export credit insurance: risk mitigation solutions for … · 2019-10-21 · the mandate of the...
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EXPORT CREDIT INSURANCE: RISK MITIGATION
SOLUTIONS FOR SOUTH AFRICAN EXPORTERS AND
CONTRACTORS
15 October 2019
ECIC OVERVIEW
The mandate of the Export Credit Insurance Corporation of South Africa SOC
Ltd (“the ECIC”), is to facilitate export trade and cross-border investments
between South Africa (“SA”) and the rest of the world.
The ECIC was established in 2001 under the Export Credit and Foreign
Investment Insurance Act, 1957:
▪ Is a 100% State owned insurance company;
▪ Reports to the Minister of Trade, Industry and Competition, and has
authority to conclude insurance contracts on behalf of the government of the
Republic of South Africa;
▪ Is regulated by the Prudential Authority, operating as part of the South
African Reserve Bank (“SARB”) and the Financial Sector Conduct Authority;
▪ Provides political and commercial risk insurance to facilitate export trade
and cross border investments; and
▪ an provide cover for South African Rand (“ZAR”) and United States dollar
(“USD”) denominated transactions.
OVERVIEW OF THE ECIC
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THE ECIC VALUE PROPOSITION
The ECIC through its political and commercial risk insurance:
▪ Facilitates availability of funding for export trade: The ECIC
comprehensive insurance support is able to crowd in the lenders to provide
long term funding to buyers of South African goods and services.
▪ Provides capital relief to reduce cost of funding: Banks benefit from
100% political risk cover and up to 95% commercial risk cover which
reduces the capital charge held for these exposures under Basel III and
reduces the cost of funding.
▪ Facilitates access to markets: ECIC is open for cover in many countries
on the African continent and other emerging markets and some of these
markets remain untapped for our exporters and investors and are seen as
high risk jurisdictions.
▪ Facilitates deal origination: Through our business development initiatives
we seek to partner with clients (SA companies, investors, contractors,
financiers, advisors etc.) to bid for new contracts through joint bids and
expression of interest – by utilising the “SA Inc” approach.
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THE ECIC VALUE PROPOSITION
▪ Support for small transactions: ECIC provides 100% political and
commercial risk cover for transactions that have a value of USD20m or
smaller to facilitate access to finance for benefit of the exporters and their
buyers.
▪ Enables diversified sources of funding: ECIC may support South African
and non-South African lenders – including banks, development finance
institutions, institutional investors etc. in support of eligible transactions.
▪ Flexible underwriting terms: ECIC may support tenors longer than 15
years and flexible/sculpted repayment terms to suit the cash flow profile of
the underlying transaction and is willing and able to restructure and extend
cover for projects in distress.
▪ Track record and claims payment history: ECIC has a good track record
of success for supported transactions and a reliable payment history for
those transactions that fail.
SUSTAINABLE DEVELOPMENT POLICIES
The ECIC adheres to Sustainable Development Policies
Anti-Bribery
▪ The ECIC does not support export contract and investments secured
through bribery or from debarred entities; and
▪ Requires disclosure of any agents (and fees) involved.
Environment & Social Impact
Projects need to comply with the Equator Principles
Sustainable Lending
▪ The ECIC does not support sovereign lending that will severely burden the
recipient country’s economy.
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BENEFITS OF ECIC BACKED FINANCING
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ECIC insurance can be harnessed right across the capital spectrum, from equity to long-
term senior debt, for sovereign, corporate and project finance special purpose borrowers. It
can also be used for short-term working capital finance linked to export transactions.
The ECIC supports transactions across a broad range of sectors including but not limited to:-
▪ Mining
▪ Oil and Gas
▪ Power
▪ Infrastructure - Ports / Railways / Pipelines / Water, etc.
▪ Hospitality
▪ Boat-building
▪ Industrial Plants and equipment
▪ Telecommunications
▪ Agri- and agri-processing, etc.
Benefits to the Lender
▪ Substitution of borrower and or country risk with that of South African government
(credit rating) counterparty risk and capital relief for Basle III compliant entities
▪ Risk mitigation – reduction of the net exposure, in the event of loss
▪ These benefits/risk transfer should result in a lower margin that is charged to the
borrower
ECA BACKED FINANCING BENEFITS
ECIC BACKED FINANCING CONSIDERATIONS
THE ECIC: UNDERWRITING PRINCIPLES
▪ A minimum of 15% of the export contract value must be paid to the
exporter by the buyer and only the 85% of the export contract value is
eligible for ECIC backed finance and insurance support.
