New opportunities in exports to Russia
Russia as the direction of expansion is chosen by 46% of Polish companies which use the government's Financial Support for Exporters program. Companies present on this market can already support their exports with a new solution by BGK, which confirms documentary letters of credit opened in ruble. Until now, the bank used only to confirm letters of credit in PLN, EUR, and USD. From now on, transactions with Russian partners are made easier, and there can be more of them. What is important, transactions in ruble can now be covered by KUKE.
A bank which opens a letter of credit undertakes to pay the exporter for documents related to export, even if the importer will not want to pay for the goods. This is a great support for the exporter, as evidenced by the figures. In 2019, BGK handled over 100 letters of credit for sales to the markets of Poland’s eastern neighbours (Belarus, Ukraine, and Russia) of a total value of over PLN 300 million. Now, for the second time in history the bank has given support to a Polish exporter's subsidiary company registered abroad and, for the first time, confirmed the letter of credit in ruble.
"This is the first transaction of this type in BGK. So far, we have carried out transactions of letters of credit confirmation on many foreign markets, including the Russian market. However, the currency of settlement was always the euro, zloty, or dollar, while Polish companies were almost always parties to BGK. Now, for the first time, we have given support to a foreign company which belongs to a Polish group, in their local currency, that is the ruble. It is the Russian company OOO FAMUR", says Karol Rozenberg, expert from the Transactional Banking Department at BGK. He adds further: "Other companies are also able to benefit from this solution. This way we facilitate foreign trade and enable exporters to expand the scope of their businesses. We are aware that in contacts with some Russian partners changing the currency of the letters of credit was crucial and made the agreement difficult. We are pleased that we have found a solution which can ease negotiations with Russian contractors".
The value of the letter of credit to which BGK has added a confirmation for OOO FAMUR is over RUB 842 million, i.e. almost PLN 48 million; it concerns the execution of a contract concluded with OOO "UK Anżerskaja-Jużnaja" for the supply of 120 parts of powered roof supports, about which the FAMUR Group informed on 7 May 2020 in the 15/2020 current report. Such transactions constitute a real support for Polish entrepreneurs who engage in exports to countries which are geographically close to Poland, but at the same time, in the view of many exporters and institutions, are characterised by an increased political and commercial risk.
"The FAMUR Group carries out intense sales activities on export markets, among others through foreign subsidiaries. This enables us to strengthen our presence and build the brand locally. Very often, the need for these companies to fulfil their contracts results from customers' requirements, which relate to e.g. equipment delivery base or contract settlement currency. So far, as the Group, we have not had an opportunity to fully secure such contracts in Polish financial institutions. Therefore the new solutions introduced by BGK and the PFR Group, which provide support instruments directly to foreign companies, prove extremely helpful for us and provide new development opportunities", says Beata Zawiszowska, Vice-President of the Management Board and CFO at FAMUR S.A.
From now on, for such operations the support of KUKE can be also utilised as the corporation has enabled its collaterals for transactions in which one party is a subsidiary of a Polish group registered abroad.
"Legislative changes introduced under the Anti-Crisis Shield have expanded KUKE's operating possibilities. For example, they made it possible for guarantees of payments of receivables under letters of credit to be extended to cover trade by subsidiaries of Polish companies operating in other countries. This allows domestic banks to get rid of the risk in transactions such as the one between BGK and a subsidiary of Famur. What is more, the aforementioned legislative changes have removed the domestic requirement for transactions with a repayment period of up to two years, which means that the catalogue of export products which can be covered by insurance guaranteed by the State Treasury has been significantly expanded", says Sylwia Morawska, Senior Specialist in the Institutional Insurance and Guarantee Office at KUKE.
Thanks to the solutions introduced by BGK and KUKE, the level of interest in letters of credit confirmed in ruble and transactions to which a foreign subsidiary of the Polish group is a party, is likely to increase soon. It is going to prove beneficial for Polish exports and to expansion of Poland and its companies abroad.