​

• Export Credit Agencies (“ECAs”) are national government-owned or affiliated entities that support exports of goods and services from their own countries by providing financing to foreign purchasers of those goods and services.

 

• The fundamental purpose of ECAs is to increase the volume of exports from domestic producers of goods and services by opening overseas markets for such products through the provision of financing and other financial risk-reducing products.

 

• ECAs complement the private commercial banking and credit insurance markets, offering an additional liquidity source for counterparties, usually with longer terms and lower costs.

 

• ECA funding is not only a matter of credit risk mitigation, but it also enables projects to access a much larger pool of liquidity.

 

• ECAs provide:

1. Direct funding/loans,

2. Loan Guarantees,

3. Export Credit Insurance

 

• ECAs principally utilize three methods to provide funds to an importing entity:

 

• Direct lending, which is the simplest structure whereby the loan is conditioned upon the purchase of goods or services from businesses in the organizing country.

 

• Financial Intermediary Loans, where the ECA lends funds to a financial intermediary, such as a commercial bank, that in turn loans the funds to the importing entity.

 

• Interest rate equalization, a commercial lender provides a loan to the importing entity at below market interest rates, and in turn receives compensation from the ECA for the difference between the below-market rate and the commercial rate.

 

Financing Structure

​

ECA products can be offered as either a supplier's credit or buyer's credit.

 

Supplier's credit, the ECA loan or guarantee is made to or benefits the domestic exporter (the supplier of the goods or services) and the supplier is then able to include financing terms to the foreign buyer, assisting their purchase of the supplier's goods or services.

 

Buyer's credit, the ECA loan or guarantee is made to or benefits the foreign buyer, allowing the buyer to finance its purchase of the domestic exporter's goods or services

 

ECA participation in major project financing transactions generally use buyer's credit structures and are on a long-term basis (10 to 15 years).

 

Most exportation credit agencies are structured to provide finance for the medium [2>5 years] to long term [5> 10 years] however some can specialize in short term [<2 years].

 

The credit, insurance and guarantees risks are almost always under the responsibility of the sponsoring borrower

 

Project Finance

 

ECAs have the purpose of supporting their own national exports, generally there are domestic content requirements that must be satisfied for an ECA to provide a loan or guarantee.

 

In project finance, usually the borrower or project company works with the EPC contractors and other suppliers to ensure that domestic content rules are followed.

 

Project financing always results in certain costs being incurred in the host country. For example, site preparation, concrete and steel installation, and other such activities will require local labour, equipment, and supplies. Such project-related costs incurred in the project borrower's country are referred to as 'local costs' and ECAs will often provide credit support for a fixed percentage of the local costs in addition to the national export costs they are financing. This provides project borrowers with an ability to obtain credit from ECAs for a larger portion of the overall project financing needs and assists project economics by wrapping more of the total project debt into the ECA facilities.

 

ECA provides through its loan or guarantee to the project company borrower in the range from 80% to 100% of cost of eligible goods and services, depending upon the ECA being employed in the specific transaction.

 

The most used ECA structures in project financing are as below:

 

• ECA direct loan structure: the ECA makes a direct loan to the foreign project company to support the purchase by the project company of the exports supplied under the goods and services supply agreement between the project company and the domestic exporters.

 

• ECA guaranteed loan structure: This structure is very similar to the previous one, except that the ECA provides a guarantee of loans made by a bank or banks to the project company for its purchase of the exports supplied by the domestic exporters.

 

The project company or borrower established for the project financing transaction can borrow the ECA loan (or borrow from banks guaranteed by the ECA) and can pair the ECA-supported financing with other project debt borrowed by the project company, thereby assembling a complete financing package for the project with long repayment terms, enhancing project and sponsor return.

 

 

Typical ECA Conditions

 

• The sale must involve capital equipment and project-related goods and services.

 

• The importer must pay at least 15% of the contract amount in advance.

 

• Whilst 85% of the contract amount may be export-financed, the guarantee may also cover certain expenses for establishing the financing, such as the guarantee premium paid to an export credit agency.

 

• The maximum period between instalments is six months.

 

• The portion of the export from the exporter's home country must be at least 20%-50%, depending on the importer's country and the export credit agency involved.

 

• The local part of the contract must be covered by the down payment.

 

 

Advantages to Parties

 

Exporters

 

• Eliminating the risk of non-payment by payment on delivery of goods and services

 

• Enhanced competitive position in export markets through access to long-term financing solutions

 

• Access to new markets, while substantially mitigating the financial risks involved in the commercial transaction

 

 

Importers

 

• ECA finance solutions allows them to buy capital goods and services

 

• Repayment periods that are longer than other term loans

 

• Pricing that is often lower than non-ECA loans

 

• Value covered by the ECA is generally excluded from a Company's overall credit