Supported Tenors:
▪ Minimum credit repayment period of 2 years
- Minimum tenor not applicable to working capital and bond products
▪ Typically, 15 year tenor of cover for investments and may be longer for project
finance transactions
- Longer tenors can be considered depending on the nature of the project
▪ ECIC can support sovereign backed financing – or sub-sovereign
borrowers (with or without) Ministry of Finance guarantee.
▪ For corporate transactions, we typically need to assess, at a minimum, the
last 3 years of audited accounts.
▪ Important criteria is the creditworthiness of the Buyer (Sovereign,
Corporate) or the robustness of the cash flows for Project Finance
transaction.
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THE ECIC: UNDERWRITING PRINCIPLES (CONT.)
▪ The ECIC does not:
- have direct lending capabilities;
- cover Hedging; and
- take Documentation Risk.
▪ For investment insurance, there must be a cross-border investment and
the equity investment must be made through a South African registered
entity.
▪ Cover for performance guarantees, bid bonds etc., must be linked to an
existing or potential export contract by a South African Company.
▪ The ECIC charges a premium for the services it provides and for some
products, assessment fees will apply.
- Assessment Fee:
• Up to US$15,000 for Project Finance transactions (depending on
value of the deal)
• Investments: ZAR10,000
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THE ECIC: UNDERWRITING PRINCIPLES (CONT.)
The ECIC charges a premium for the insurance it provides.
The premium is:
▪ based on country risk rating, commercial risk of the transaction, credit rating of the
counterparty, tenor and scope of cover, etc.;
▪ either payable up front, on an annualised basis, or per draw; and
▪ separate from the interest rate which is paid on the loan.
▪ Through out the life of the facility the lender should:
- monitor the performance of the project /transaction by requesting monthly or
quarterly reports from the borrower (according to the Policy agreement); and
- and report any material adverse changes as soon as they become aware.
▪ In the event of a claim the lender may be required to assist the ECIC with the
recovery process and be indemnified for the costs and share the proceeds pro-
rata.
ECIC COVER AND ELIGIBILITY CONSIDERATIONS
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TYPES OF INSURANCE COVER
Our value add is risk sharing and risk mitigation. The insurance cover is provided for losses arising from:
POLITICAL RISK EVENTS (90% for Investments) (100% for export credit)
▪ War and civil disturbance;
▪ Expropriation, confiscation, nationalisation;
▪ Transfer restriction (includes currency inconvertibility);
▪ Change in law (discriminatory change);
▪ Non-honouring of sovereign financial obligations;
▪ Breach of contract (linked to arbitral award);
▪ Terrorism, piracy (optional, provided on a case-by-case basis).
COMMERCIAL RISK EVENTS (95% private borrowers) (100% public borrowers)
▪ Insolvency of the foreign borrower;
▪ Protracted/Payment default by the foreign borrower.
70% South African content required for export credit transactions.
For projects in Africa: 50% South Africa local content and 20% from the
Host country or any other African country.
For projects outside of Africa, 70% South African content
SA Content definition:
▪ Materials less imported components
▪ Wages & salaries (paid in South Africa)
▪ Freight costs (paid in South Africa)
▪ Insurance premiums (paid in South Africa) including the ECIC premium
▪ Finance charges (excluding post delivery finance charges)
▪ Fees and charges paid for any other services performed in South Africa
on the exporters behalf by a South African resident organization
▪ Fees and profits accruing to the exporter
CONTENT REQUIREMENTS
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SUPPORT AGREEMENT BETWEEN BANK & ECA
Premium & Recourse
Agreement
Bank
Buyer
ECA
Policy / Support
Agreement
Supplier
Recourse
Premium
Commercial Contract
MandateAgreement
Delivery of Goods
Payment Obligation
Guarantee in Case of Default
Notes:
1. ECIC provides a Policy to Bank to
cover the Political and Commercial
Risk (i.e. Credit Risk) on Buyer for
Principal, Interest, Delayed Interest
and the banks Margin - (the ECIC
backed loan is normally for 85% of
the exported element)
2. In the event of non-repayment (for
whatever Political or commercial
reason covered), the bank supplier
claim under the Policy Support
agreement
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o The following information will be required at Application Stage:
➢ Brief information about the transaction or project;
➢ Company Profile and Ownership Structure;
➢ Board and Management Profiles of the Exporter and Buyer;
➢ 3 years most recent financial statements and cash flow projections, as may be
applicable;
➢ Business Plan;
➢ Project Information Memorandum (where applicable).
