ECIC Presentation

SHORT TERM TRADE BUSINESS – EXPANDED MANDATE OF ECIC – SAFLEC 26 January 2022

OVERVIEW OF THE ECIC 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;

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Reports to the Minister of Trade, Industry and Competition (“the dtic”); and has authority to conclude insurance contracts on behalf of the government of the Republic of South Africa;

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Is regulated by the Prudential Authority, operating as part of the South African Reserve Bank (“SARB”) and the Financial Sector Conduct Authority (“FSCA”);

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Provides cover for South African Rand (“ZAR”) and United States dollar (“USD”) denominated transactions. Euro denominated transactions can be covered in USD.

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TYPICAL LINES OF THE ECA BUSINESS ▪ • •

Medium to Long-term business 2- year tenor Typically, capital goods exports plus services

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Investment insurance business Equity business Non-honouring of loans by government borrowers (untied) – PRI only

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Short-term business Tenor of less than 2 years – it could be as short as 6 months Typically, non-capital goods

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THREE LINES OF BUSINESS FOR ECIC Under the expanded mandate ECIC has been authorized to pursue all three lines of business, namely: ❑ Medium to Long-Term business ❑ Investment insurance business

❑ Short-Term business ▪

Short-Term business refers to facilities with a repayment tenor of less than 2 years

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Examples of short-term export trade facilities include bid bonds, performance bonds, advance payment bonds, working capital, letters of credit etc.

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EXPANDED MANDATE ▪ • • • •

Removed the reference to “capital goods”.

This means non-capital goods such as value-added consumer goods can be supported.

Strong focus on the dtic priority sectors reflected in the various Master Plans i.e., Sugar, Automotive, Retail, Poultry, Steel and Furniture Additional sectors, examples (non-exhaustive) – tyres, bins, textile, fuel, medicine, bitumen etc.

These non-capital goods transactions may take the form of medium to long-term or short-term business

▪ • • •

Removal of the reference to minimum tenor of 2 years The loan facility in a buyer credit can be for a tenor of less than 2 years The supplier credit facility can be for a tenor of less than 2 years The specific authorization for short-term transactions (with the rider that these transactions must advance SA goods and services)

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ECIC is working on obtaining Reinsurance licence from the PA

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CONTENT REQUIREMENTS 70% South African content required for export credit transactions.

For projects in Africa: minimum 50% South Africa local content, and up to 20% from the Host country or any other African country. SA content is measured on loan value supported by ECIC. For projects outside of Africa, minimum is 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

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ECIC VALUE PROPOSITION Benefits to the Bank

Benefits to the Exporter

▪ Through comprehensive ECIC insurance ▪ ECIC insures bid, advance payment, cover - there is risk mitigation (reduction performance, retention or reclamation bonds of the net exposure, in the event of loss). issued on behalf of the exporter, linked to an export contract – for up to 90%.

▪ Commercial banks are able to obtain capital relief for the covered exposures.

▪ ECIC insures working capital facilities issued to the exporter, linked to an export contract.

▪ These benefits and risk transfer could result in a lower margin that is charged to ▪ The cash collateral required could be reduced the borrower and thereby improve the to 10% of the covered bond facility. competitiveness of the Bank pricing.

▪ Increases lines and capacity to bid for more ▪ Up to 90% of the risk transferred to ECIC. opportunities on the continent and other emerging markets.

▪ Banks can support more entities that are actively exporting with established and ▪ Can support 30, 60, 90 , 180 days payment existing export value chains. terms ▪ Increase market capacity, diversify to new ▪ Enhances access to capital for export trade geographies and clients, repeat orders for established players and new entrants

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ECIC PRODUCT OFFERING

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FACULTATIVE INSURANCE This option is relevant where cover is provided to the bank for a specific transaction (i.e. where the bond insurance could be provided in conjunction with export credit cover or on a standalone basis).

Risk Covered ▪ Calling of the bond by the foreign buyer due to failure by the SA exporter to fulfil contractual obligations due to: • financial constraints (e.g. insolvency of the contractor); and/or • poor and/or non-performance as per contract specifications.

Eligibility Criteria ▪ Transactions to be included in the bond portfolio must relate to an export contract between a South African registered company and a foreign buyer.

▪ Transactions can be insured in ZAR or USD. Euro transactions are covered in USD.

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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.

▪ 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 in relation to the contract for which the bond is issued

SA Financial Institution 3. Bond Insurance

2. Bond

STRUCTURE

1. SA Contractor enters into supply agreement with foreign buyer.

2. SA bank issues a bond to the foreign buyer on behalf of the SA contractor 3. ECIC insures the SA bank in the event the bond is called.

1. Supply Contract

Foreign Buyer

Contractor

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RISK PARTICIPATION AGREEMENT This option involves ECIC entering into an agreement whereby the bank is insured for a portfolio of bonds issued on behalf of an agreed group contractors/ exporters (closed list).

Risk Covered ▪ Calling of the bond by the foreign buyer due to failure by the SA exporter to fulfil contractual obligations due to: • financial constraints (e.g. insolvency of the contractor); and/or • poor or non-performance as per contract specifications.

Eligibility Criteria ▪ Transactions to be included in the bond portfolio must relate to an export contract between a South African registered company (from the closed list of exporters) and a foreign buyer.

