Credit Insurance The Solution for your International Risks

Transcription

1 Credit Insurance The Solution for your International Risks Brussels 14 June 2018

2 Risks in international trade

3 Global context World trade is growing > Strong(er) growth in world trade > Higher commodity prices > Strong global growth in the short term Real GDP growth IMF WEO April Advanced economies CIS EM Asia EM Europe Latam MENA Sub-Saharan Africa -2 3

4 Global context Main risks are rising > Protectionism on the rise > Geopolitical risks: Middle East, Asia (North Korea and growing/high assertiveness of China), US/ EU/Russia, emergence of a new order as the US-led global order wanes > High and often rising public and private indebtedness > Normalization of monetary policy accompanied with appreciation of the USD 5 4,5 4 Exchange rate (TRY per USD) depreciation 3,5 3 2,5 2 Source : Central Bank of 4

5 Global context Public debt is rising > High (and growing) public indebtedness General government debt (in % GDP) CIS EM Asia EM Europe Latam MENA Sub-Saharan Africa Source: IMF WEO April

6 Global context Company debt is rising > High (and sometimes growing) private indebtedness Credit to Non financial sector from All sectors at Market value (in % GDP) Emerging markets (aggregate) Advanced economies (aggregate) Source: BIS 6

7 Global context Liquidity versus risk appetite > Rising risk aversion in international capital markets > Slump in portfolio flows to EM in February 18 and in May 18 > Larger numbers of countries exposed to capital market > More discrimination among EM countries expected EM countries with large domestic and external imbalances remain vulnerable to sudden change in investors risk appetite and tightening of global financial conditions 7

8 Global context Exchange rates Exchange rate evolution vàv USD (in %) 10 worst perfomers (2017) Source: Bloomberg ( ) Turkish Lira Exchange rate evolution vàv USD (in %) 10 worst performers (Year to date) Source: Bloomberg Hungarian Forint Ghana Cedi Tunisian Dinar Gambian Dalasi Swedish Krona Tajikistani Somoni Russian Ruble Nigerian Naira Argentine Peso Ethiopian Birr Sierra Leone Congolese Franc Uzbekistani Soum Uruguayan Peso Brazilian Real Turkish Lira Argentine Peso Angolan Kwanza Venezuelan Bolivar

9 Global context Forex debt Debt of non-bank borrowers in the form of bank loans and debt securities denominated in foreign currencies (in % GDP) India China Brazil USD JPY EUR South Africa Argentina Russia Indonesia Mexico Turkey Source: OECD Economic outlook 103, May

10 Global context Forex reserves Gross foreign exchange reserves (excl. gold, mio USD) Emerging countries (excl. China) Emerging and Developing Asia (excl China) CIS source: IMF/IFS MENA Sub-Saharan Africa Latin America Central and Eastern Europe

11 What can go wrong?

12 What can go wrong? 12

13 What can go wrong? Negotiations Sale Delivery Payment No agreement Potential client does not exist / is too small No guarantees by potential client No agreement on payment terms Insufficient knowledge of credit insurance & export finance => NO SALE Buyer goes bankrupt Buyer cancels the contract Buyer disappears => PRODUCTION COSTS MADE Unable to deliver, due to war, embargo, transport issues, Goods delivered but not received : import refused, buyer does not pick up the goods,... Buyer refuses to pay (excuses) Buyer disappears Buyer wants to pay but : > is not able to pay (insolvent/bankrupt) > is not able to transfer the money (hard currency shortage) => PRODUCTION => GOODS LOST + COSTS + STORAGE/ REVENUE/MARGIN REPATRIATION LOST COSTS, 13

14 What can go wrong? Direct, short-term impact on your company > Missing opportunities and hence loss of business > Loss on the contract due to costs without return / margin In order to compensate a EUR 1 M loss on a contract, a company with a net profit margin of 10% needs EUR 10 M of new sales! 14

15 What can go wrong? Indirect, long-term impact on your company > Negative impact of your P&L account for the current year > Potential negative impact on your balance sheet / solvency for the coming years In the end : danger for the future of your company 15

