Opportunities and development in the current global crisis

Ute Kochlowski-Kadjaia, Euler Hermes Russia

All rights reserved. Copyright 2008 Euler Hermes Kreditversicherungs-AG and PricewaterhouseCoopers AG WPG.

Moscow, April 21, 2010

Contents

Role and Function of Export Credit Agencies (ECAs) Response Consequences for ECAs Policy for Russia

Crisis

Cover

Conclusion

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Mandatary business
Federal Export Credit Guarantees By order and for account of the Federal Republic of Germany

as leading partner cooperating as partners to a consortium

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Interministerial Committee for Export Guarantees (IMA)

BMF Federal Ministry of Finance BMWi Federal Ministry of Economics and Technology (in charge) Consortium Euler Hermes PricewaterhouseCoopers

AA Federal Foreign Office

IMA

BMZ Federal Ministry for Economic Cooperation and Development

Experts - KfW IPEX-Bank - AKA Ausfuhrkredit-Gesellschaft - Representatives of export and banking

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Definition Export Credit Guarantees

Insurance against

the political / commercial risks arising abroad in export business (or export financing) by an exporter domiciled in Germany by the Federal Republic of Germany

involved

transacted provided

It requires
the an

payment of a premium in accordance with the risk involved and uninsured portion to be borne by the policy holder

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Requirements for Export Credit Guarantees

Business that qualifies for official support

Export transactions (supply, works/services and financing contracts) of a German exporter with goods of mainly German origin involving non-marketable risks abroad

Criteria

for the granting of cover are

that the transaction is eligible for support that the risk is justifiable that the terms of the contract are in accordance with common practice that the provisions of the federal budget law are observed

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NEWLY COVERED BUSINESS

in Euro billions

19.8
7.6

20.6 17.0
7.6 6.7

20.7
7.5

22.4
7.2

12.2

13.0

10.3

13.2

15.2

2005

2006

2007

2008

2009

Wholeturnover/ Rev. policies Specific policies

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TOP MARKETS FOR NEW GUARANTEES

in Euro millions
1. South Korea 2. United States 3. Russia 4. Turkey 5. China 6. Brazil 7. India 8. Dubai 9. Romania 10. Israel
12 165 447 210 971 845 716 703 678 1,552 1,363 1,479 1,353 1,357 2,087 2,066 2,042 1,991 2,878

649

2009 2008

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BREAKDOWN OF SPECIFIC POLICIES BY TYPE OF SECTORS

in Euro millions and in % 4% 6% 3% 2% 1% Infrastructure: 7,659 (51%) Processing industry: 3,046 (20%) Energy: 1,852 (12%) Paper, timber, leather and textile industry: 943 (6%) Services: 611 (4%) 21% 51% 19% Mining: 503 (3%) Agriculture and food processing industry: 338 (2%) Environmental technology: 149 (1%) Oil production and gas gathering: 32 (0.2%) Chemical industry: 22 (0.1%)

12%

thereof: aircraft: ships:

thereof: metal industry: 16% 20%

Total: 15,156 EUR millions

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Types of export guarantees extract

Cover facilities
Single

export cover/tied loan cover (pre and post shipment) credit cover buyer credit cover financing including countertrade business

Framework Revolving Project

financing

Structured Cover Cover Whole

in local currency against payment defaults for confirmed L/C turnover cover

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Types of export guarantees I

Tied loan cover Export contract/delivery

German exporter

Foreign buyer

Disbursement of buyer credit

If necessary: buyer involvement in payment obligations

Local contract

Loan contract

German bank

Repayment

Foreign bank

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Types of export guarantees II

Framework credit cover

Targets
Financial credits for smaller transactions More flexible and quicker

Criteria for cover

Credit volume up to EUR 10m per single transaction Currency framework and single contract must be the same International standards e.g. consensus must be considered

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Types of export guarantees III

Revolving buyer credit cover

Contract between a German and a foreign bank to finance transactions between one German exporter and one foreign importer Payment terms on short term basis (up to 12 months, in exceptional cases up to 24 months) Policy period is one year and will be automatically extended if notice of termination is not given Targets
Cover of short term credits More flexible and quicker

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Foreign Content Inclusion of non-German sub deliveries

In general: Export guarantees are granted to promote German export goods, but

a product receiving a German certificate of origin is considered as German. foreign content is acceptable in principle. Local costs and foreign content can amount to 30% (base rate) of the contact value without any statements. Exceeding the base rate is possible under certain circumstances.

