Table Of ContentExport Credit Insurance and Guarantees
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Export Credit Insurance and
Guarantees
A Practitioner’s Guide
Zlatko Salcic
© Zlatko Salcic 2014
All rights reserved. No reproduction, copy or transmission of this
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work in accordance with the Copyright, Designs and Patents Act 1988.
First published 2014 by
PALGRAVE MACMILLAN
Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills, Basingstoke,
Hampshire RG21 6XS.
Palgrave Macmillan in the US is a division of St Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.
ISBN 978-1-349-47429-5 ISBN 978-1-137-36681-8 (eBook)
DOI 10.1057/9781137366818
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managed and sustained forest sources. Logging, pulping and manufacturing
processes are expected to conform to the environmental regulations of the
country of origin.
A catalogue record for this book is available from the British Library.
A catalog record for this book is available from the Library of Congress.
Typeset by MPS Limited, Chennai, India.
Contents
List of Figures xii
List of Abbreviations xiv
Preface and Acknowledgements xv
Part I Subject Matter, Parties and Risks
1 Subject Matter and Basic Terms 3
1.1 About the book 4
1.2 Basic terms 5
2 ECAs and Users of the ECA Cover 9
2.1 The Status of ECAs 9
2.2 Purpose 10
2.3 Official support 11
2.4 Users of ECA cover 12
2.5 Meaning of the term ‘exporter’ 12
2.6 Meaning of the term ‘bank’ 13
2.7 The insured under the ECA policy 14
2.8 Beneficiary of the ECA policy 14
3 Political and Commercial Risks 16
3.1 Time of occurrence of political and commercial events 17
3.2 About definitions of political and commercial events 17
3.3 Definitions of political events 18
3.4 Definitions of commercial events 24
3.5 Exclusion of documentation risk 28
3.6 Distinction between documentation risk and legal risk 29
3.7 Risk assessment procedures 29
3.8 Assessment of political risks 30
3.9 Assessment of commercial risks 31
Part II Types of ECA Cover
4 Short-Term, Medium- to Long-Term and Partial Cover 35
4.1 Basic classification of risks 35
4.2 Characteristics of short-term credit transactions 36
4.3 Characteristics of the short-term cover 36
4.4 Short-term cover and international regulations 38
v
vi Contents
4.5 Characteristics of medium- to long-term credit transactions 40
4.6 Characteristics of the medium- to long-term cover 40
4.7 Medium- to long-term cover and international regulations 42
4.8 Characteristics of project finance transactions 43
4.9 Characteristics of cover for project finance risks 44
4.10 Cover for project finance risks and international regulations 44
4.11 Partial cover and different percentages of cover 45
4.12 Partial cover 45
4.13 Different percentages of ECA cover for political and
commercial risks 46
4.14 Consequences of classification of risks as political
or commercial 47
5 Supplier Credit Cover 49
5.1 Classification of transactions as supplier credit contracts 50
5.2 Limitations of supplier credit cover 50
5.3 Types of supplier credit cover 51
5.4 Cover for short-term supplier credit 51
5.5 Cover for medium- to long-term supplier credit 52
6 Supplier Credit Cover with the Involvement of Banks 53
6.1 T he exporter’s assignment of claim for payment and
rights under ECA policy 54
6.2 T he position of the bank after assuming rights under an
ECA policy 56
6.3 T he exporter’s transfer of bill of exchange and assignment
of rights under ECA policy 58
6.4 Insufficiency of the bank’s position under ECA policy 58
6.5 Cover for bills of exchange (drafts) 59
6.6 Cover for promissory notes 61
6.7 Cover for account receivables 63
7 Supplier Credit Cover in Complex Transactions 65
7.1 Cover where several parties are involved on the exporter’s side 66
7.2 C over where the contract is between the exporter and its
sub-supplier 66
7.3 C over issued to the exporter when acting through an
intermediary in a country of import 67
7.4 C over issued to the exporter when acting through an
intermediary in a third country 69
7.5 C over issued to the exporter when acting through its
subsidiary in a country of import 70
7.6 Difficulties covering credit risks in domestic transactions 71
Contents vii
7.7 S olutions for covering credit risks in domestic transactions
by foreign ECAs 72
7.8 Reinsuring of a domestic insurer by a foreign ECA 75
7.9 Global cover 75
7.10 C over for political risks in transactions between exporters
and their foreign subsidiaries 76
8 Buyer Credit Cover 77
8.1 Purpose of the loan and payment of the loan amount 78
8.2 S eparating the loan agreement from the commercial
