ECIC VALUE PROPOSITION Mining Equipment Manufacturers of South - PowerPoint PPT Presentation

ECIC VALUE PROPOSITION Mining Equipment Manufacturers of South Africa 1 August 2018

OVERVIEW OF THE ECIC 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 and Industry 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) and the Financial Sector Conduct Authority; ▪ Provides political and commercial risk insurance to facilitate export trade and cross border investments; and ▪ Can provide cover in South African Rand and United States Dollars . 2

GOVERNMENT SUPPORT The corporation; o Holds a Reserve Fund as part of its balance sheet, which is utilised to settle claims as and when they fall due; and o Has a special dispensation from the SARB to offer insurance in US Dollars and receive and keep the premium in US Dollars to hedge its US Dollar exposure. ▪ The National Treasury records a contingent liability in the State Accounts for the insurance exposure incurred by ECIC (from time to time) in excess of its capital. ▪ The South African government has undertaken to replenish the Reserve Fund, should it be projected that ECIC may not have sufficient own funds to meet claims as they fall due. ▪ The ECIC can reinsure its exposure directly or through its broker Arthur J. Gallagher & Co. ▪ The National Treasury and the Department of Trade and Industry are represented on the ECIC Board. 3

ELIGIBILITY CRITERIA FOR ECIC SUPPORT ▪ 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. ▪ The loan eligible for ECIC support must be backed by 50% minimum South African content for projects in Africa- and 20% content may come from other African countries or the Host Country . ▪ For projects outside of Africa, the minimum SA Content is 70%. ▪ 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. 4

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 capital 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 expressions of interest – by utilizing the “ SA Inc ” approach. 5

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 the 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. 6

THE ECIC VALUE PROPOSITION • ECIC facilitates adherence to good governance for the private sector and the public sector: • Anti-Bribery ▪ The ECIC does not support export contracts and investments secured through bribery or from debarred entities. • Environment & Social Impact • ECIC applies Equator Principles in supported projects. . • Responsible Lending Principles ▪ The ECIC will not support sovereign lending that will severely burden the recipient country’s economy. 7

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% TO 100%) ▪ Expropriation, Nationalisation, Confiscation ▪ Transfer restrictions ▪ War & Civil Disturbance ▪ Breach of Contract ▪ Protracted/Payment Default (by Sovereign or sub-sovereign entities) ▪ Terrorism, Sabotage and Piracy COMMERCIAL RISK EVENTS (95% TO 100%) ▪ Insolvency ▪ Protracted Default / Payment Default (by private sector entities) 8

ECIC PRODUCTS: INVESTMENT COVER Cover provided against political risk insurance (“ PRI ”) causes of loss which prevents the foreign business to: ▪ Operate as envisaged for at least one year; and/or ▪ Produce profits for three consecutive years. ▪ Cover for up to 15 years INVESTMENT Maximum ECIC liability (the insured amount); COVER ▪ 90% of Investment plus ▪ Retained profits/dividends up to the insured amount over the life of the investment (capped at 200% of initial investment) ▪ Same applies to shareholders/non-shareholders loans and interest Structure 9

ECIC PRODUCTS: BUYERS CREDIT Financial Credit ( Corporate ) ▪ Financial institution becomes involved ▪ Proceeds of loan paid to exporter ▪ Foreign Buyer (corporate or sovereign) undertakes to repay loan ▪ BUYERS Cover up to 100% (PRI) and up to 95% CRI of loan (Loan shall not exceed 85% of contract price) CREDIT Project Finance structure ▪ Export credit loan repaid from cash flows generated by the project that has been financed. ▪ Cover up to 100% (PRI) and 85% (CRI) of loan. (Loan shall not exceed 85% of contract price). Structure 10

ECIC PRODUCTS: SUPPLIERS CREDIT ▪ Exporter offers credit to foreign buyer ▪ SUPPLIERS Cover up to 100% political risk provided the maximum amount of loss is not more than 90% of the South CREDIT African contract value ▪ (Pre Delivery) Commercial risks: up to 95% of maximum amount of loss ▪ ECIC policy can be ceded to a bank Structure 11

ECIC PRODUCTS: LINES OF CREDIT ▪ Financial facility between a SA bank, or any other bank, and a foreign financial institution (central bank, commercial bank, merchant bank, building society, savings bank), which in turn, will on-lend to its respective clients; ▪ LINES OF The payment default is placed on the foreign bank since it is the borrower of record; ▪ CREDIT The maximum credit amount is USD20 million; ▪ The recommended upper limit of the credit period is 5 years; ▪ Insurance cover: 100% cover for both PRI and CRI; and, ▪ Board approval Structure 12

ECIC PRODUCTS: BOND INSURANCE ▪ There is no restriction on the credit term; the term of the bond should be linked to the underlying supply contract. ▪ ECIC’s African content rules will apply to the export credit insurance application ▪ Maximum bond value is typically 10% of the contract value. An increase beyond 10% can be approved on a case-by-case basis depending on the merits of the project. ▪ Release 90% of Exporters’ security requirements ▪ BOND INSURANCE Calling of the bond by the foreign Buyer because the SA exporter has failed to fulfill its contractual obligations due to poor / non-performance as per contract specifications ▪ Calling of the bond by the foreign Buyer due to failure by the SA exporter to fulfill contractual obligations as a result of financial constraints (e.g. insolvency of the contractor) Risk Participation Agreement : This option involves insuring the bank for a portfolio of bonds issued on behalf of various contractors/exporters. Structure 13

ECIC FINANCING CONSIDERATIONS The ECIC charges premium for the insurance cover 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. ▪ can be paid up front or on an annualized basis ▪ is separate from the interest rate which is paid on the loan Credit period supported typically may range between 2-15 years (longer tenors may be supported on a case by case basis) 14