▪ Export destination of transactions in the portfolio will be limited to countries where ECIC is open for cover ▪ Transactions can be insured in ZAR or USD. Euro transactions are insured in USD. Level of Cover : ▪ ECIC may cover (at least) 50% of the risk on each bond transaction under the Risk Participation Agreement. A different percentage of cover can be considered (taking into account the credentials of the participants in the closed list).

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BOND RISK PARTICIPATION AGREEMENT BOND INSURANCE

▪ Facility amount is pre-approved 50:50 Risk participation with the ECIC ▪ Transactions to be included in the bond portfolio must relate to an export contract between a South African registered company (from the approved closed list) and a foreign buyer.

▪ Export destination of transactions in the portfolio will be limited to countries where ECIC is open for cover

SA Financial Institution 1. ECIC and FI conclude Risk participation Agreement

3..Bonds issued over the agreed term

STRUCTURE

Contractor1

Contractor 2

Contractor3

Contractor x

2. Supply Contracts between contractors and foreign buyers Foreign Buyer 1

Foreign Buyer2

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Foreign Buyer 3

Foreign Buyer x

INSURANCE FOR A WORKING CAPITAL TRADE FACILITY The product enables the ECIC to work with financial institutions to increase capacity of the South African manufacturer and aims to assist exporters to:

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Access the capital required to finance the working requirements in a business concern, such as purchasing materials, equipment, supplies, labour, and other inputs required to fulfil the export contract Borrow more with the same collateral to unlock the funding required to fulfil their sales orders and increase exports – with the bank taking a view on ECIC cover The contractor, as a beneficiary of the Working Capital facility, will sign a recourse deed with ECIC to pursue recoveries in the event of a claim

Indemnification: ▪ In the event of the SA exporter/contractor’s payment default under the working capital facility, the ECIC will reimburse the lender for up to 90% of the loss incurred ▪ ECIC cover will include interest during the waiting period before the claim crystallizes ▪ The financier providing the working capital facility will bear 10% of the risk ▪ If the exporter defaults on the payment under the working capital facility, ECIC will indemnify the lender after an agreed waiting period which may range between (90 and 180 days) depending on the size of the facility.

▪ For transactions within USD20m – the waiting period typically is 90 days.

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WORKING CAPITAL COVER WORKING CAPITAL INSURANCE COVER

▪ In the event of payment default by the SA exporter/contractor, the ECIC will indemnify the lender for up to 90% of the loss ▪ ECIC will cover interest incurred during the waiting period prior to the claim being settled South Africa SA Exporters

PURCHASE AGREEMENT Minimum 15% down payment of SA Contract Price SA content requirements applicable

BUYER

SA LENDER

STRUCTURE

Foreign Country

Policy of Insurance Up to 90% cover for the working capital facility

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APPLICATION SUPPORTING DOCUMENTATION Technical and financial capacity of the South African contractor must satisfy ECIC’s underwriting criteria.

Depending on the nature of the transaction, preliminary information required for assessment may include, but not limited to the following: ▪

Company Profile and Shareholding Structure

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3 years most recent financial statements and latest management accounts

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Performance criteria : Current ratio > 1 (but this will depend on industry norms)

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Guarantee History (Guarantees previously issued, called, previously declined etc.)

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Bidding documents and or Supply contract

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Details of contracts in progress

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Details of most recent contracts completed

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Details and Profiles of key personnel

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Trade References, where applicable

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MARKET FEEDBACK

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MARKET SOUNDING RISK APPETITE CONSIDERATIONS ECIC considers that there may be a requirement to expand or refine its product offering to meet the needs of South African Exporters: ▪ Which additional products or refinements would Exporters like to obtain ECIC support for?

▪ What are the average deal sizes for export transactions?

▪ What the typical credit tenors you consider?

▪ Typical sectors?

▪ Typical countries/ jurisdictions your clients are exporting to, jurisdictions where normally trade credit insurance is not available?

▪ Do FIs have appetite to support new exporters or existing client relationships only for cross border transactions?

▪ Do you work with standard documents / agreements?

▪ Typical credit approval turn around time

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APPROVAL PROCESS Process Flowchart

Initial Screening

Indicative Premium Request

Application Form

Anti-Bribery Verification

Project Evaluation

& Supporting Documentation

Assessment may take up to 4 to 8 weeks

72 hour notice Projects ExCo

* Financial Investment and Insurance Committee

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Approval of transactions <USD20m

FIIC*

Approval of amounts above USD20m, but <USD50m

Board

Approval of amounts above USD50m

BUSINESS DEVELOPMENT TEAM CONTACT DETAILS

Block C7 & C8 Eco Origins Office Park, Highveld, Centurion South Africa

Portia Dube

Paul Mojalefa

Export Credit Insurance Corporation Head Business Development

Export Credit Insurance Corporation Deal Originator ( East Africa)

Tel: +27 12 471 3838 Mob: +27 82 336 5057 Email: pgdube@ecic.co.za

Block C7 & C8 Eco Origins Office Park, Highveld, Centurion South Africa

Tel: +27 12 471 3885 Mob: +27 83 408 3943 Email: pmojalefa@ecic.co.za

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Mbiya Baudouin Export Credit Insurance Corporation Deal Originator ( Francophone West Africa)

Block C7 & C8 Eco Origins Office Park, Highveld, Centurion South Africa

Tel: +27 12 471 3875 Mob : +27 72 640 6271 Email: mbaudouin@ecic.co.za

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 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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