To actively support overseas project participation by Korean construction SMEs, the Export-Import Bank of Korea (www.koreaexim.go.kr, Chairman Yong Hwan Kim, “ Korea Eximbank”) announced on July 28 that it would fully implement export factoring for construction SMEs.

Export factoring is a form of international financing through which trade receivables are purchased without recourse* from exporting firms.

* Without recourse: the exporter is not held liable in the event that Korea Eximbank is unable to collect payments for purchased trade receivables due to reasons such as importer default

For instance, upon obtaining a construction contract, the constructing firm receives construction receivables from the ordering party.

Korea Eximbank purchases these receivables by earned value* from the construction firm to finance the actual construction and receives payments from the ordering company 2~3 months later.

* Cost of actual construction completed to date with construction progress estimated based on the work schedule.

The advantage of this type of financing is that suppliers with lower credit ratings can receive financing based on the relatively higher credit ratings of ordering parties or main contractors.

Implementation of export factoring for SMEs by Korea Eximbank is anticipated to provide SMEs facing liquidity crunches with funding to resume operations.

In addition, export factoring is anticipated to spur construction SMEs hit hard by the recession in Korea’s domestic construction market, to actively seek participation in overseas construction projects that support export factoring.

A representative of the Bank commented, “Implementation of export factoring will allow construction SMEs to quickly obtain payment for construction. More significantly, in case Korea Eximbank fails to receive payment from the ordering party for construction work delivered, constructing firms will not be held liable for payment, as purchases were made without recourse.

Korea Eximbank provided the first export factoring of USD 30 million to Keangnam Enterprises Ltd., which obtained a new city construction project in Sidi Abdella, Algeria.

Accordingly, the Algerian project is anticipated to progress smoothly as Keangnam Enterprises was able to quickly access funding for construction operations.

In addition to providing export factoring services, Korea Eximbank also plans to expand manufacturing financing to assist construction SMEs procure needed materials and equipment for overseas projects.