A financing solution that raised the client’s credibility and traction in the competitive telecoms market

The client

PT Hauwei Tech Investment is a subsidiary of Huawei Technologies (HWI), an Indonesia-based global leader of ICT solutions.  The company’s telecom network equipment, IT products and solutions and smart devices are used in 170 countries. Huawei was ranked 228th in the Global Fortune 500 in 2014, based on revenues.

The challenge

HWI signed a long-term contract for the sale of telecoms equipment. The contract value was USD 100m, but the transaction involved financing supply of the first USD 30m of sales. Being a new entity, the buyer wanted a long-term financing. HWI offered the buyer financing in two parts: a medium-term financing under a three-year deferred payment agreement signed between HWI and the buyer; and a longer-term buyer financing solution to be arranged by a Chinese bank to replace medium-term financing.

The solution

Deutsche Bank was involved in the first part of the medium term financing. A total facility of USD 30m with a tenor of three years was secured by issuance of promissory notes from the buyer/obligor, resulting in non-recourse to the seller.

To cover the credit risk of the obligor, Deutsche Bank obtained a corporate guarantee from the obligor’s parent. In addition, the exposure was secured by credit insurance cover to the extent of 90% of each promissory note discounted.

A unique element of this transaction was that the underlying sale transaction occurred under Indonesian law, the financing was structured under Singapore law and the credit cover through insurance was under Chinese law. This transaction was the winner of one of Treasury Today magazine’s Adam Smith Awards.

Benefits for the client

The well-structured bridge finance solution allowed the seller to clinch its selling proposition to its client to eliminate competition. This was important to the client given the obligor wanted longer-term funding. Moreover, organising long-tenor financing without a bridging medium-term financing offer would be difficult.

HWI was able to provide a financing solution to its buyer while avoiding taking any risk onto its own books, including performance risk of its equipment. The deal raised Huawei’s credibility and increased its traction in the highly competitive telecoms market.

The reaction

Nate Zhou, Customer Finance Manager, PT Huawei Tech Investment: “We were very pleased with Deutsche Bank’s world-class solution which enabled Huawei to not only reduce the receivable with a long tenor, but also totally decreased the payment risk of our customer and help us win an important supply contract. Furthermore, Deutsche Bank’s industry expertise significantly helped in developing our business with our strategic banking partner.”