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