Commercial business with Iraq

Commercial business with Iraq payments & coverage "Irak: Wiederaufbau bietet Chancen für bayerische Firmen" 5. Oktober 2011 IHK Nürnberg für Mittelfr...
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Commercial business with Iraq payments & coverage

"Irak: Wiederaufbau bietet Chancen für bayerische Firmen" 5. Oktober 2011 IHK Nürnberg für Mittelfranken

Ralph Eckle Trade Risk Facilitation / GTB4F2 München, 04.10.2011

AGENDA

 IRAQ TODAY  TRADE VOLUMES  BANKING SYSTEM  DEVELOPMENT FUND FOR IRAQ  TRADE BANK OF IRAQ  GUARANTEES

 LETTERS OF CREDIT  RESOLUTION NO. 1.2. / 2011  LONG-TERM FINANCING / ECA-COVERAGE

Ralph Eckle Trade Risk Facilitation

IRAQ TODAY political & economical political 2nd national partiamentary elections in 2010 President of Iraq Jalal Talabani Prime Minister Nouri Al-Maliki  settled … certain stability economical Iraqs oil reserves are its sole source of income and its strongest draw for foreign capital. total Iraqi exports 2010 USD 51,76 bn crude oil USD 51,45 bn 99,41 % oil products + sulfur USD 0,13 bn 0,26 % other exports USD 0,17 bn 0,33 % main trading countries imports from Iraq: U.S., India, Italy, South Korea, Taiwan, China, Netherlands, Japan. Ralph Eckle Trade Risk Facilitation

IRAQ TODAY global trade – exports to Iraq

source: Central Bank of Iraq 2010 Annual Bulletin

total exports to Iraq / 2010 machinery & transportation manufactured articles manufactured goods mineral fuels, lubricants chemicals animals & vegetables oil food & live animals

USD 43,9 bn USD 16,9 bn USD 6,9 bn USD 5,0 bn USD 4,3 bn USD 2,9 bn USD 2,8 bn USD 2,3 bn

main trading countries / 2010 Turkey Syria China U.S Germany Italy Jordan

(source: EUROSTAT)

Ralph Eckle Trade Risk Facilitation

USD USD USD USD USD USD USD

6,6 bn 4,8 bn 3,9 bn 1,7 bn 1,3 bn 1,3 bn 1,0 bn

IRAQ TODAY global trade – exports to Iraq

source: Central Bank of Iraq 2010 Annual Bulletin

18.000

16.000

14.000

12.000

10.000

2007 2008

8.000

2009 2010

6.000

4.000

2.000

0

other Europeans

Ralph Eckle Trade Risk Facilitation

Arab countries

Asia

European Union

North & South America

other countries

IRAQ TODAY China  2008: The National Chinese Petroleum Company (NCPC) & China ZhenHua Oil signed contract on oil exploration rights for 23 years worth USD 3 bn.  2009: NCPC (37 %) and BP (38 %) obtained exploration rights to Iraq’s biggest oil field "Rumaila" worth USD 15 bn. (remaining 25 % by Southern Iraq Oil Company). CNPC + Total won mandate for "Halfaya" / second bidding in 2010.  China is ranking no. 1 having company branches in Iraq (2nd: Turkey)  28.05.2011

China carried the first crude oil shipment (2mn barrels) from Iraq

 25.07.2011 Visit to China by Iraqi Prime Minister Nouri al-Maliki.  more China companies to invest in Iraq  prospects for enhanced bilateral cooperation in energy, oil, transport, housing, telecommunication and agriculture.  China to assist in infrastructure development and  to follow the United States and South Korea in establishing a reconstruction fund.  Biggest challenge for bilateral cooperation of Chinese enterprises is the ongoing question mark over safety in Iraq. Ralph Eckle Trade Risk Facilitation

