ECA Watch Newsletter

Temporary EU State Aid Framework includes short term export credits

(Mondaq, London, 6 April 2020) On 19 March 2020, the European Commission adopted a Temporary Framework to enable EU Member States to use European State aid rules to support the European economy in the COVID-19 crisis. The first programs have already been approved in Denmark, Germany, France, Italy and Portugal. The Temporary Framework, based on Article 107(3)(b) of the of the Treaty on the Functioning of the European Union (TFEU), recognizes that the entire EU economy is experiencing a serious disturbance. To remedy that, the Temporary Framework provides five types of aid that can be granted by EU Member States ranging from direct grants, subsidized and/or state guaranteed loans and short term export credits. Given the limited size of the EU budget, the main response will come from Member States' national budgets. The Temporary Framework will help target support to the economy, while limiting negative consequences to level the playing field in the Single Market.

European ECAS expand protection to help mitigate the impact of the coronavirus

(Reuters, London, 3 April 2020) Britain's UKEF  is expanding the scope of its export insurance policy to cover exporters against the risk of non-payment if customers become insolvent, Other European states [although the UK is no longer a member of the EU] are also giving guarantees to credit insurers in an effort to keep coronavirus-hit companies afloat, as some cut cover for trade involving bloc members such as Italy and Spain, UK Export Finance, a government department, on Friday said it has expanded the policy to cover transactions with the European Union, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland and the United States. In Spain, as part of a package of measures approved on March 18 to help mitigate the impact of the coronavirus, the government increased the insurance cover provided by its export credit agency CESCE adding two 1 billion euro credit lines, for unlisted corporates and small businesses with large levels of exports.  In France, the finance ministry said credit insurers had vowed not to cut or curtail cover in return for a reinsurance backstop worth up to 10 billion euros ($10.8 billion), to be set up by the end of the week. It also announced 2 billion euros in short-term aid as part of a package to help French exporters with credit insurance. In Germany, Reuters reported this week that the government and the country’s credit insurance industry have agreed to help to maintain insurance cover for trade, with the government guaranteeing up to 30 billion euros for the commercial credit insurance industry.

Temporary relaxation of EU state aid rules could counter foreign takeovers

(The Asset, 22 April 2020) European Union rules on state aid to private sector companies, including short term export credits, have been suspended until December as national governments step up financial packages to rescue their corporations. A recent report notes that the Covid-19 crisis has come at a time when the EU was already putting in place rules that bring foreign takeovers under tighter control. These takeover rules provide a framework for EU member states to screen foreign direct investments into the EU, on the grounds of security or public order. With many companies across the EU going into administration, foreign buyers are looking to acquire assets at bargain prices. Politicians in both the UK and Germany have already identified Chinese investors as being at the forefront.  A deal agreed by Turkey and China last month was largely overshadowed by news that the coronavirus could lead to Chinese firms taking much bigger stakes in Turkish companies struggling to cope with the fallout from the pandemic.

Korean NCP accepts complaint against Korean ECA and others

(OECD Watch, Amsterdam, 8 April 2020) On 17 March 2020, the Korean National Contact Ppoint accepted a complaint against KEXIM, the export credit agency (ECA) of South Korea, for financial support of harmful palm oil production practices in Indonesia. This is a significant step, as it is the second time an NCP has deemed an ECA a multinational enterprise (MNE) covered under the broad definition of MNEs in the OECD Guidelines. The complaint alleges that KEXIM and the NPS had failed to implement adequate human rights and environmental due diligence to address the adverse risks and impacts of their financial services.

ECAs play lip service to coal withdrawal but ignore oil & gas

(CIS University of Zurich, 2 April 2020) ECAs  are  a  hitherto  under-researched  contributor  to  lock-in  of  fossil  fuel  infrastructure.  This  study  reviews  external policies  and  standards  as  well  as  internal  policies  and  commitments  that  may  affect  ECAs’  portfolios –  specifically  their  support  to  fossil  fuel  and  low-carbon  technology  projects.  Most international standards are applied on a purely voluntary basis. Moreover, they are mainly focused on increasing transparency and promoting social and environmental safeguards while not directly affecting the ECAs’ portfolios. Most importantly, none of them has explicit requirements to phase out support to fossil fuels and align operations with the Paris Agreement. The standards thus do not support fossil fuel project support phaseout.