16 How can we manage these risks? Credit insurance

17 Risk management through credit insurance What is credit insurance? > Insurance against certain risks related to commercial transactions Which claims are covered? > Non payment : delivery -> payment payment -> delivery (prefinancing) > Contract cancellation > Unfair calling of bonds > Loss of property 17

18 Risk management through credit insurance Benefits from Credit Insurance? > Protecting your existing business / markets > Create a competitive advantage by offering more tailor-made payment conditions > Increase your sales with existing clients with limited additional risks > Facilitate sales to new clients / new markets with controllable additional risks => Boosting exports and international trade 18

19 Risk management through credit insurance Benefits from Credit Insurance? > Prior advise from credit insurer on potential new clients and new countries based on experience with other exporters a.o. > Bad risks are eliminated by the credit insurer ( credit insurer is to blame ) > Support when things start going wrong (experience, know-how, network, collection,...) => Leveraged risk management 19

20 Traditional credit insurance : > Whole turnover (ST) > Special Cash Transactions (ST and MLT)

21 Credit Insurance - Exports Whole turnover Characteristics : Cover of pre-credit and credit risks Portfolio coverage (no single risk) Coverage of political risk also possible in case of intercompany Premiums are based on real monthly/quarterly turnover declarations Worldwide products and services (not only Belgian) : consumer goods, recurrent sales, payment terms up to 24 months, Very competitive market 21 Credendo: your partner for international business

22 Credit Insurance - Exports Cash Payable / Special Transaction (progress payments) Characteristics : > Credit insurance for export transactions without credit > Supply of capital goods and services payable on cash basis (LC possible) > Comparable to ST export transactions > Milestones principle : payment as works progress > E.g.: dredging, construction works, engineering contracts, > Coverage for termination risk (expenses incurred) + non-payment by debtor > Coverage against buyer s default + political and similar risks 22 Credendo: your partner for international business

23 Funded solutions : insurance + financing > Forfaiting > Buyer credit SME

24 Why funded solutions? A combination of several factors: > The Belgian Government s declaration to support SME s; > Mandate by Credendo s Board of Directors to focus on SME s; > Difficult access to adequate financing on local market for potential buyers of Belgian goods and services; > Reluctance of traditional funding sources w.r.t. smaller trade transactions. By developing the funded solutions, Credendo intends to reduce the funding gap, in support of Belgian exporters. 24

25 What are funded solutions? > Two types of funded solutions: Forfaiting : discounting of supplier s credit Buyer credit : direct funding of foreign buyer > Standardized terms and conditions (a.o. tenor 2y to 5y) > Goal : boost exports by offering funding along with commercial transaction > Contract must be insurable for Credendo: no insurance => no forfaiting nor buyer credit 25

26 Forfaiting

27 Forfaiting Exemple 27

28 Forfaiting Eligible transactions > Supplier credits to a maximum of EUR 5 million (credit amount) for which no bank is willing to provide financing > Contracts that are in line with OECD regulations. Payment terms: minimum 15% down payment Credit up to 5 years: six- or three-monthly maturities (equal in principal plus the decreasing interest amount) > Payments must be done through bills of exchange / promissory notes > Contractual interest rate: fixed rate (= CIRR rate + margin) calculated on the outstanding principal amount the contractual interest rate may differ from the discount rate but may not be less than the CIRR rate that applies to the contract 28

29 Forfaiting Eligible transactions > Discounting of 100% of the value of the commercial documents > Financing of the Credendo ECA premium if included in the credit amount > Contracts in EUR/USD/GBP/YEN/CHF > Contract must be insurable for Credendo (no insurance => no forfaiting) 29

30 Buyer Credit

31 Buyer Credit Exemple 31

32 Buyer credit Credendo Export Credit Agency offers directly a financing solution to buyers of Belgian goods and services in Belgium s main trading partner-countries: buyer credit. Initially only limited to China, India, Brazil, Mexico and Turkey. Since 01/01/2017 all countries where forfaiting can be offered are eligible for buyer credit. 32