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Foreign Content Reinsurance I

Background

Main supply and subcontracting deliveries will be covered by one credit insurer The value of the subcontracting deliveries will be reinsured by the credit insurer for goods sourced from his country Resulting in
One policyholder One credit insurer One cover One cover scheme

= One stop shop

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Foreign Content Reinsurance II

German ECA: 21 reinsurance agreements with other ECAs

ASHRA (Israel) Atradius (Netherlands) CESCE (Spain) COFACE (France) COSEC (Portugal) ECGD (Great Britain) EDC (Canada) EFIC (Australia) EGAP (Czech Republic) EKF (Denmark) EKN (Sweden) FINNVERA (Finland)

GIEK (Norway) KUKE (Poland) NEXI (Japan) ODL (Luxemburg) OeKB (Austria) ONDD (Belgium) SACE (Italy) SERV (Switzerland) SID (Slovenia) US Ex-Im Bank (U.S.A)

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Contents
Role

and Function of Export Credit Agencies (ECAs) Response Consequences for ECAs Policy for Russia

Crisis

Cover

Conclusion

page 17

Challenge for ECAs

The major challenge for ECAs in a world characterised by a financial and increasingly economic crisis is to find a balance between

... a prudent and responsible administration of the German governments and taxpayers money
grant

and the objective of promoting the economy, in our case especially German exports

cover after a thorough evaluation of the risks involved

accept

risks despite the global economic turbulences

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Crisis response Consequences on ECAs I

During the crisis ECAs were forced to act counter-cyclically and flexibly.

Substantial increase in demand for ECA cover in combination with ECA related government action against the crisis are approached by new customers and are getting involved in new industry sectors and/or buyer countries such as EU and other OECD countries

ECAs

Cover is sought for risks that used to be perceived as save

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Crisis response Consequences on ECAs II

Governments response with new/amended insurance products and cover policies in order to facilitate export finance of ECAs in the field of marketable risks (short term cover for EU and OECD countries) due to restrictions of the private credit insurance market

(Re-)Entry

ECAs are extending their umbrella rather than closing it

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Crisis response New and amended products I

German Government launched a package of new cover regulations embedded in the Economic Stimulus Plan II.
Supplier

Credit Guarantee

Increased percentage of cover up to 95 % to reduce refinancing costs

Credit

Confirmation Risk Cover

Newly established instrument to stabilize L/C business Banks can insure themselves against the risks involved in the confirmation of a letter of credit that has been issued to finance an export transaction by a German company

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Crisis response New and amended products II

German Government launched a package of new cover regulations embedded in the Economic Stimulus Plan II.

Contract Bonding
Increased single limit of cover from EUR 80 to EUR 300 million to ease exporters liquidity position, as it helps to ease the pressure on the exporters credit line

Securitisation

Guarantee in relation to the KfW Refinancing Program

Facilitating access to long-term funding for banks arranging Hermescovered transactions. Banks sell their covered receivables (from existing and new loans) to KfW and make fresh funds available for the financing of new business covered under Federal Export Credit Guarantees

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The crisis so far

Despite

a double-digit decrease in German exports in 2009 as well as cancellations and postponement of many projects cover volume is expected to rise standard and new products contributed to this result

Both

During

the crisis, ECA-covered financing has gained tremendous importance have proved to be a reliable partner and will continue giving support to maintain and where necessary restore trust in global financial systems and trade relationships.

ECAs

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Policies regarding the analyses of banks I

Apart from generally accepted banks, still case by case analysis No general rejection of any CIS country

Detailed information regarding ownership structure In-depth insight into the respective banks risk management

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Policy regarding analysis of banks II

Financial Statements (preferentially according to IFRS) for 3rd Quarter 2008 Securities portfolio Detailed overview of liquidity situation Exposure to currency risks
- Matching Maturities - Proportion of Loans to customers in foreign currencies and assessment of customers ability to pay back such loans

Detailed overview of Loans to Individuals Exposure to real estate sector Impairment provisions

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Contents

Role and Function of Export Credit Agencies (ECAs) Response Consequences for ECAs Policy for Russia

Crisis

Cover

Conclusion

page 26

Russia cover policy

Generally open for short-term transactions (examination of creditworthiness) / securities for credit business transactions:

Criteria

- State guarantee - Corporate risk

Additional securities not required in cases of excellent standing of the buyer

- Bank guarantee
Generally accepted banks: 15 banks such as VTB, Sberbank, Vnesheconombank, Gazprombank or Alfa Bank Other banks on a case-by-case basis (about 50 banks so far) In general involvement of the Russian buyer in the payment obligations
Premium

category 4

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Russia cover volume for recent years

(in million EUR)
3.249 2.878

1.792 1.420

2.015

1.991

2004

2005

2006 short term

2007 long term total

2008

2009

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German ECA underwriting volume (long term) for Russia by type of security

23 17 36 35 47 37 61 68 32 63 37 25 29 16 2002 2003 2004 7 2005 2006 2007 2008 2009 (30.09.) 50 50

75

61

32

State Guarantees

Bank Securities

Corporate Risk

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Russia recent experience

Only

very few covered banks have not been able to meet their obligations so far effort by the Russian government to support system relevant

Strong

banks
Further

consolidation of the banking sector is nevertheless to be expected in 2009

Russia will remain a major partner in the years to come

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Contents

Role and Function of Export Credit Agencies (ECAs) Response Consequences for ECAs Policy for Russia

Crisis

Cover

Conclusion

page 31

Conclusion
Due to the current challenges and difficulties ECA-covered financing has gained tremendous importance.

ECAs will be a reliable partner and will give support to maintain and where necessary restore trust in global financial systems and trade relationships.

Russia and CIS will remain major partners also in the years to come.

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Thank you for your attention!

Vorname Name Unternehmen Tel.: E-Mail: Further information is provided under: Hotline: +49 (0) 40/88 34-90 00 www.agaportal.de info@exportkreditgarantien.de

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