Fossil fuel giants with ECA billions put Mozambique workers & communities at risk of COVID-19

(FOE USA, Washington, 20 April 2020) The COVID-19 pandemic has forced large portions of the population to stay home and left millions out of work. Farmworkers, grocery workers, medical professionals, and other frontline workers are forced to put themselves at risk in order to provide everyone with the food and healthcare needed to make it through this pandemic. Ensuring that these frontline workers are safe and have the resources they need is of the highest priority. Yet, in northern Mozambique, companies like Total – the French energy giant – are attempting to put their profits above the protection of their workers. Reportedly, Total, which recently acquired oil and gas reserves that were formerly owned by the U.S. company Anadarko – a company that received $5 billion from the U.S. Export-Import Bank (EXIM) last September, at first refused to halt or even slow its work in northern Mozambique. They lost precious time and failed to take early action that would have stopped an increase in the number of cases.

EXIM Bank Relief Measures in Response to COVID-19

(JD Supra LLC, Sausalito, 13 April 2020) In response to the economic slowdown caused by the COVID-19 pandemic, the Export–Import Bank of the United States (“EXIM Bank”), the official export credit agency of the United States, has adopted four measures to help U.S. exporters and their suppliers and overseas buyers of U.S. goods and services get access to cash to support their transactions:

1. Established a temporary Bridge Finance Program to help foreign customers of U.S. exporters get short-term financing for purchases of U.S. goods and services;
2. Temporarily expanded the Pre-Export Payment Policy into a new Pre-Delivery/Pre-Export Financing Program to help foreign buyers finance progress payments owed to U.S. manufacturers during the manufacturing process;
3. Broadened the Working Capital Guarantee Program by expanding the categories of assets that exporters can include in their baseline for purposes of determining borrowing level eligibility;
4.  Increased access to Supply Chain Financing Guarantee Program by relaxing two conditions on eligibility.

Export Finance Australia helping exporters unable to get finance because of COVID-19

(American Reporter, Boston, 26 April 2020) COVID-19 has drastically affected the economy. Exporters and Importers are unable to conduct business because of the transport restrictions. Australia’s export credit agency (ECA), Export Finance Australia has come ahead to help the exporters. It revealed that it has a new A$500mn capital facility available to exporters. This capital will ease the dire financial conditions of the export companies. ECA mentioned that export companies would be able to get finance of the amount of A$250,000 to A$50mn under the scheme. But the scheme will only apply to companies that were established and previously successful.

Canada's EDC will backstop bank energy loans

(Reuters, Toronto, 22 April 2020) Canada’s export credit agency will backstop loans to hard hit oil and gas producers, a document seen by Reuters showed, in the latest move by Ottawa to free up credit for the struggling energy industry. The relief comes as banks review borrowing limits in the sector and could head off bankruptcies of small and mid-sized energy firms pummeled by the collapse in oil prices. Canadian banks have eased some lending standards but are expected to chop credit lines as they recalculate energy companies’ borrowing bases to account for a 75% drop in U.S. oil prices since the start of the year. The program is targeted at Canadian firms with production no greater than 100,000 barrels of oil equivalent per day, according to the presentation. In addition, Canada has approved $1.72 billion for cleaning up orphaned or inactive wells in three provinces in western Canada as the federal government tries to help the struggling O&G industry. Last spring, the grass-roots Alberta Liability Disclosure Project estimated that there are 300,000 abandoned wells in the province that could cost $70 billion to remediate.

