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CBC – factoring in China

December 23, 2010

Factorscan

The closure of China Export Finance in April this year came as a shock to many in the industry who, in the preceding months, had seen the small firm go from strength to strength – announcing, in December 2009, the launch of its first regional office in the Chinese business district of Tianjin.

Yet following the collapse of British Seafood in February, with whom they shared a major shareholder, CEF struggled to find new investors and were forced to enter administration in April this year.

But with a significant amount of groundwork already laid in terms of business models, prospects and awareness of the company, CEF’s closure opened opportunities for receivables financers in the lucrative and often elusive Asia trade finance sector and, earlier this year, it was announced that US-based trade finance company Capital Business Credit (CBC) had purchased intellectual property assets from the firm’s administrators.

CBC subsequently launched new division CBC Trade Finance, to finance trade between the US and Asia through factoring and invoice discounting services. Headquartered in New York, with offices in Shanghai and Hong Kong, the company is led by Andrew Tananbaum, CEO of CBC, from the firm’s headquarters in the US, while Patrick Ho oversees the company’s operations in Asia as CBC’s executive vice president and regional manager.

Already a specialist in providing supply chain financing and customer credit risk management solutions, with over 20 years of experience in the international receivables finance market, CBC was attracted to CEF’s assets as an extension of their historical commitment to financing trade between the US and Asia.

“We were attracted to the company’s assets as we have financed importers in Asia for many years,” explains Andrew Tananbaum. “I previously owned Century Business Credit, which financed trade between Asia and the US and was sold in 1998. Century Business Credit was 100 per cent based on import financing through Letters of Credit, and in the last ten years Letters of Credit have become very unimportant in trade between Asia and the US. We saw that CEF had a business model designed to discount receivables originating from transactions between the US and Asia, which is very much in line with our core competency of factoring and receivables finance.

“We principally purchased intellectual property from CEF’s administrators – such as the business model, prospect lists, forms and public relations model, along with all of the software that had been developed to operate the business, but we did not acquire any loans, any defaulted loans, or any of the company’s liabilities.”

Tananbaum goes on to detail CBC’s plans to develop CBC Trade finance in the near future, stating, “Our first goal is to develop opportunities with suppliers in Asia and importers in the U.S who are buying on open account. So we are really trying to develop a buyer centric and seller centric model to facilitate the cross border financing and discounting of receivables.”

Asked whether CBC will look to follow in CEF’s footsteps and launch a subsidiary within China itself, Tananbaum noted, “We see a growing trade in exports going from the US into China. The New York Times recently reported that there has been an increase in exports to Asia of about 3.2 per cent year-on-year, with a variety of items and goods going out of the US into Asia.

“In regards to further expansion in China, there are certain opportunities that we are exploring, though we have not yet made that investment. I would say that we are probably interested in acquiring commercial finance and factoring assets in the US.

“However, because of the complexity of pre-export finance, to acquire a firm within Asia we would have to assume that, as a non bank finance company, we would need to do so as part of a joint venture, or with a partner that has the pre-export finance competency that we don’t. We are looking at a variety of ideas.”

Tananbaum adds, “I have been trading in Asia for 30 years, always financing importers who we brought to Asia all those years ago. Those businesses have been buying products from all around the world, without loans to the supplier but instead to the importer, who needs to assess supplier performance risk. Part of that performance risk is their ability to timely deliver the goods and have enough pre-export finance to deliver that order. We have found that over a long period of time we have not experienced a lot of problems with this trading partner relationship.”