercial constraints, and it had to be priced competitively at pre-financial crisis levels.

There were also many other parties to coordinate in order to get the deal off the ground, including Chinese firms China International Tendering Company and Foreign Capital & Technical Import Centre, both entities run by China’s ministry of railways.

Putting together the deal structure also required close cooperation between various BBVA departments including the structured trade finance offices in Madrid and Hong Kong, the bank’s legal services in Madrid and Asia, the bank’s Beijing representative office, and various units within Citic.

BBVA holds a 15% stake in the Chinese bank Citic. It increased its stake in the bank by 4.93% in December last year, bringing the total investment by BBVA in Citic to €3bn. The move is intended to signify BBVA’s commitment to increasing its presence in the Asia market.
Deal information

Exporter: Consortium Balfour Beatty Rail Iberica-Cobra
Borrower: CITIC Bank (China)
Sole mandated lead arranger: BBVA
Amount: €49.2mn bridge loan; €37.7mn loan from government agency Fondos de Ayuda al Desarrollo (FAD); €37.7mn buyer’s credit
ECA: Cesce
Tenor: 7-month bridge loan; FAD loan carried 36-year tenor with 11 years grace period; Cesce-backed buyer’s credit has 17-month drawdown period and 10-year amortising tenor
Date signed: Bridge loan – March 2009; other facilities – July 2009