33 Buyer Credit Terms and conditions Standardized terms: > Transactions that qualify under the OECD rules ( Arrangement on guidelines for officially supported export credits (see > Loan amounts between EUR 2 million and EUR 5 million. > Currencies: EUR or USD. > Maximum loan amount: 85% of the total export contract value. > Maximum loan period: 5 years. > Fixed interest rate at market compliant pricing. > Repayment in equal quarterly instalments. 33

34 Buyer Credit Benefits for exporter and buyer Simple and standardized loan agreement: take-it-or-leave-it approach The Belgian exporter: > Has payment certainty upfront upon fulfilling his obligations under the commercial contract. > Sees political and payment risks eliminated. The foreign buyer: > Receives direct funding for purchase of Belgian goods and services, from a strong and reliable lender supported by the Belgian state. 34

35 Buyer Credit Scheme 35

36 Buyer Credit This is how it works 36

37 3. Political Risk Insurance

38 Credendo s PRI > PRI = political Risk Insurance for Investment What is PRI? > Cover of investments made by a Belgian company in a foreign enterprise > Cover of political risks only (commercial risks are excluded) 38

39 Credendo s PRI > 1 policy model for 3 types of investments : 1. Equity Investment = capital participation paid back through dividends or sale of shares / shareholdership; 2. Structured Loans = loans with repayment schedule; 3. Quasi Equity = hybrid instruments containing characteristics from both equity and structured loans, often loans without repayment schedule. 39

40 Credendo s PRI > 6 Covered Events with two NEW types : 1. Expropriation 2. Political Violence 3. Business Interruption (NEW) 4. Currency Inconvertibility and Transfer Restriction 5. Award default 6. Embargo (NEW) 40

41 Credendo s PRI > Expropriation = act(s) which deprive the investor of all or a substantial part of its investment, act(s) which prevents the investor from conducting its operations or act(s) which deprives the investor of the use/control of any funds > Political Violence = violent act(s) undertaken with a political objective (concept is broader then War), including terrorism > Award Default = non honouring of the award issued by the jurisdiction designated in the agreement between the insured and the host government > Currency inconvertibility and Transfer Restriction = any shortage of hard currency or any act or omission by the local government which prevents the conversion (partially or totally) of local currency into policy currency or which prevents the transfer outside the country of the investment 41

42 Credendo s PRI Extension of scope of coverage with 2 NEW types for loss of profit > Business Interruption = temporary inability to conduct the operations of the foreign enterprise as a result of political violence damage (I.e. damage to material assets caused by political violence)! extension of political violence coverage but offered as a separate covered event in order to focus on it > Embargo = imposition of measures by the host government which prevents the foreign enterprise from exporting or importing goods or services which are essential for its operations! measures taken by the host government 42

43 Credendo s PRI > Compensation mechanism book value approach for expropriation and political violence (in case of final loss) Compensation for loss of income in case of business interruption/embargo > Causation of claim Credendo engages to pay compensation for any loss principally caused by a covered event during the Policy period > Pricing depends on type of investment determined for each covered event Premium due on an annual basis 43

44 Credendo > Structure > Credendo ECA and its mission > Business lines > Tools

45 Credendo Export Credit Agency 2017 Credendo - group structure AA rated by S&P Belgium s official ECA 45 Credendo: your partner for international business

46 Credendo Export Credit Agency Mission To support Belgian international economic relations by covering risks relating to exports, imports and investments abroad. 46 Credendo: your partner for international business

47 Credendo Export Credit Agency Business lines and tools Credendo = Credit insurance solutions Credendo-Export Credit Agency Solutions 1) Credit insurance 2) Funded solutions (financing buyer and exporter) 3) Financial Guarantees Tools 1) Credendo Risk App 2) Credendo Website 47 Credendo: your partner for international business

48 Credendo Export Credit Agency Credendo App : tool available on iphone or Androïd 48 Credendo: your partner for international business

49 Credendo Export Credit Agency Product wizard available on Credendo website 49 Credendo: your partner for international business

50 Thank you for your attention! Do not hesitate to contact us for further information! 50

51 Contact details Wim Bosman Business Development Specialist E w.bosman@credendo.com T M

52 Turning uncertainties into opportunities