Export Credit Insurance and Guarantees (eBook)

Zlatko Salcic is a solicitor of England and Wales with 14 years experience in export credit insurance and guarantees. He began his career as a litigation and transaction lawyer before moving into the export credit insurance business as senior legal counsel. Dr Salcic has been involved in all aspects of the export credit insurance business ranging from structuring and negotiating the export credit transactions in the power, pulp and paper, transportation, telecommunication, mining and chemical industries. He has prepared export credit insurance documentation and advised parties on various transactions in the areas of trade finance, structured finance and project finance.

Cover 1
Contents 6
List of Figures 13
List of Abbreviations 15
Preface and Acknowledgements 16
Part I: Subject Matter, Parties and Risks 17
1 Subject Matter and Basic Terms 18
1.1 About the book 19
1.2 Basic terms 20
2 ECAs and Users of the ECA Cover 24
2.1 The Status of ECAs 24
2.2 Purpose 25
2.3 Official support 26
2.4 Users of ECA cover 27
2.5 Meaning of the term 'exporter' 27
2.6 Meaning of the term 'bank' 28
2.7 The insured under the ECA policy 29
2.8 Beneficiary of the ECA policy 29
3 Political and Commercial Risks 31
3.1 Time of occurrence of political and commercial events 32
3.2 About definitions of political and commercial events 32
3.3 Definitions of political events 33
3.4 Definitions of commercial events 39
3.5 Exclusion of documentation risk 43
3.6 Distinction between documentation risk and legal risk 44
3.7 Risk assessment procedures 44
3.8 Assessment of political risks 45
3.9 Assessment of commercial risks 46
Part II: Types of ECA Cover 48
4 Short-Term, Medium- to Long-Term and Partial Cover 49
4.1 Basic classification of risks 49
4.2 Characteristics of short-term credit transactions 50
4.3 Characteristics of the short-term cover 50
4.4 Short-term cover and international regulations 52
4.5 Characteristics of medium- to long-term credit transactions 54
4.6 Characteristics of the medium- to long-term cover 54
4.7 Medium- to long-term cover and international regulations 56
4.8 Characteristics of project finance transactions 57
4.9 Characteristics of cover for project finance risks 58
4.10 Cover for project finance risks and international regulations 58
4.11 Partial cover and different percentages of cover 59
4.12 Partial cover 59
4.13 Different percentages of ECA cover for political and commercial risks 60
4.14 Consequences of classification of risks as political or commercial 61
5 Supplier Credit Cover 63
5.1 Classification of transactions as supplier credit contracts 64
5.2 Limitations of supplier credit cover 64
5.3 Types of supplier credit cover 65
5.4 Cover for short-term supplier credit 65
5.5 Cover for medium- to long-term supplier credit 66
6 Supplier Credit Cover with the Involvement of Banks 67
6.1 The exporter's assignment of claim for payment and rights under ECA policy 68
6.2 The position of the bank after assuming rights under an ECA policy 70
6.3 The exporter's transfer of bill of exchange and assignment of rights under ECA policy 72
6.4 Insufficiency of the bank's position under ECA policy 72
6.5 Cover for bills of exchange (drafts) 73
6.6 Cover for promissory notes 75
6.7 Cover for account receivables 77
7 Supplier Credit Cover in Complex Transactions 79
7.1 Cover where several parties are involved on the exporter's side 80
7.2 Cover where the contract is between the exporter and its sub-supplier 80
7.3 Cover issued to the exporter when acting through an intermediary in a country of import 81
7.4 Cover issued to the exporter when acting through an intermediary in a third country 83
7.5 Cover issued to the exporter when acting through its subsidiary in a country of import 84
7.6 Difficulties covering credit risks in domestic transactions 85
7.7 Solutions for covering credit risks in domestic transactions by foreign ECAs 86
7.8 Reinsuring of a domestic insurer by a foreign ECA 89
7.9 Global cover 89
7.10 Cover for political risks in transactions between exporters and their foreign subsidiaries 90
8 Buyer Credit Cover 91
8.1 Purpose of the loan and payment of the loan amount 92
8.2 Separating the loan agreement from the commercial contract 93
8.3 Limitations of buyer credit cover 93
8.4 ECA requirements for issuing cover for medium- to long-term buyer credits 94
8.5 Other ECA requirements for issuing buyer credit cover 94
8.6 Buyer credit cover for bank-to-bank loans 95
8.7 Buyer credit cover issued to several banks in syndicate 96
8.8 Buyer credit cover and loan participation 97
8.9 Buyer credit cover and funded loan sub-participation 98
8.10 Buyer credit cover and unfunded loan sub-participation 99
8.11 Buyer credit cover issued to a multinational bank acting through a local branch 100
9 Other Types of ECA Cover 102
9.1 Cover for manufacturing loss 103
9.2 Calculation of manufacturing loss 103
9.3 Cover for manufacturing loss combined with supplier credit or buyer credit cover 104
9.4 Pre-shipment cover issued to banks 105
9.5 Cover for contract bonds and guarantees 106
9.6 Cover for justified and unfair calling of contract bonds and guarantees 106
9.7 Cover for interconnected bonds and guarantees 107
9.8 Cover for counter indemnity issued to exporters 108
9.9 Cover for confirmed letters of credit 109
9.10 Applicability of OECD and EU regulations 110
10 Foreign Investment Cover 112
10.1 Political events that may cause loss of investment 113
10.2 Investments eligible for obtaining cover 115
10.3 Legal status of investment projects 116
10.4 Eligible investors 116
10.5 Highest amount of cover 117
10.6 Percentage of cover and partial cover 117
10.7 Duration of cover for foreign investments 118
