Bank of China provides $89 million receivables financing facility to support its export of telecommunications equipment to Costa Rica's state-owned telecom service provider ICE Group

On April 10, 2012, Instituto Costarricense de Electricidad (ICE) — a state-owned company in Costa Rica — signed an $89 million supplier's credit (loan) agreement with Huawei Technologies Co., Ltd. Huawei Technologies Co., Ltd, in turn, secured a receivables financing facility from Bank of China. The loan to ICE carried the following borrowing terms: a fixed interest rate of 5.45% and a maturity length of 5.5 years. The final maturity date of the loan was April 10, 2017 (later amended to January 30, 2018), and the borrower was responsible for making semi-annual loan repayments. The loan proceeds were to be used by the borrower to acquire telecommunications equipment and services from Huawei Technologies Co., Ltd. and thereby support the expansion of a 3G advanced mobile system in Costa Rica. The loan was reportedly insured by Sinosure. As of September 2014, this facility had not been drawn upon, and September 2014 was the most recent mention of it in ICE reports. The 3G network expansion project was plagued by controversy. In 2009, ICE awarded a $235 million contract to Huawei Technologies Co., Ltd. to deploy a 3G network over a five year period, but Huawei Technologies Co., Ltd. reportedly breached the contract from 2011-14. ICE then opened a summary procedure to collect a $6.7 million fine for the contractual breaches, which Huawei Technologies Co., Ltd. accepted (as evidenced by official communication 5225-1031-2016 from November 22, 2016). However, instead of paying the fine, Huawei Technologies Co., Ltd. offered to settle the matter by making donations ($5.2 million of fixed internet equipment and $1.5 million of support services) equal to the amount of the fine. In 2017, ICE’s former telecom director, Jaime Palermo, accepted the offer in November 2017 (as evidenced by official letter 6000-1513-2017 from November 9, 2017). Huawei Technologies Co., Ltd. then offered Palermo an $8.3 million project to expand fixed internet coverage in the country’s metropolitan areas. ICE would only have to pay $1.6 million as the remainder that was not already covered by the $6.7 million donation. Palermo approved a contract for the project that same year, making Huawei Technologies Co., Ltd. ICE’s biggest fixed-internet infrastructure provider and side-stepping an open competition in which other proposals could have been considered. In December 2019, La Nación reported that the public prosecutor's office in Costa Rica launched an investigation, which in turn led to an in-house audit report by ICE. The $60 million supplier credit is captured via Project ID#54892. The $6.7 million donation is captured via Project ID#86881.

Additional details

1. In a typical receivables financing agreement (or deferred payment agreement), the company that the project owner in the host country has selected as its engineering, procurement, and construction (EPC) contractor is also a lender to the project owner. The company assigns receivables under its EPC contract with the project owner to one of or more banks. Upon assignment of receivables, the bank or banks will release funds to the company so it can discharge its obligations under the receivables financing agreement as a lender. Receivables financing is also known as accounts receivable financing (finance) or A/R financing (finance) or 应收账款融资 (in Chinese). These other terms are used because the accounts receivable of a company (i.e., unpaid invoices) are being used as collateral to unlock working capital—typically in the form of a bank loan (‘receivables loan’). Sellers often face cash flow problems when their buyers do not make full payment at the due date of the invoice. A receivables financing arrangement addresses this problem by allowing them to sell their outstanding invoices to a bank at a discounted rate. This approach allows the seller to receive the remaining invoice amount before the due date of the invoice. The bank either gets its money back at invoice maturity through the seller (acting as a collecting agent) or directly from the debtor.

Number of official sources

5

Number of total sources

6