TRADE VOLUMES Germany / Iraq - in thsd. EUR

source: Statistisches Bundesamt

export to Iraq

imports from Iraq

1.000.000

160.000

900.000

140.000

800.000

120.000

700.000 600.000

100.000

500.000

80.000

400.000

60.000

300.000

40.000

200.000 100.000

20.000

0

0

German exports machinery & transport equipment manufactured goods miscellaneous manufactured articles chemicals commodities beverages & tobacco food & live animals mineral fuels, lubricants crude materials animals & vegetable oils

thsd. EUR

in %

German imports

655.567

70,8

mineral fuels, lubricants

80.015 70.020 59.754 38.729 8.500 7.427 3.666 2.165 60

8,6 7,6 6,5 4,2 0,9 0,8 0,4 0,2 0,0

925.903 Ralph Eckle Trade Risk Facilitation

commodities crude materials machinery & transport equipment manufactured goods miscellaneous manufactured articles chemicals beverages & tobacco food & live animals animals & vegetable oils

thsd. EUR

in %

157.508

98,6

1.136 550 463 40 39 2 -

0,7 0,3 0,3 0,0 0,0 0,0 n.a. n.a. n.a.

159.738

DEVELOPMENT FUND FOR IRAQ (DFI) funding of Iraq proceeds of petroleum export sales

IAMB immunity

claims by Iraqi government "… to the benefit of the people of Iraq" 95 % Development Fund for Iraq Ralph Eckle Trade Risk Facilitation

5% Compensation Fund

DEVELOPMENT FUND FOR IRAQ (DFI) funding of Iraq

assets of the country of Iraq is still under control of a UN resolution !

Ralph Eckle Trade Risk Facilitation

DEVELOPMENT FUND FOR IRAQ (DFI) funding of Iraq established 2003 by UN resolution no. 1483 It holds 95 % of the proceeds of petroleum export sales from Iraq as well as remaining balances from the oil-for-food prgram and other frozen Iraqi funds. The DFI was provided with immunities to prevent creditors from seizing Iraqi oil revenue and financial assets Disbursements from the DFI at the direction of "the Authority, in consultation with the Iraqi interim administration" (original wording), recently: Government ... Ministry of Finance

DFI and related immunities extended several times to ensure the transition to a post-DFI mechanism terminated as of June 30, 2011 by UN resolution no. 1956 Ralph Eckle Trade Risk Facilitation

DEVELOPMENT FUND FOR IRAQ (DFI) International Advisory and Monitoring Board (IAMB) DFI is monitored by International Advisory and Monitoring Board for Iraq  "DFI is used in a transparent manner for the benefit of the people of Iraq"  "Export sales of petroleum, petroleum products, and natural gas from Iraq are made consistent with prevailing international market best practices." Members of IAMB include duly qualified representatives of the SecretaryGeneral, of the Managing Director of the International Monetary Fund, of the Director-General of the Arab Fund for Social and Economic Development, and of the President of the World Bank 5 percent of proceeds of petroleum export sales shall be deposited into the Compensation Fund in accordance with resolution no. 687 (1991) The Compensation Fund covers payments of compensation for claims "a result of its unlawful invasion and occupation of Kuwait"

Ralph Eckle Trade Risk Facilitation

IRAQI BANKING SYSTEM overview - general  7 State owned banks + 38 private banks  871 bank branches throughout the country only (which makes abt. 30.000 customers per branch)  International business predominantly arranged through Trade Bank of Iraq

 Private banks more and more active as well  Note: Iraq has been cut from international markets for more than 20 years !  Drastic lack of confidence in the banking system after serious liquidity problems of 2 private banks and issue of an arrest warrant issued by Iraqi authorities against CEO of Trade Bank of Iraq.

Ralph Eckle Trade Risk Facilitation

IRAQI BANKING SYSTEM Trade Bank of Iraq TBI commenced operations in 2003 through consortium led by JP Morgan TBI is the most prominent bank in international business, doing abt. 30 % of total number of l/c's but more than 90 % in volume Close cooperation with Central Bank and Ministry of Finance.