contract 79
8.3 Limitations of buyer credit cover 79
8.4 E CA requirements for issuing cover for medium- to
long-term buyer credits 80
8.5 Other ECA requirements for issuing buyer credit cover 80
8.6 Buyer credit cover for bank-to-bank loans 81
8.7 Buyer credit cover issued to several banks in syndicate 82
8.8 Buyer credit cover and loan participation 83
8.9 Buyer credit cover and funded loan sub-participation 84
8.10 Buyer credit cover and unfunded loan sub-participation 85
8.11 B uyer credit cover issued to a multinational bank acting
through a local branch 86
9 Other Types of ECA Cover 88
9.1 Cover for manufacturing loss 88
9.2 Calculation of manufacturing loss 89
9.3 C over for manufacturing loss combined with supplier
credit or buyer credit cover 90
9.4 Pre-shipment cover issued to banks 91
9.5 Cover for contract bonds and guarantees 92
9.6 C over for justified and unfair calling of contract bonds
and guarantees 92
9.7 Cover for interconnected bonds and guarantees 93
9.8 Cover for counter indemnity issued to exporters 94
9.9 Cover for confirmed letters of credit 95
9.10 Applicability of OECD and EU regulations 96
10 Foreign Investment Cover 98
10.1 Political events that may cause loss of investment 99
10.2 Investments eligible for obtaining cover 101
10.3 Legal status of investment projects 102
10.4 Eligible investors 102
10.5 Highest amount of cover 103
viii Contents
10.6 Percentage of cover and partial cover 103
10.7 Duration of cover for foreign investments 104
10.8 Premium 104
10.9 Waiting period 104
10.10 Assignment of claim 104
10.11 Indemnification 105
10.12 Obligations of the insured investor 106
11 ECA Direct Loans 107
11.1 Purpose of direct loans 107
11.2 Misconceptions about direct loans 108
11.3 International regulations for direct loans 108
11.4 Minimum interest rates for direct loans 109
11.5 Application and offer for direct loans 110
11.6 Arranging direct loans by banks 110
11.7 Arranging direct loans by exporters 111
11.8 The ECA’s recourse against a bank or an exporter 112
11.9 Charging a premium for credit risk 112
11.10 Tied aid 113
Part III Procedures
12 Application, Offer, and Policy 117
12.1 Application for issuing cover 118
12.2 Offer for issuing the ECA policy 120
12.3 The ECA policy 121
13 Premium 123
13.1 Different premium rates for various types of cover 123
13.2 Basic elements for calculating the premium rate 124
13.3 Minimum premium rates 124
13.4 Buyer risk categories 125
13.5 Reducing minimum premium rate 126
13.6 Third party payment guarantee 126
13.7 Mitigation techniques 126
13.8 Enhancement of credit risk by providing security 127
13.9 Security and reducing the premium rate to the minimum 128
13.10 Increased premium rate 128
13.11 Payment of premium 129
13.12 Shifting the premium costs to foreign buyers 130
13.13 Indication of a premium rate 131
14 Foreign Content 132
14.1 Determining the foreign content 134
14.2 National interest 135
Contents ix
14.3 Determining the national interest 135
14.4 Reinsurance as a solution 137
15 Currency 138
15.1 Cover and currency risk 139
15.2 Contract denominated in the currency of the ECA country 139
15.3 Contract denominated in hard currency 140
15.4 Contract denominated in other convertible currency 141
15.5 Contract denominated in local currency 143
16 Confidentiality 145
16.1 Confidentiality in relations between exporters, banks
and foreign buyers 145
16.2 Confidentiality in relations between exporters, banks
and ECAs 146
16.3 Confidentiality in relations between ECAs and
foreign buyers 147
16.4 Transparency requirements 149
16.5 Confidentiality in relations between ECAs and reinsurers 150
17 Security for Payment of Credits Covered by ECAs 152
17.1 Differences between security and the ECA cover 153
17.2 Security and the ECA cover provided for the same risk 154
17.3 Effects of security in export credit transactions covered
by ECAs 154
17.4 Security in the initial stage of a contract 154
17.5 Security and renegotiation of credit 155
17.6 Enforcement of security 155
17.7 Uncertainty connected with security 156
17.8 Security in intercreditor agreements 157
17.9 Quasi-security 158
17.10 Negative pledge 159
18 Reinsurance 160
18.1 Reinsurance in ECA business 160
18.2 Reinsurance between ECAs 161
18.3 Other forms of cooperation between ECAs 162
18.4 Coinsurance between ECAs 162
18.5 Parallel insurance between ECAs 163
18.6 Percentage of foreign content covered by a single ECA 164
18.7 Reinsurance between ECAs and private reinsurance
companies 164
19 Claims and Indemnification 166
19.1 Notification of non-payment, claim and waiting period 166
19.2 Payment of interest during the waiting period 168
