HQCEC and KAR Group secure $355 million accounts receivables financing facility for Phase 4 of Erbil Oil Refinery Expansion Project

📋 Staff Comments

1. This project is also known as the KAR Group Erbil Refinery No.4 Expansion Project, the KAR 4th Refinery Expansion Project, the Iraq KAR Refinery Phase-4 Extension Project, and the KAR4 Refinery Project. The Chinese project title is 在伊拉克库尔德地区炼油厂项目 or 的伊拉克KAR炼厂四期扩建项目. The Arabic project title is مصفى الصينية.
2. The accounts receivables financing facility is described as ‘ECA- backed’ by this source (https://www.dropbox.com/s/gd1bmwibacinhjm/Chai%20Jie%20-%20Tian%20Yuan%20Law%20Firm%20-%20Beijing%20-%20Lawyer%20profile%202021%20_%20China%20Business%20Law%20Journal.pdf?dl=0). For the time being, AidData assumes that the ECA in question in China’s official export credit agency (ECA): China Eximbank. More likely than not, China Eximbank signed an accounts receivable transfer agreement with (HQCEC) to provide financing for the construction period of the project. In this type of arrangement, the exporter (seller) procures insurance from Sinosure 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, Sinosure pays indemnity to the financing bank pursuant to the insurance policy and the Accounts Receivable Transfer Agreement. However, this issue requires further investigation.
3. One source refers to Standard Chartered Bank’s involvement in a ‘USD200 million receivables financing facility with China Huanqiu Contracting & Engineering Corp in relation to a refinery expansion project in Erbil, Iraq.’ This issue requires further investigation.
4. HQCEC is a subsidiary of CNPC.
5. This transaction won the 2015 Deal of Year (Project Finance) in the China Business Law Journal.
6. 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.

📚 Sources & References

• Chai Jie
• Chai Jie
• 一带一路丨高危风险下，出口企业承建项目如何险中求胜
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• China Huanqiu Contracting & Engineering（Mideast）Co.
• Ltd
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