Bank of China fights credit crunch

The Bank of China (BOC) has launched a high-profile campaign touting a variety of products it's offering business customers to help them counter some of the worst impacts of the credit crunch. Letters of credit for domestic and overseas transactions feature in the bank's product range. Recently, BOC introduced its Tongyida service, which the bank says can be used by its China-based customers. Under this scheme, business customers can open import L/Cs, and the bank will accept the accounts receivable under the L/Cs as collateral. This, according to BOC, solves the problem of inadequate credit lines and reduces the cost of trade financing. Domestic L/Cs are also part of BOC's current offering, which also includes factoring and forfaiting.

Saudi L/C demand slows

Demand for L/Cs in Saudi Arabia has started to slow down as the domestic economy responds to uncertainty in global financial markets. Saudi appetite for both corporate credit and consumer loans has been dulled by the worldwide downturn, despite the availability of funds at the kingdom's dozen banks and a government decision to ease curbs on lending. According to a report by the Riyadh-based Jadwa Investment Com-pany (JIC), private sector uncertainty about the health of the economy is dampening demand for credit. Commercial loans from Saudi banks declined by 1.1 per cent in December 2008, the first monthly decline for nearly two years, according to JIC. At the same time, the total value of L/Cs opened in Saudi Arabia hit a near two-year low and credits for building materials and machinery slumped to a near three-year low.

Iraq: L/Cs for electricity contracts

Iraq will issue L/Cs to partially finance the costs of two giant electricity contracts. The L/Cs under the contracts signed with Germany's Siemens and General Electric (GE) of the US are seen as a better choice of financing tool than a treasury bond. According to an Iraqi government spokesman, the aim of the L/Cs is to speed the delivery of much-needed power projects. Iraq suffers huge electricity shortages and in 2008 signed a 1.5 billion euro deal with Siemens for 16 gas turbines and a USD 3 billion deal with GE for 56 turbines. An L/C for Siemens would be for 890 million euros, while L/Cs for GE would be for 576 million euros and USD 248 million dollars. Iraq chose L/Cs to partially finance the projects after the central bank expressed reservations about using a treasury bond to raise funds for the gas turbines.

Dubai: L/Cs for property deals

L/Cs may well feature more in deals between property developers and contractors in Dubai, where the property boom that has witnessed surging real estate prices over recent years has ended. Unfinished real estate projects are either being dramatically scaled down in scope or put on hold. The traditional way in which real estate projects in Dubai have been financed is by buyers of off-plan properties paying stage payments to the developer before the developer needed to pay its contractor. But the sudden dearth of buyers means that developers and contractors have to find new ways to finance their activities. New regulations are also influencing the real estate financing environment. Sub-developers can no longer receive no more than 20 per cent of the cost of a property from purchasers if construction of the property has not commenced. Another pressure on real estate is the current lack of liquidity. In the light of these circumstances, Dubai-based lawyers are saying that contracting parties may have to agree alternative forms of payment or related security in order for projects to proceed. They anticipate an increase for the use of L/Cs, promissory notes or even the transfer of legal title to units of property. Such forms of security, they say, should not only serve as an incentive to the contractors to lower their prices, but may also be used by contractors to secure credit facilities to finance the construction itself.