Exclusive role for huge projects (infrastructure, power etc.) Irregularities in TBI are valued at “millions of dollars", however, Trade Bank of Iraq is “working normally and the new administration is carrying out its duties normally,” (stated byAli al-Allaq, Secretary General of the Cabinet. New CEO appointed by Prime Minister Al-Maliki, Mrs. Hamida Al-Jaf. Recently TBI is acting through correspondent banking network with UniCredit Bank AG Munich being one of their EUR - & USD-banking partners Ralph Eckle Trade Risk Facilitation

IRAQI BANKING SYSTEM private banks 38 private banks incl. 7 foreign banks + 4 banks with foreign minority shareholder Warka Bank & Basrah Intl. Bank faced substantial financial liquidity problems. Basrah Intl. Bank already de-listed from stock exchange. In order to decrease the workload in TBI and to increase the private banks overall reputation in international markets public sector l/c's upto USD 4 mn to be provided by private banks backed by irrevocable reimbursement undertakings (IRU) by TBI. Cover through account of Ministry of Finance with TBI to be replenished with not less than USD 250 mn for such "small credits" (Council of equity of private banks / in mn USD – no. of banks Ministers – 28.01.2008) UniCredit Bank AG correspondent banking relationship with 9 of the private banks, another 9 - upon recommendation by Trade Bank of Iraq - to follow

16 14 12 10 8 6 4 2 0 > USD 100 USD 50-100 USD 25-50 mn mn mn

Ralph Eckle Trade Risk Facilitation

< USD 25 mn

IRAQI BANKING SYSTEM Rafidain Bank & Rasheed Bank  Restructuring of Rafidain Bank and Rasheed Bank recently completed supported by World Bank. " …completed plans and technical financial and legal procedures to develop good performance and restructuring of these two banks …" (by Mr. Majid Swaryi / Head of restructuring unity, The World Bank)

 Entering into international business being (by name) a pre-2003-era bank seemingly not succesful in short-run.

300.000,0 250.000,0

total assets (2010) in mn USD

200.000,0

Rafidain Bank Rasheed Bank Trade Bank of Iraq Bank of Baghdad (largest private bank)

150.000,0 100.000,0 50.000,0

0,0 Rafidain Bank Ralph Eckle Trade Risk Facilitation

Rasheed Bank

Trade Bank of Iraq

Bank of Baghdad

257.019,0 24.164,3 15.163,7 820,1

IRAQI BANKING SYSTEM overview - banks Central Bank regulatory functions public-sector banks (7)

private-sector banks (33)

commercial (3)

commercial (23)

Foreign Banks (7)

Rafidain Bank Rasheed Bank

Bank of Baghdad Commercial Bank of Iraq Iraqi Middle East Investment Bank Investment Bank of Iraq United Bank for Investment Dar Es Salam Investment Bank Mosul Bank for Development and Investment Babylon Bank Basra International Bank for Investment National Bank of Iraq Credit Bank of Iraq Economy Bank Sumer Commercial Bank Gulf Commercial Bank Warka Bank for Investment & Finance North Bank of Iraq Union Bank of Iraq Ashur International Bank for Investment Al-Mansur Bank Trans Iraq Bank Emerald Bank Al-Huda Bank Erbil Bank

Arab Banking Corporation Turkish Agricultural Bank / Ziraat Bank Melli Iran Bank Byblos Lebanese Bank of Beirut & the Arab Countries Abu Dhabi Islamic Bank Intercontinental Bank

Trade Bank of Iraq

special purpose (4) Industrial Bank Agricultural Cooperative Bank Real Estate Bank Iraq Bank

Ralph Eckle Trade Risk Facilitation

Islamic Banks (8) Iraqi Islamic Bank Ilaf Islamic Bank Kurdistan International Bank Islamic National Bank Dijlah & Furat Bank Islamic Bank of Regional Cooperation Al-Bilad Islamic Bank Gehan Bank for Investment & Islamic Finance

