Several years ago, after the fall of the Soviet Union, I was contacted by the CEO of a U.S. telecom company seeking to build an advanced wireless communication network across multiple regions of Russia. He contacted Broad Street Capital, where I am the managing director, to help secure financing.
His company had been able to secure valuable government licenses for radio spectrum, but had little else beyond management's experience, a strong history of sales, good technical and sales personnel, and a distribution contract with a leading U.S. telecom supplier. Given the evergreen nature of the project and its fairly long five-year payback, financing by local banks was insufficient and very expensive, thus making it impracticable.
Although this client saw tremendous opportunities in servicing emerging commercial enterprises and local first responders and other municipal users, he was at a loss as to where to start.
After a close examination of the proposed project, my colleagues and I identified certain qualifying elements that made the project suitable for U.S. government financing. Our firm secured an advisory mandate and assisted in applying for a substantial USTDA grant to create a project feasibility study for a multiregional advance telecom system. With the feasibility study complete, we then worked with the client to obtain financing for the first phase of the project through the Overseas Private Investment Corporation (OPIC) -- a U.S. government agency which finances projects that have substantial U.S. involvement. Once the venture received critical seed and first stage funding, the financing options broadened and it went on to grow successfully.
In this challenging economy, foreign markets beckon. And, it is the emerging economies that have untapped potential and far-reaching opportunities that could vastly boost a company's bottom line. I qualify this by adding that a company must find a way to finance the projects or offer competitive sales terms, while mitigating risks of non-payment. Emerging markets, such as the BRIC nations -- Brazil, Russia, India and China -- can look especially inviting as these nations have developed into consumer powerhouses; continually building and updating their infrastructure. They will need products of every kind, pointing to opportunities for American businesses.
Countries from Central Asia to Central America, for example, are beginning major efforts to build a modern healthcare system. This will mean billions of dollars spent in hospital and healthcare facility construction, the purchase of medical equipment and support systems, training and records management, and much more.
In Ukraine, a huge program is underway to upgrade and modernize its hospitality infrastructure in preparation for an anticipated influx of visitors for the European soccer championships in 2012, which is right around the corner.
Opportunities abound, but it can take major financing in order to develop the facilities and partnerships necessary to succeed abroad. Many business people are simply not aware of the financing options that are available, including some that are available through government-run organizations that may offer quite attractive terms.
Depending on the type of product or service your company provides, and where it fits in the product or market lifecycle, a number of financing options may be available to you.
Export trade financing
Export credit agencies (ECAs) have been established in most nations to help businesses finance their international operations. The Export-Import Bank of the United States (EX-IMBANK) is the official export credit agency of the U.S. EX-IMBANK provides export financing for goods and services produced in the U.S. along with some local country costs. Up to 85 percent of the anticipated cost can be financed through EX-IMBANK, and the term can range from six months to 15 years depending on the type of goods and services offered, the buyer's credit rating and the destination country of the goods or services.
EX-IMBANK also provides export credit insurance, which allows exporters to insure up to 90 percent of their receivables from open term sales to qualified buyers overseas.
U. S. Small Business Administration (SBA) export programs
The SBA has a little-known program that lets qualified companies finance up to $5 million for as long as a year. The key difference between financing through the SBA and the EX-IMBANK short-term financing programs is under SBA regulations, the credit risk and the responsible party is the exporter, while under EX-IMBANK arrangements, risk and responsibility are borne by the buyer.
Local and international commercial banks
Because of banking consolidation and borrower defaults over the past few years, financing through commercial banks isn't as easy to come by as it had been. For larger companies with solid ongoing relationships with banks, this route to export financing may be the easiest and simplest, even if not the least costly. Many banks are now using ECA/SBA guarantees issued to the borrower to mitigate the commercial and political risk of nonpayment.
In some countries, local banks may also be viable sources of financing or credit enhancement, especially if they maintain bank-to-bank relationships that assure repayment, such as bank guarantees or letters of credit. Seeking financing abroad, especially in emerging economies, is usually more expensive and often carries shorter terms. It can increase your local costs and tie up your local credit.
There are other options if you are considering direct investment in a development project or in an ongoing local business.
Overseas Private Investment Corporation (OPIC)
OPIC financing is available for a wide variety of industry sectors and projects, but it is a very complex and nuanced option for exporters. Financing amounts as low as $100,000 is an option, however due to the complexity of the application and due diligence process, it is not practical for amounts under $3 million. Debt financing of up to 67 percent of a project cost, or as much as $250 million per project can be financed through OPIC, although there are limitations that prevent financing for projects involving a foreign government, or anything that could have a negative impact on U.S. business or involve military, tobacco, alcohol or gambling elements.
International Financing Institutions (IFI)
There is an alphabet soup of IFI's such as development banks EBRD, ABRD, IDB and the IFC that have even more stringent requirements than OPIC. They generally finance up to a third of a project's cost, and syndicate the balance among a group of banks. IFI's can also make equity investments and, on some cases, offer advisory services for a project.
Country or industry private equity funds
Almost all emerging markets and many regions have dedicated private equity funds that invest in attractive business opportunities. They will rarely consider a start-up business, however.
Some merchant banks, including Broad Street Capital Bank, can help a company navigate the maze of government and quasi-government agencies, as well as make effective introductions to local banks and appropriate private equity funds.
The bottom line: financing for overseas ventures IS available from a variety of sources. In most cases it's a matter of knowing where to look and how to structure transactions.
Alexander Gordin is a co-founder and managing director at Broad Street Capital Group Bank, a merchant bank in New York City, and a trustee at the strategic think-tank Princeton Council on World Affairs. Gordin is a speaker and a leading expert on international trade with emerging economies and recently authored the book Fluent in Foreign (2011, Princeton Council on World Affairs).