APPLICATION PROCESS: MINIMUM REQUIREMENTS
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ECIC PRODUCTS
ECIC PRODUCTS CONT.
SUPPLIERS
CREDIT
(Post Delivery)
▪ Exporter offers credit to foreign buyer
▪ Cover at 100% (PRI) and 85% commercial risk insurance (“CRI”) of amount outstanding in terms of the credit
agreement (Amount outstanding ≤ 85% of contract price).
▪ Caters for transactions ranging from $1m- $20m.
▪ Maximum tenor 5 years
▪ ECIC policy can be ceded to a bank/IDC
STRUCTURE
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ECIC PRODUCTS CONT.
BUYERS
CREDIT
Financial Credit
▪ Financial institution becomes involved as a lender
▪ Proceeds of loan paid to exporter or borrower
▪ Foreign buyer ( corporate or sovereign) undertakes to repay loan
▪ Cover up to 100% (PRI) and up to 95/100% CRI of the loan depending on the type of borrower
Project Finance structure
▪ Export credit loan repaid from cash flows generated by the project that has been financed.
▪ Cover up to 100% (PRI) and 95% (CRI) of the loan. (Loan shall not exceed 85% of contract price).
STRUCTURE
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LENDER(S)LENDER (S)
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BUYERS CREDIT PROJECT FINANCE CRITERIA
Project Finance
▪ Export credit loan repaid from cash flows generated by project
Important Criteria
▪ An independent feasibility study review;
▪ Shareholders equity contribution of at least 30% (preferably in cash) and the debt-equity ratio must be maintained throughout the life of the project;
▪ An acceptable payment mechanism, which includes an escrow account, off-take agreement, etc.;
▪ A completion guarantee provided by project owners;
▪ A technical and financial management agreement must be put in place for at least the credit period;
▪ Maintenance contracts to be entered into with South African suppliers;
▪ Raw material and other inputs contracts must be assured;
▪ Sufficient all risk insurance from reputable insurance companies must be in place - Assets must be mortgaged and pledged to the lenders;
▪ Compliance in terms of legal aspects, including contracts, licenses, undertakings, permits, concessions and authorisations must be fully in place;
▪ Host country’s environmental standards must be in place;
▪ The project must be community friendly and have positive socio-economic impact; and,
▪ Financier(s) must have the necessary know-how and experience in financing export credit projects as well as project finance.
ECIC PRODUCTS CONT.
BOND INSURANCE
[Initial
Requirements]
▪ There is no restriction on the credit term; the term of the bond should be linked to the underlying supply contract.
▪ If the application is accompanied by an export credit insurance application, normal ECIC SA content rules will
apply to the export credit insurance application
▪ If the contractor and their bank decide not to take out an export credit insurance policy, then no 50% SA content
required on the bond
▪ Release 90% of Exporters security requirements
STRUCTURE
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BANK
WORKING
CAPITAL
INSURANCE
COVER
This is insurance cover is offered by the ECIC to the financial institution that has provided working capital to the
manufacturer to assist with the manufacture of the machinery or equipment linked to an export contract:.
▪ This product has now been expanded to all sectors for eligible products not just boat builders
▪ If the application is accompanied by an export credit insurance application, normal ECIC SA content rules will
apply to the export credit insurance application
STRUCTURE
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ECIC PRODUCTS CONT.
SA Exporters
LENDER
BUYER
PURCHASE AGREEMENTMinimum 15% down payment of SA Contract Price
SA content requirements applicable
Policy of Insurance
Up to 100% cover for the guaranteed
amount
Cover for non-performance or
insolvency of the manufacturer / Boat
Builder
Foreign
Country
South Africa
SMALL MEDIUM
TRANSACTIONS
PROGRAM
[Funding
parameters &
Advantages]
▪ This is a corporate loan facility (financial statement analysis) for export contracts with a value of US$20m or less.
▪ The repayment tenor is 5yrs or less
▪ ECIC provides 100% Political Risk Insurance cover and 100% Commercial Risk Insurance Cover.
