Cross Border Financing MCB

CROSS-BORDER
FINANCING
Contents:
• Introduction
• About Cross-Border Financing
• Why is Cross-Border Financing important
• Cross Border Factoring
• Risks related to Cross-Border Financing
• Cross-Border Finance Market
• Real World Example
By: ANJALI RANA 04114901819

ARYAN CHAWLA 04214901819
Introduction
 Cross-border financing—also known as import and export

financing—refers to any financing arrangement that occurs
outside a country's borders.
 Cross-border financing is defined as the financing deals that

happen beyond the country’s borders.
 Cross border financing includes financial arrangements, such as

letters of credit, beyond the borders loan, and bankers
acceptances.
About Cross-Border
Financing?
Cross-border financing inside companies may become extremely
complicated, predominantly due to every inter-company credit that
goes beyond the international borders will be subject to taxation and
may face issues. This generally happens when a third party, such as
banks, lend money.
Large multinational companies usually have a team of tax experts,

accountants, lawyers, and other professionals that are capable of
evaluating the best tax-efficient way to deal with those operations that
involve overseas financing.
Why is Cross Border
Financing Important
 In the recent past, many large firms have gone on to avail cross-
border loans instead of debt financing. This move has impacted
cross-border financing options, such as covenant-lite loans. These
loans provide borrowers with much-needed flexibility as compared
to regular loan regulations.
 Several international companies have opted to avail cross-border

financing as they have global subsidiaries spread across numerous
countries.
 Choosing cross-border financing over other financing options will

allow companies to make the maximum use of their borrowing
ability and resources to go for optimum growth across the globe.
Cross-Border Factoring
In cross-border factoring, a factoring company buys the business’ accounts

receivable in the foreign currency at a discount. The risk of bad debt expense
(customers not fulfilling their accounts receivable) is shifted to the factoring
company, which makes a profit between the discounted value they pay to the
business, minus any bad debt expenses.
Cross-border factoring is useful for businesses that wish to receive immediate

cash flows to pay outstanding debt obligations, operating expenses, and
investments for growth.
Risks Related to
Cross-Border Financing
Risk to Borrowers:

1. Legal Risk
Due to the foreign jurisdiction, borrowers are faced with different
laws and tax consequences.
2. Currency Risk
Borrowers are subject to foreign currency exposure due to the
fluctuating nature of the exchange rate.
Risk to Lenders

1. Country/Political Risk
For businesses in foreign countries that are politically unstable, there is
uncertainty regarding disruptions in business operations due to events such as
riots & coups, regulatory changes, government intervention, and more.

2. Default Risk
The creditworthiness of the business (and end customers in factoring) are
crucial in determining whether to lend and at what rate.

Cross-Border Financing Market
 The cross-border financing market grown remarkably over the years.
 The increase can be attributed to multiple intertwined factors. The

improvement of IT and globalization of business has greatly driven demand.
 Furthermore, emerging markets seeking to penetrate the global market need

capital to grow.
 Due to the political instability and currency risk of emerging markets, lenders
get higher returns, which is attractive to those who prefer higher risk and
returns.
Advantages
 Many companies opt for cross-border financing services when they have
global subsidiaries (e.g., a Canadian-based company with one or more
subsidiaries located in select countries in Europe and Asia).
 Cross-border factoring is a type of cross-border financing that provides

businesses with immediate cash flow that can be used to support growth and
operations.
 This third-party company—also known as the factoring company—collects

payments from customers and transfers the payments to the original business
owner, minus fees charged for providing the service.
Disadvantages
 In cross-border financing, currency risk and political risk are two
potential disadvantages. Currency risk refers to the possibility
companies may lose money due to changes in currency rates that occur
from conducting international trade.
 Political risk refers to the risk a company faces when doing business in
a foreign country that experiences political instability.
 Shifting political climates—including elections, social unrest, or coups

—could hinder a deal’s completion or turn a profitable investment into
an unprofitable one.
Real World Example of Cross-
Border Financing
 In Sept. 2017, Japanese conglomerate Toshiba agreed to sell its roughly $18
billion memory chip unit to a consortium led by Bain Capital Private Equity.
 The group of investors included American companies, Apple, Inc. and Dell, Inc.,
among others.
 The acquisition required U.S.-headquartered companies within the consortium to
obtain Japanese yen to complete the deal.
 Bain Capital also required upwards of $3 billion from Apple to close the
negotiation.
 The advantage to these American companies in participating in a cross-border
deal was that it helped ensure them continued access to Toshiba's prized memory
chips.
Thankyou.

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CROSS-BORDER

By: ANJALI RANA 04114901819

 Cross-border financing—also known as import and export

 Cross-border financing is defined as the financing deals that

 Cross border financing includes financial arrangements, such as

Large multinational companies usually have a team of tax experts,

 Several international companies have opted to avail cross-border

 Choosing cross-border financing over other financing options will

In cross-border factoring, a factoring company buys the business’ accounts

Cross-border factoring is useful for businesses that wish to receive immediate

 The increase can be attributed to multiple intertwined factors. The

 Furthermore, emerging markets seeking to penetrate the global market need

 Cross-border factoring is a type of cross-border financing that provides

 This third-party company—also known as the factoring company—collects

 Shifting political climates—including elections, social unrest, or coups

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