Narrative
Full Description
Project narrative
On December 8, 2019, Bahrain’s Ministry of Housing and China Machinery Engineering Corporation (CMEC) signed an Engineering, Construction, Procurement, and Financing (EPCF) contract worth $691 million (BHD 260 million) for the Eastern Sitra Affordable Housing Project. The borrowing carries a 7-year maturity. However, the interest rate and grace period are unknown. Then, on August 19, 2021, CMEC and China Zheshang Bank (CZB) Beijing Branch signed an accounts receivables financing facility agreement for Phase 1 of the Eastern Sitra Affordable Housing Project. The agreement signing ceremony was attended and witnessed by CZB Vice President & CFO Jing Feng, CMEC CFO Zhang Zhiliang and CMEC Chief Engineer Li Baolin. The borrowing terms of the facility are unknown. It is known that the proceeds from the facility were used to partially finance the EPCF contract between CMEC and Ministry of Housing, which was signed on December 8, 2019. The purpose of the project is to construct 3,100 affordable houses and related municipal supporting works in Sitra, Bahrain. CMEC is the EPC contractor responsible for implementation. Construction commenced on December 27, 2020. The project was originally expected to reach completion within 6 years (December 27, 2026).
Staff comments
1. The Chinese project title is 巴林锡特拉东部保障房项目. 2. China Zheshang Bank, abbreviated as CZB, is a national joint-stock commercial bank based in the People's Republic of China and regulated by the People's Bank of China. 3. More likely than not, China Zheshang Bank signed an accounts receivable transfer agreement with CMEC to provide financing for the construction period of the project. In this type of arrangement, the exporter (seller) procures insurance from an insurer and transfers its accounts receivable under the insurance policy to a bank. The bank then grants financing to the exporter (seller) and becomes the insured under the transferred insurance policy. When an insured loss occurs, the insurer pays indemnity to the financing bank pursuant to the insurance policy and the Accounts Receivable Transfer Agreement. 4. 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. 5. The face value of the financing provided for the December 8, 2019 ECPF contract is unknown. For the time being, AidData adopts the conservation assumption that the face value of the financing is equivalent to 70% of the $691 million EPCF contract.