▪ Guaranteed rates of exchange available
▪ Quicker approval process than typical for the ECIC e.g. for project finance
▪ Simpler documentation
▪ Less security required
BORROWER
EVALUATION
CRITERIA
Exposure Level:
Less than USD 1
Million
▪ Recent
favourable trade
references
▪ Favourable credit
report
▪ Buyer in same
line of business
for at least two
years
▪ No material
adverse issues
▪ Management
Accounts with
positive
operating and
net profit in the
past fiscal year
Exposure Level: > USD 1
Million - USD 5 Million
▪ Favorable bank report not
older than twelve month
▪ Buyer’s audited financial
statements with notes to
the financial statements
for the last two fiscal
years
▪ Buyer’s unaudited
financials with notes to
the financial statements
signed by the directors of
the buyer
Exposure Level: > USD 5
Million - USD 10 Million
▪ Buyer’s audited financial
statements for the last three
fiscal years complete with
notes to the financial
statements and an audit
opinion
▪ Positive operating and net
profit in the most recent
fiscal year
▪ Current ratio in the last
fiscal year is equal to or
greater than 1.25
▪ Free cash flow/debt service
ratio of at least 1.3 in the
most recent fiscal year
▪ ECIC exposure not exceed
40% of tangible net worth of
buyer
▪ Buyer/borrower in same
line of business for at least
three years
Exposure Level: USD 10
Million - USD 20 Million
Criteria
▪ Positive net cash from
operations in the last two
fiscal years;
▪ Total liabilities/tangible net
worth ratio in the last two
fiscal years is equal to or less
than 2.5;
▪ Free cash flow/debt service
ratio of at least 1.5 in the last
two fiscal years;
▪ ECIC exposure does not
exceed 50% of tangible net
worth at the end of the
preceding fiscal year; and
▪ Buyer/borrower in same line
of business for at least three
years.
ECIC PRODUCTS CONT.
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The ECIC incorporates waiting periods in the export credit insurance policy during
which the exporter/ lender must attempt to collect past due receivables before making
claim on the ECIC.
Equity Investments & Shareholder Loans:
▪ the waiting period may go up to 365 days for certain Political Causes of
Loss/Insured risk events.
For Corporate and Project finance loans:
▪ the waiting period is 180 days for all Political Causes of Loss; except
▪ Breach of Contract which is 365 days.
▪ the waiting period is 180 days for all Commercial Causes of Loss.
For Small Medium Transactions (SMTs)
▪ the waiting period is 90 days for Political Causes and Commercial causes of Loss;
WAITING PERIODS
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CONCLUSION
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CONCLUSION
▪ As an African ECA with a strong footprint across the continent, the ECIC is an
invaluable strategic partner for doing business in Africa.
▪ South Africa has strong political and economic ties on the African continent
and other emerging market countries and these have been reinforced through
bilateral relations.
▪ The ECIC has been instrumental in supporting a wide variety of transactions
across many sectors of the economy with a successful track record spanning
over an 18 year period.
▪ The ECIC utilises waiting periods to conduct advocacy work during the pre-claim
phase in transactions to avert potential claims – the recent examples being Sudan,
Zimbabwe and Angola.
▪ When all else has failed, ECIC can be counted upon to pay the claim for losses
caused by the covered political risk events.
THANK YOU
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Paul MojalefaExport Credit Insurance Corporation
Business Development Unit
Block C7 & C8 Eco Origins Office
Park, Highveld, Centurion
South Africa
Telephone: +27 12 471 3885
Mobile: +27 83 408 3943
Email: pmojalefa@ecic.co.za
This presentation has been prepared and provided on a strictly private and confidential basis for information purposes only.
Without the express prior written consent of the ECIC, the Presentation and any information contained within it may not be
reproduced, copied or used for any purpose other than your evaluation of the ECIC, or provided to any other person, except your
employees and advisors on a confidentiality basis.
This Presentation does not constitute and should not be construed as, an offer, invitation or inducement to obtain any products of
the ECIC nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever.
The information does not constitute either advice or a recommendation regarding any of the ECIC products. The Information
provided from or through this presentation is general in nature and is not specific to you the consumer or anyone else.
The information contained in this presentation is not intended to be a comprehensive description of the ECIC’s product offering
and many details which are relevant to particular circumstances may have been omitted. When considering applications from
South African registered institutions and other potential users of the products, the ECIC will look at each case on its merits.
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DISCLAIMER
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