ECIC VALUE PROPOSITION - EC Export Symposium · 2019. 3. 30. · POLITICAL RISK EVENTS (90% TO 100%) Expropriation, Nationalisation, Confiscation Transfer restrictions War & Civil

ECIC VALUE PROPOSITION

ECDC EXPORT SYMPOSIUM

27 March 2019

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 (“SARB”) and the Financial Conduct Sector 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

2

The corporation;

▪ Holds a Reserve Fund as part of its balance sheet, which is utilised to settle

claims as and when they fall due; and

▪ 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 USD

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

GOVERNMENT SUPPORT

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 involved.

Environment & Social Impact

Projects need to:

▪ meet International Finance Corporation ( “IFC”) (World Bank) standards on

environmental assessment;and

▪ be compliant with Environment & human rights laws.

Sustainable Lending

▪ The ECIC will not support sovereign lending that will severely burden the

recipient country’s economy.

4

5

ECA backed financing can be harnessed right across the capital spectrum,

from equity to long-term senior secured , sovereign and project finance debt.

It can also be used for short-term working capital financings.

The ECIC support across sectors includes but not limited to:-

▪ Agri-processing

▪ Aviation

▪ Defence (excludes offensive weaponry , the rest on a case by case

basis)

▪ Energy

▪ Ports / Railways / Pipelines

▪ Power / Water Desalination

▪ Real estate

▪ Healthcare

▪ Shipping

▪ Steel Mills / Rolling Plants

▪ Telecommunications

ECA BACKED FINANCING BENEFITS

6

ECIC SUPPORT CONSIDERATIONS

▪ A minimum of 15% of the export contract value must be paid to the

exporter by the buyer

▪ Only 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

▪ Up to [15 ] years repayment period for project finance transactions

- Longer tenors can be considered depending on the nature of the

project

▪ Up to 15 years for investments

▪ 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 may apply.

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 Default

▪ Terrorism, Sabotage and Piracy

COMMERCIAL RISK EVENTS (95% TO 100%)

▪ Insolvency

▪ Protracted Default / Payment Default

70% South African content required on all export credit contracts.

Relaxation towards rate applies to projects in Africa: 50% South Africa

local content and 20% from any African country

Content definition:

▪ Materials less imported component.

▪ Wages & salaries (paid in South Africa).

▪ Freight costs (paid in South Africa).

▪ Insurance premiums (policy issued & paid in South Africa).

▪ Finance charges (excluding post delivery).

▪ 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

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.

Maximum ECIC liability:

▪ 90% of Investment (the insured amount) Plus:

▪ Retained profits/dividends up to the insured amount over the life of the investment.

▪ Same applies to shareholders/non-shareholders loans and interest

Structure

9

ECIC PRODUCTS CONT.

BUYERS

CREDIT

Financial Credit

▪ Financial institution becomes involved

▪ Proceeds of loan paid to exporter

▪ Foreign buyer ( corporate or sovereign) undertakes to repay loan

▪ Cover up to 100% (PRI) and up to 95% CRI of loan ( Loan shall not exceed 85% of contract price)

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

LENDER(S)

ECIC PRODUCTS CONT.

CONTRACTORS

COVER

▪ To insure the Contractor against political intervention prior to shipment

▪ Pre-shipment political risk insurance

▪ Maximum ECIC liability = 85% of actual costs incurred

Structure

11

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

favorable trade

references

▪ Favorable 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.

12

ECIC PRODUCTS CONT.

LEASE &

PHYSICAL LOSS/

RETURN OF

EQUIPMENT

▪ Cover relates to the integrity of items (owned/leased), which an export contractor uses for the performance of

their transactions abroad.

▪ Items should be owned outright by the export contractor or are subject to a financial lease.

▪ Cover is also available in the event that export contractor is unable to get the equipment out of the foreign

country once the project or work is completed.

▪ The requirement is that items to be insured should have adequate and effective property/engineering

insurance coverage against casualty and business risks.

The exporter obtains the following cover:

▪ Risks are assumed for at most 100% of the value of the equipment covered/ outstanding lease instalments as

given in the repayment schedule.

Eligibility of Cover

▪ The physical loss/ lease/ return of equipment insurance cover is recommended for:

▪ Owned/ leased capital goods/ equipment that are/ is mobile and excludes equipment stored or operated

underground in connection with mining operations.

▪ The cover can be made available either in isolation or in combination with ECIC’s export credit cover, namely

“Supplier’s Credit” or “Buyer’s Credit”;

Risks Covered

▪ This type of cover provides protection against losses or damage to equipment or loss of rental income from

equipment, where the cause of loss is due to political events

▪ This risk is significant when the instalments for debt servicing are to be paid directly by the buyer or the

participating financial institutions.