Snubbed by EXIM, Cruise Lines Get ECA Relief From Europe

(Bloomberg, Miami, 24 April 2020) After missing out on U.S. emergency aid, Norwegian Cruise Line Holdings Ltd. and Royal Caribbean Cruises Ltd. are benefiting from a debt-holiday initiative by Germany’s export credit agency, Euler Hermes Aktiengesellschaft. The coronavirus pandemic has hammered the cruise industry, which shuttered operations in mid-March after a series of outbreaks at sea. The companies have been raising money and cutting expenses to weather a period without customers. The biggest companies were left out of the U.S. rescue package because they aren’t incorporated stateside. Most of the cruise industry is incorporated in places where companies can avoid U.S. income taxes and minimum wage requirements. Norwegian said the 12-month debt holiday -- which applies to debt used to finance ships -- will provide about $386 million in additional liquidity through April 2021. Royal Caribbean said it will add $250 million through debt holiday agreements with Euler. In addition, the national governments of France, Finland, Italy, Norway and Germany have agreed that cruise shipping companies could apply to suspend the repayment of their debts financed by state export credit guarantees for one year.

EXIM withdraws support for medical equipment exports against World Bank advice

(Global Trade Review, London, 24 April 2020) Countries across the world are imposing bans or restricting the export of medical goods. The Global Trade Alert team at Switzerland’s University of St Gallen reports that 75 countries have now introduced export curbs on medical supplies. The US Export-Import Bank (US Exim) has revealed that it is temporarily withdrawing all financing support for exports of critical medical equipment and supplies, including respirators, face shields, gloves and other protective equipment. The exclusion order, which will remain in place until September 30, was unanimously approved by the US export credit agency’s board of directors. While countries impose bans on medical exports amid the Covid-19 pandemic, World Bank president David Malpass has urged leaders against hoarding medical and food supplies, and not to use shortages as a reason to step up protectionist measures.

Could ECAs help Africa mitigate Covid-19 pushed recession?

(Global Trade Review, London, 15 April 2020) The outbreak of Covid-19 has left Africa facing the prospect of its first recession in 25 years, with countries dependent on oil exports or struggling with political instability on the frontline. Significant efforts to keep African trade moving have already been undertaken by export credit agencies (ECAs) active on the continent, as well as by global organisations such as the International Monetary Fund and the World Bank. But for Angelica Adamski, director of the board at the Sweden-Africa Chamber of Commerce, there are other steps that ECAs in particular could consider taking to bring some relief to African exporters. For instance, she suggested more ECAs should consider extending coverage to short-term credit and trade receivables. "Some ECAs are already covering working capital programmes, but we need to put more emphasis on this” she noted.

Insurers bulked up on airline risk as export credit agencies pulled out

(Global Capital, London, 2 April 2020) Private sector insurance companies have written extensive guarantees for the purchase of new aircraft from Boeing and Airbus in the past two years, filling a gap in the market left by the retreat of US Eximbank and European export credit agencies. But with aircraft around the world grounded and airlines slashing capital expenditure, these insurance firms could be stuck with the risk. The Airbus CEO told employees last week that the company’s survival was in question without immediate action and told RTL Radio that there was a need for export financing support. Export credit agencies played a key role in keeping deliveries moving during the 2009 financial crisis, but their role has since diminished. European nations withdrew their support during most of a four-year corruption investigation culminating in a record 3.6-billion-euro fine against Airbus in January.

Time for a European public export credit insurance programme?

(Euroactive Foundation, Brussels, 16 April 2020) [An argument for European coordination of export credit. To bolster competition from China?] Over the last decade, public export credit insurance has become one of the major instruments of trade policy, used to support and encourage exports. According to the figures of Berne Union members, public credit insurance covered more than one trillion US dollars in new transactions in 2018, writes Matija Vodoplav, a French PhD student. Despite the strong public support that exporters from some countries have, in particular in East Asia, European exporters do not benefit from support at the EU level and are facing a mosaic of national public export credit insurance programmes. [He believes] that policymakers should examine the possibility of establishing a European public export credit insurance programmes that could provide risk cover, in addition to national programmes, for extra-EU exports from all member states. The OECD estimates that in one decade its support surged from USD 3 billion in 2002 to USD 397 billion in 2013. The US ECA estimates that in 2018, the largest providers of public export credit insurance for the short-term export transactions to OECD and non-OECD countries, after China, were Korea, Japan, Canada, India and Russia, while Germany, the largest EU economy, came in sixth. Export credit has also been one of the pillars of China’s Belt and Road initiative where, according to official figures found on the Sinosure’s website, by the end of 2017, the total insured amount granted by Sinosure for projects related to the initiative was almost $510 billion.