China Eximbank provides EUR 43,150,000 loan — via deferred payment agreement — for Tehran Rolling Stock Procurement Project

On May 18, 2004, Tehran Urban and Suburban Railway Company (TUSRC) and China North Industries Group Corporation Limited (NORINCO Group) signed a $156 million EPC contract for the Tehran Rolling Stock Procurement Project. The purpose of the project was to supply rolling stock to TUSRC in order to support Tehran Metro Line 1 and Suburban Railway Line 5. In 2010, during project implementation, NORINCO Group had difficulty receiving payments from TUSRC under the EPC contract. In response, China Eximbank and NORINCO Group signed an accounts receivable finance agreement (backed by a short-term, export credit insurance policy from Sinosure), which enabled NORINCO Group to in turn signed a deferred payment agreement with TUSRC worth approximately EUR 43,150,000. China Eximbank and Sinosure later held up the transaction as an example of financial innovation.

Additional details

1. This project is also known as the Procurement Contract for Vehicles and Spare Parts of Iran Tehran Metro Line 1 and Suburban Railway Line 5 Project and the Iran Rolling Stock Comprehensive Procurement Project. The Chinese project title is 伊朗机车车辆综合采购项目 or 德黑兰综合采购项目 or 伊朗德黑兰地铁1 号线、郊铁5 号线车辆及备件采购合同 or 2 号线和5 号线机车车辆供货项目 or 伊朗德黑兰机车车辆供货项目. 2. 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. 3. AidData has coded the commitment year as 2010 for the time being because, according to China’s Ministry of Commerce (http://cafiecmofcom.org.cn/article/hyzc/tongjixuehui/201408/20140800695944.shtml), a deferred payment agreement was developed in 2010 by China Eximbank and Sinosure to address the payment difficulties of the project owner (TUSRC). 4. This project reached completion, but its precise completion date is unknown. This issue warrants further investigation. 5. One official source (http://cafiecmofcom.org.cn/article/hyzc/tongjixuehui/201408/20140800695944.shtml) suggests that the maturity of the loan was approximately 1 year. This issue warrants further investigation

Number of official sources

10

Number of total sources

19