IRAQI BANKING SYSTEM opening of letters of credits – procedure / public sector Sectoral Ministries and Govenorates approach Ministry of Finance by official letter incl. original / coloured copy of the contract to confirm proper contracting process MoF approaches the Central Bank to open the letter of credit, with copy to TBI Trade Bank of Iraq  provides l/c reference no. after own review process to Central Bank,  asks for transfer of the funds from Central Bank and is  approaching AML Department to verify status of contracting company Central Bank requests transfer of funds from the Development Fund for Iraq (DFI) to Trade Bank of Iraq to cover the credit. DFI recently been extended by Security Council until 30.06.2011 Timeframe should be 2-3 weeks, in reality it takes 2-3 months Ralph Eckle Trade Risk Facilitation

IRAQI BANKING SYSTEM opening of letters of credits – TBI application form I Strictly recommended to be part of the contract

Who will be opening bank ? As the case may be it could be one of the private banks. Avoid payment terms which are subject to "instruction of the applicant". However, 10-20 % of such retentionamounts are accepted market condition so far. Usually issuing of a performance bond at 5 % is requested  however in addition to any retention !

18

Ralph Eckle Trade Risk Facilitation

UniCredit Bank AG

IRAQI BANKING SYSTEM opening of letters of credits – TBI application form II Strictly discuss any shipments to Iraq with your forwarder ! Several logistical challenges for transportation. Adjustment of "Incoterms" accordingly.

with thanks provided by M.G. International 19

Ralph Eckle Trade Risk Facilitation

PAYMENTS private sector projects

public sector projects Public investments funded by the DFI ("Development Fund for Iraq"). DFI legally based on UN resolutions 1483/2003 + 1546/2004. Disposition of the funds verified by international gremium IAMB (International Advisory Monitoring Board).

Trade Bank of Iraq upto USD 4mn

selected Iraqi private banks backed by a reimbursement undertaking provided by TBI

exceeding USD 4 mn

Trade Bank of Iraq / exclusively

Iraqi Private banks several Middle East banks acting as cooperation partner on behalf of Private banks

"state-of-the-art" instrument: letter of credit to be confirmed by bank of exporter standard payment terms: "at sight" usually with a 10-20 % final payment covering the warranty period Ralph Eckle Trade Risk Facilitation

GUARANTEES all types of guarantees available/accepted in Iraqi banking market so far fair treatment of the banks, no complaints indirect guarantees possible in general, however, ministries usually insist on local guarantees backed by counter-guaranteed by ourselves (indirect)

guarantees can be issued in IQD according to a set exchange rate while counter guarantees must be in USD, EUR, YEN or any international currency. Trade Bank of Iraq - guarantee commissions upto USD upto USD upto USD upto USD exceeding USD stamp duty post/comms Ralph Eckle Trade Risk Facilitation

100.000,00 5.000.000,00 10.000.000,00 20.000.000,00 20.000.000,00

min. USD 350,-- per quarter 0,25 % p.q. for first year 0,20 % p.q. for first year 0,175 % p.q. for first year 0,15 % p.q. for first year 0,2 % flat USD 150,-- flat

upto 1 year tenor max. USD 700,-0,2 % p.q. for subsequent year 0,15 % p.q. for subsequent year 0,15 % p.q. for subsequent year 0,125 % p.q. for subsequent year

RESOLUTION NO. 1.2. FOR THE YEAR 2011 Council of Ministers quote … to study the issue of the guarantees that can be given by the Iraqi government to the foreign companies for the purpose of the implementation of the projects on the basis of deferred payment terms as follows:

The guarantee will be through (Stand by Letter of Credit) between the Trade Bank of Iraq and the correspondent banks, and the Trade Bank of Iraq will be guaranteed by the Ministry of Finance for the financing institutions (export credit guarantee institutions) … unquote

This resolution might pave the way to mid-/long-term financing supported by Iraqi Ministry of Finance.