10.8 Premium 118
10.9 Waiting period 118
10.10 Assignment of claim 118
10.11 Indemnification 119
10.12 Obligations of the insured investor 120
11 ECA Direct Loans 121
11.1 Purpose of direct loans 121
11.2 Misconceptions about direct loans 122
11.3 International regulations for direct loans 122
11.4 Minimum interest rates for direct loans 123
11.5 Application and offer for direct loans 124
11.6 Arranging direct loans by banks 124
11.7 Arranging direct loans by exporters 125
11.8 The ECA's recourse against a bank or an exporter 126
11.9 Charging a premium for credit risk 126
11.10 Tied aid 127
Part III: Procedures 128
12 Application, Offer, and Policy 129
12.1 Application for issuing cover 130
12.2 Offer for issuing the ECA policy 132
12.3 The ECA policy 133
13 Premium 135
13.1 Different premium rates for various types of cover 135
13.2 Basic elements for calculating the premium rate 136
13.3 Minimum premium rates 136
13.4 Buyer risk categories 137
13.5 Reducing minimum premium rate 138
13.6 Third party payment guarantee 138
13.7 Mitigation techniques 138
13.8 Enhancement of credit risk by providing security 139
13.9 Security and reducing the premium rate to the minimum 140
13.10 Increased premium rate 140
13.11 Payment of premium 141
13.12 Shifting the premium costs to foreign buyers 142
13.13 Indication of a premium rate 143
14 Foreign Content 144
14.1 Determining the foreign content 146
14.2 National interest 147
14.3 Determining the national interest 147
14.4 Reinsurance as a solution 149
15 Currency 150
15.1 Cover and currency risk 151
15.2 Contract denominated in the currency of the ECA country 151
15.3 Contract denominated in hard currency 152
15.4 Contract denominated in other convertible currency 153
15.5 Contract denominated in local currency 155
16 Confidentiality 157
16.1 Confidentiality in relations between exporters, banks and foreign buyers 157
16.2 Confidentiality in relations between exporters, banks and ECAs 158
16.3 Confidentiality in relations between ECAs and foreign buyers 159
16.4 Transparency requirements 161
16.5 Confidentiality in relations between ECAs and reinsurers 162
17 Security for Payment of Credits Covered by ECAs 164
17.1 Differences between security and the ECA cover 165
17.2 Security and the ECA cover provided for the same risk 166
17.3 Effects of security in export credit transactions covered by ECAs 166
17.4 Security in the initial stage of a contract 166
17.5 Security and renegotiation of credit 167
17.6 Enforcement of security 167
17.7 Uncertainty connected with security 168
17.8 Security in intercreditor agreements 169
17.9 Quasi-security 170
17.10 Negative pledge 171
18 Reinsurance 172
18.1 Reinsurance in ECA business 173
18.2 Reinsurance between ECAs 173
18.3 Other forms of cooperation between ECAs 174
18.4 Coinsurance between ECAs 175
18.5 Parallel insurance between ECAs 175
18.6 Percentage of foreign content covered by a single ECA 176
18.7 Reinsurance between ECAs and private reinsurance companies 176
19 Claims and Indemnification 178
19.1 Notification of non-payment, claim and waiting period 178
19.2 Payment of interest during the waiting period 180
19.3 Assignment of claim for payment of credit by insured to ECA 180
19.4 Distinction between assignment of claim and assignment of contract 182
19.5 Assignability of claim 182
19.6 Subrogation of claim 183
19.7 Enforcement of security and indemnification 184
19.8 Assignment of security to ECAs 186
19.9 Ascertainment of claim 186
19.10 Scope of indemnification 187
19.11 Indemnification method 187
19.12 Parties entitled to claim indemnification 189
19.13 Time limitation for claiming indemnification from ECAs 190
19.14 Rescheduling of foreign buyer's credit and right to indemnification 190
19.15 Disputed claim for payment against a foreign buyer 191
20 Recovery 193
20.1 Classes of foreign buyers 193
20.2 Recovery of debt from sovereign foreign buyers 194
20.3 ECA methods for recovery of debt from sovereign buyers 196
20.4 The Paris Club 196
20.5 Recovery of debt from public buyers 197
20.6 ECA methods for recovery of debt from public buyers 199
20.7 Recovery of debt from private buyers 200
20.8 Negotiations with private buyers 200
20.9 Bilateral negotiations for recovery of a single debt 200
20.10 Multilateral negotiations involving the majority of creditors 201
20.11 Judicial reorganisation of foreign buyers 202
20.12 Legal action against foreign buyers 203
20.13 Sharing of recovery costs 204
20.14 Application of recovered amounts 204
Part IV: Legal Framework 206
21 OECD and EU Regulations in Terms of ECA Cover 207
21.1 OECD Arrangement on Officially Supported Export Credits 207
21.2 Application of the Arrangement 208
21.3 Provisions on down payment, local costs, etc. 209
21.4 Maximum terms for payment of export credits 213
21.5 Payment of principal and interest 214
21.6 EU regulation 214
22 Other OECD Regulations and International Sanctions 216
22.1 Combating bribery in international business transactions 216
22.2 Environmental and social impacts 218
22.3 Reviewing potential environmental and social impacts 219
22.4 Sustainable lending practices 220
22.5 International sanctions 220
23 Selected Standard Terms of ECA Cover 222
23.1 Compensation of loss 223
23.2 Disclosure of information to ECAs 223
23.3 Increase of risk after issuing the ECA offer 224
23.4 Permits for performance of commercial and loan contracts 225
23.5 Variation of commercial and loan contracts 225
23.6 Obligations of the insured at increased risk 226
23.7 Retaining the non-covered percentage of risk by the insured 226
23.8 Waivers and amendments of the ECA standard terms 227
23.9 Governing law and jurisdiction for ECA policies 227
Bibliography 228
Index 229