Percentage Cover

▪ Damage/ loss as a result of war revolution, riots and civil disturbances;

▪ Confiscation, expropriation and nationalisation of all or any material part of the business or assets of the

insured debtor

▪ Forced abandonment;

▪ Deprivation, i.e. loss of use or possession of items in the host country

▪ Cover could also be provided for other political events such as selective discrimination and arbitral award

default;

▪ Inability (by the lessee or lessor) to ship the equipment out of the host country due to restrictions or

prohibitions or any measure or decision of a government of a foreign country (the promulgation of a law, or of

an order; a decree or a regulation) that prevents, restricts or controls the export of the goods and/or any part

thereof out of the host country;

13

14

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 utilizing the “SA Inc” approach.

15

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.

APPROVAL PROCESS

Process Flowchart

Application Form KYC and Anti- Bribery

Verification

Projects EXCO

CIC

Board

Project Evaluation

16

Indicative

Premium Request

and initial screening

&

Supporting

Documentation

• Amounts equal to or below

<=US$20 m

Approval

Amounts above US$20m

<=$50m Approval

Amounts above US$50m

Approval

Transaction approval timelines vary and can

take between 2 - 4 months depending on

▪ The nature of the transaction e.g. Project finance

or PPP;

▪ Quality of information provided at application;

▪ Level of due diligence required.

16

17

A PROVEN TRACK RECORD RIGHT ACROSS THE PRODUCT SPECTRUM

Zimbabwe

Makomo Resources

USD 10m

SMT ECIC backed

financing

Coal fired Plant

2013

Liqhobong

Diamond Project

USD 75m

ECIC-Backed

Project Finance

2015

Lesotho

Bulyanhulu Gold Mine

USD142m

Construction of

Carbon-in-leach plant

2013

Tanzania

Habesha Cement

USD 14.5m

Equity Investment

Investment Cover

2016

Ethiopia

Kippoi Copper Mine

USD 3.1m

Discounting

Receivables Facility

2016

DRC

Cenpower Generation

Company

USD 447m

340MW Combined

Cycle Gas Turbine

Power Plant

2014

Ghana

GPR Leasing Africa

USD 11.7m

Leasing of

locomotives for

use in Zambia &

Zimbabwe

2015

Mauritius

CenPower

USD 51m

Shareholder loan

& Equity

Investment Cover

2016

Ghana

Kuvaninga Electricity

USD 5m

Investment Cover

&

2016

Mozambique

Cenpower Generation

Company

USD 447m

340MW Combined

Cycle Gas Turbine

Power Plant

2014

Ghana

Mining Company

Katanga

USD7m

Supply of articulated

dump trucks

2014

DRC

Zomay Marine &

Logistics LImited

USD 75m

ECIC-Backed

Project Finance

2015

Nigeria

Mozambique

Kuvaninga Electricity

USD 40m Gas fired

Power project

2014

C&I Leasing LPC

USD 4.4m

Crew transport vessels

2013

Nigeria

Societe Nationale

Des Chemis De Fer

DuCongo

USD7.9m

Refurbishment , supply

& maintenance of

locomotives

2013

DRC

Bea Mountain

Mining Corporation

USD88m

Development of a

Gold open pit mine

2014

Liberia

African Hospitality Ltd

USD 12m

EPC contract for a

Local Hotel

2013

Ghana

IDC

USD 30m

Credit Line from

IDC to Agricultural

Bank of Zimbabwe

2012

Zimbabwe

Bilboes Pty Ltd

USD7m

Refurbishment of mine

And processing plant

2012

Zimbabwe

Zomay Marine &

Logistics LImited

USD 75m

Refurbishment of mine

And processing plant

2012

Nigeria

Best Natural Resources Deal in Africa

Liqhobong Diamond Mine transaction in Lesotho

Best ECA in Sub-Saharan Africa

18

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 a 15 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.

BUSINESS DEVELOPMENT TEAM CONTACT DETAILS

Portia Dube Export Credit Insurance

Corporation

Head Business Development

Block C7 & C8 Eco

Origins Office Park,

Highveld, Centurion

South Africa

Tel: +27 12 471 3838

Mob: +27 82 336 5057

Email: [email protected]

Zuko MdandalazaExport Credit Insurance

Corporation

Business Development Unit

Block C7 & C8 Eco

Origins Office Park,

Highveld, Centurion

South Africa

Tel: +27 27 471 3862

Mob: +27 79 729 7437

Email: [email protected]

19

THANK YOU

Dr. Mbiya Baudouin Export Credit Insurance

Corporation

Business Development Unit

Block C7 & C8 Eco

Origins Office Park,

Highveld, Centurion

South Africa

Tel: +27 12 471 3875

Mob : +27 72 640 6271

Email: [email protected]

Paul MojalefaExport Credit Insurance

Corporation

Business Development Unit

Block C7 & C8 Eco

Origins Office Park,

Highveld, Centurion

South Africa

Tel: +27 12 471 3885

Mob: +27 83 408 3943

Email:

[email protected]

a

Tommy Motau Export Credit Insurance

Corporation

Business Development Unit

Block C7 & C8 Eco

Origins Office Park,

Highveld, Centurion

South Africa

Tel: +27 12 471 3899

Mob: +27 72 641 0722

Email: [email protected]

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.

DISCLAIMER

20