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

ECIC VALUE PROPOSITION

Mining Equipment Manufacturers of South Africa

1 August 2018

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 .

OVERVIEW OF THE ECIC

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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 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

• n the ECIC Board.

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GOVERNMENT SUPPORT

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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.

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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 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.

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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 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.

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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.

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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% 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)

ECIC PRODUCTS: INVESTMENT COVER

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 (the insured amount); ▪ 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

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ECIC PRODUCTS: BUYERS CREDIT

BUYERS CREDIT Financial Credit ( Corporate ) ▪ 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

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ECIC PRODUCTS: SUPPLIERS CREDIT

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

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ECIC PRODUCTS: LINES OF CREDIT

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; ▪ The payment default is placed on the foreign bank since it is the borrower of record; ▪ 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

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ECIC PRODUCTS: BOND INSURANCE

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

• n a case-by-case basis depending on the merits of the project.

▪ Release 90% of Exporters’ security requirements ▪ Calling of the bond by the foreign Buyer because the SA exporter has failed to fulfill its contractual

• bligations 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

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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)

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0.34% 0.71% 1.15% 1.29% 1.29% 1.83% 3.28% 4.24% 5.89% 8.70% 9.41% 25.51% 36.36% Transport Sector Cement plant Gas distribution Water supply & sanitation Rail transport Infrastructure Agro-industries Accomodation and catering (hospitality) Electricity Construction of civil engineering structures Tele-communications Power plant Mining

Economic Sector analysis as at 31 December 2017

THE ECIC SECTORAL INSURANCE RISK CONCENTRATION

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THE ECIC CLAIMS PAYMENT HISTORY

ECIC AFFILIATIONS

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▪ OECD Arrangement on Export Credits (The ECIC is not bound by the OECD Arrangement as South Africa is a non-OECD Country but has Observer Status). ▪ Berne Union – Member ▪ The ECIC has executed Memoranda of Understanding with the following institutions:

Russia Multilateral Italy Japan Netherlands India Korea Canada Brasilia China Sinosure Multilateral Multilateral Multilateral

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The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) Export Credit Insurance & Guarantee Company (Botswana) Prop. Ltd (BECI) USAID Southern African Trade Hub

AFREXIMBANK ECIC PARTNERSHIP

In recognizing the role of African Export Import Bank (“Afreximbank”) as the lead continental trade institution with the mandate to finance and promote Intra- and Extra- African Trade. The Export Credit Insurance Corporation of South Africa SOC Limited (“ECIC”) investment into Afreximbank (November 2017) enabled South Africa to become the 47th African country to join the bank as a participating state. The ECIC is the countries designated investor in line with the terms of the provisions

• f the Charter of the Bank.

Whereas it is the principal objective of the ECIC is to facilitate export trade and cross- border investments between South Africa and the rest of the world. We believe the collaboration with Afreximbank:

• presents a unique opportunity to promote expansion as well as diversification of

Africa`s trade leveraging its extensive presence; and

• best serves our common objectives and renders the ECIC and Afreximbank

respective activities more effective.

BACKGROUND

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50 PARTICIPATING AFRICAN STATES AND 3 BRANCH OFFICES

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The Bank is headquartered in Cairo, Egypt and has three regional offices in Abuja, Nigeria; Harare, Zimbabwe and Abidjan, Côte d’Ivoire. A fourth regional office in East Africa is soon to open, with plans to follow this with a central African location. Guinea Conakry has been added to the list below as a member state. Angola Guinea Nigeria Benin Guinea Bissau Republic of Congo Botswana Ivory Coast Rwanda Burkina Faso Kenya Senegal Burundi Lesotho Sao Tome & Principe Cameroon Liberia Seychelles Cape Verde Madagascar Sierra Leone Chad Malawi South Sudan Djibouti Mali Sudan DRC Mauritania Tanzania Egypt Mauritius Togo Ethiopia Morocco Tunisia Gabon Mozambique Uganda Gambia Namibia Zambia Ghana Niger Zimbabwe South Africa Libya Eretria

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PROPOSED SATIPP INITIATIVES

The collaboration between the two entities resulted in the recent launch in June 2018

• f the programme in South Africa for initial amount of

USD 1 billion. SATIPP will identify and support large SA companies with various interventions including but not limited to: ▪ Supporting SA company operations and their subsidiaries through pre-approved credit lines to fulfil their financing needs. ▪ Investment in industrial parks and special economic zone where Afreximbank is financing or developing ▪ Finance the importation of equipment needed by SA export manufacturers to upgrade and retool their equipment for improved competitiveness; ▪ Support efforts at improving the skills of SA exporters in export marketing through capacity building initiatives ( to improve market access for SA exporters);

• Deploying

project finance to support the construction

• f

trade enabling infrastructure such as power plants, transport infrastructure including warehouses

• Stocking/Inventory Financing Facility for exporters that procure during seasons

and sell all through the year

All goods and services will be eligible for support except: ▪ Armaments, ammunition and other military equipment; ▪ Psychotropic drugs or narcotics; ▪ All items for which international trade is prohibited for environmental reasons or by international conventions; and ▪ Pornographic and obscene materials. 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); ▪ Any other information as may be required under SATIPP

ELIGIBLE ITEMS & APPLICATION PROCESS

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8 Transactions supporting the exchange of goods and services between South Africa and other African countries; ▪ Projects being sponsored by South African companies in other African countries; ▪ Projects being sponsored in South Africa with an export orientation; ▪ Transactions supporting capital and investment flows between South Africa and other African countries; ▪ Transactions supporting investments in manufacturing and processing of goods and services that will be traded between South Africa and other African countries. ▪ Exporter has Good Track Record ▪ Foreign buyers are diversified and are good names ▪ Exporter’s country is reasonably stable (Politically and economically) ▪ Underlying Contract is sufficiently Long, Binding and Enforceable ▪ The Borrower is able to assign and/or transfer its Assets.

GENERAL ELIGIBILITY REQUIREMENTS

All goods and services will be eligible for support except: ▪ Armaments, ammunition and other military equipment; ▪ Psychotropic drugs or narcotics; ▪ All items for which international trade is prohibited for environmental reasons or by international conventions; and ▪ Pornographic and obscene materials. 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); ▪ Any other information as may be required under SATIPP

ELIGIBLE ITEMS & APPLICATION PROCESS

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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

• ther 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 and commercial risk events.

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DISCLAIMER

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

• btain 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.