Amendment to regulations regarding financing to exporters

On November 22, 2005, the Argentine Central Bank issued Communication “A” 4443 which replaces the regulations regarding financing to exporters under Communication “A” 4415 dated September 9, 2005 (please see our article on “New regulations regarding financing to exporters” in Marval News # 43 of September 30, 2005).

The amendments basically aim at relaxing some of the requirements provided by the previous regulations in order for local exporters to receive export financings (i.e. the maximum terms to make shipments to be applied to repayment of advances and pre-export financings have been extended; advances and pre-export financings may be cancelled by direct application of export proceeds abroad even if the shipments have not been made within the maximum applicable term; and medium and long term pre-export financings are authorized provided certain requirements are met).

1.    New advances and pre-export financings

Communication “A” 4443 has flexibilized the two conditions which Communication “A” 4415 provided in order for a new indebtedness to qualify as an advance or a pre-export financing and adds two new requirements. If all of these conditions are complied with and the new indebtedness is actually paid out of export proceeds, the new indebtedness proceeds can be transferred into Argentina and converted into pesos through the local exchange market without the need of making a mandatory non-returnable 30% bank deposit and its repayment will not be subject to a minimum waiting period.

Such conditions are now as follows:

a) (i) each disbursement must be backed by contracts, purchase orders or provision requests between the local exporter and foreign importers, documented in accordance with market uses, the compliance with which will allow payment of the services of the new debt pursuant to shipments to be made within a maximum period of 90, 180, 365 or 540 days, depending on the goods exported; or (ii) the amount of the new financing together with the aggregate outstanding amount under advances and pre-export financings with residents of foreign countries or local financial entities owed by the exporter must represent no more than a percentage that ranges between 25% and 50% depending on the goods exported, calculated over the aggregate amount of the exports made by the borrower/exporter in the previous 12 months;

b) (i) the outstanding debt of the exporter on September 8, 2005 with non-Argentine residents or local financial entities under advances and pre-export financings must be backed by contracts, purchase orders, provision requests by foreign importers or shipmentsenforceable against foreign importers of goods or by shipments already made the proceeds of which will be applied to repay the debt; or (ii) the level of indebtedness of the exporter must be within the limit referred to in paragraph a) (ii) above;

c) the exporter must be in compliance with the maximum terms for shipments under outstanding advances and pre-export financings; and

d) as from March 1, 2006, the exporter must not have repaid advances or pre-export financings other than by direct application of export proceeds abroad during the 60 day period prior to the date of the conversion of the funds disbursed under the new pre-export financing into pesos through the local exchange market.

2.    Repayment of outstanding advances and pre-export financings

The priority for the repayment of advances and pre-export financings outstanding as of September 8, 2005 has been maintained.

3.    Repayment of new advances and pre-export financings

The repayment of advances and pre-export financings that were converted into pesos through the local exchange market as from September 9, 2005, must be made out of export proceeds from shipments made within the maximum term established by the Central Bank. The maximum term for such shipments is 90, 180, 365 or 540 days, depending on the goods exported. The local financial entity in charge of the follow up of the pre-export financing may grant an additional 30 day term for shipments to be made, in case of delays due to facts beyond the exporter’s will, such as riots, problems with domestic transport, lack of ship spaces or climatic disasters. The term begins to run from the date of conversion into pesos of the proceeds of the indebtedness through the local exchange market.

Additionally, within 45 calendar days as from the date of each shipment, the exporter must either apply the proceeds to partially or totally cancel the financing or inform the local financial entity in charge of the follow up of the advance or pre-export financing that the proceeds of such shipment will be applied to cancel such indebtedness.If such information is not timely provided, the exporter shall be deemed not to have made the corresponding shipment until such information requirement is complied with.

Advances and pre-export financings may be repaid out of export proceeds from shipments made once the maximum applicable terms have elapsed.Nevertheless, non compliance with the maximum terms for shipments has consequences regarding the possibility of the exporter to transfer into Argentina and convert into pesos new advances and pre-export financings as indicated in section 1 above.

Repayment of advances and pre-export financings not made out of export proceeds is subject to regulations applicable to the repayment of financial loans (including minimum waiting period and mandatory 30% deposit) and also has consequences regarding the possibility of the exporter to transfer into Argentina and convert into pesos new advances and pre-export financings as indicated in section 1 above.

4.    Medium or Long Term Credit Lines

Communication “A” 4443 includes a specific provision for pre-export financing credit lines granted by residents of foreign countries that comply with the following requirements:

a) the credit line must be committed for no less than 3 years and granted by international organizations or foreign banks with representatives in Argentina registered with the Argentine Central Bank;

b) the facility agreement must provide that the lender may only terminate or accelerate the financing in case of breach by the exporter of representations, warranties, covenants and other obligations of the exporter under the agreement;

c) the agreement must provide that part of the export proceeds of the exporter will be routed through a collection account of the borrower outside Argentina identified in the agreement, in order for the exporter to prove compliance with its export activity for the benefit of the lender; and

d) the local financial entity in charge of following up the pre-export financing credit line must have received a sworn statement from the borrower and the local representative of the lender in which they state that the agreement complies with the foregoing requirements.

If the above referred requirements are met, then:

i) as long as the export proceeds credited in the collection account correspond to shipments made within the maximum terms provided in the regulations, the maximum shipment period will be considered complied with; and

ii) the transfer of the export proceeds credited in the collection account into Argentina and their conversion into pesos through the local exchange market will be deemed as a new disbursement under the credit line financing and the maximum period to make shipments to be applied to the financing will start running again as from that date, then enabling the roll over of the previously disbursed advances.