Australian Government’s export credit agency, Export Finance and Insurance Corporation (EFIC) has provided a €523,000 (about A$700,000) demand guarantee to assist Bothar Boring & Tunnelling Pty Ltd deliver on its KWD2.35million (approx. A$8.2million) subcontract to provide tunnelling services on a sewerage construction project in Kuwait.
Bothar is an Australian company that specialises in underground pipeline construction and tunnelling works. The company won a subcontract to install sewage systems via micro tunnelling works for a total of 15,445 metres of various diameter pipes.
Having already supported Bothar with a KWD235,748 (approximately A$900,000), 36-month performance bond for this contract, EFIC has provided the demand guarantee to equip Bothar with the additional capacity to acquire the equipment it needs to deliver on its obligations.
Bothar needed to purchase two automatic tunnelling machines from Herrenknecht AG. As Bothar would be paying for the machines in monthly instalments after their delivery, Herrenknecht AG sought security for payments due to it.
EFIC provided a 36-month, €523,000 demand guarantee to Herrenknecht AG, which guarantees payments due to it under the agreement with Bothar. The demand guarantee enables Bothar to obtain the required equipment, without having to set aside funds that could be otherwise used for business development.
According to Mike Dart, Managing Director, Bothar, EFIC’s support for the project through the provision of the demand guarantee as well as the provision of a performance bond to their client has enabled them to satisfy their bonding requirements and focus attention and finances on their core business.
EFIC’s Executive Director of SME and Mid-Market, Andrea Govaert explains that while many SMEs are fully capable of delivering on major international contracts, the offshore buyer’s demand for bonds and guarantees can be a barrier to their success since it involves the SME providing full cash collateral to secure the bond by diverting working capital from other opportunities.