Ralph Eckle Trade Risk Facilitation

EXPORT CREDIT AGENCIES (ECAs) EulerHermes - general In November 2005 German EulerHermes signed a framework agreement with Ministry of Finance, Baghdad and Trade Bank of Iraq to cover short-term export transactions to Iraq with a maximum tenor of 12 months. L/C's to be opened by TBI, guaranteed by the Iraqi Ministry of Finance In October 2009 EulerHermes improved the conditions for coverage: available also for mid-/long-term export transactions (upto 5 years) for short-term transactions upto 1 year: L/C's from Iraqi banks acceptable, guarantee from Ministry of Finance no longer required Recently UniCredit Bank AG is discussing with TBI a framework agreement for ECA covered business.

Ralph Eckle Trade Risk Facilitation

EXPORT CREDIT AGENCIES (ECAs) EulerHermes - short-term coverage For short-term coverage upto 2 years, TBI is accepted by EulerHermes Private banks on request only 1 deal since 2009 EulerHermes – example calculation of risk fees country OECD risk classification amount of coverage borrower classification

tenor

rate

Iraq 7 500.000,00 amount

issuance fee

application fee

all-in in EUR

in % flat

all-in in % p.a.

3

3 6 12

2,41 2,66 3,15

12.050,00 13.300,00 15.750,00

125,00 125,00 125,00

800,00 800,00 800,00

12.975,00 14.225,00 16.675,00

2,60 2,85 3,34

10,38 5,69 3,34

5

3 6 12

2,48 2,73 3,24

12.400,00 13.650,00 16.200,00

125,00 125,00 125,00

800,00 800,00 800,00

13.325,00 14.575,00 17.125,00

2,67 2,92 3,43

10,66 5,83 3,43

Ralph Eckle Trade Risk Facilitation

EXPORT CREDIT AGENCIES (ECAs) long-term financing Purpose: Financing of individual supply contracts for the deliveries of capital goods from Germany or other European/overseas countries to Iraq. Loans concluded within this scheme will be mainly insured by international Export Credit Agencies (ECAs).

Financing Agreement

Guarantee

ECA Cover

Ralph Eckle Trade Risk Facilitation

Concluded between a local borrower (e.g. Public Company, Ministry or Trade Bank of Iraq) and UniCredit Bank

Provided by the Ministry of Finance of the Republic of Iraq Cover given by the respective Export Credit Agency (ECA) in the country of the Exporter  upto 85 % of eligible project value  upto 5 years repayment structure

EXPORT CREDIT AGENCIES (ECAs) structure of an ECA backed facility Supply Contract

Supplier

Buyer in Iraq Shipment

Credit line

Ministry of Finance of Iraq

Public company / Iraqi Ministry / TBI

Exporter’s Commitment

Financing Agreement

ECA ECA Ralph Eckle Trade Risk Facilitation

Disbursment of the facility

Cover

PERSPECTIVES  The general economic picture has substantially improved. Iraq’s trade volumes continue to grow and substantial investment opportunities are emerging. However no external rating (Fitch, Moodys's, S&P) available so far.  As a major step in June 2009 Iraq startet to sell licences on Iraqi oil/gas production for the first time after a period of more than 4 decades (Rumaila) to get "fresh money" to the country. First awarded company was British BP and Chinese CNPC. By another auction in December 2009, Shell/Petronas was awarded for one of the worlds largest unexploited oil field (Madschnun). As at 2011 phase 4 for bidding on the way.

By a very positive & favourable investment law paired with an enormous need in infrastructure, capital goods and reconstruction, Iraq is an attractive country for investments.

Ralph Eckle Trade Risk Facilitation

The UCI group & Iraq long-lasting personal contacts to TBI supported by Trade Bank of Iraq UCI has grown along with the overall Iraqi banking market Transactional Sales Munich headed by Arabic native speaking Alexander Ladaa (Global Sales Manager for Iraq) Interest in Iraqi market underlined by visit of TBI (meeting in Beirut) by Group Head of Global Transaction Banking Mr. Marco Bolgian in July 2011.

UniCredit is well positioned to manage the commercial business and to develop and implement a suitable, simple and cost-efficient financing scheme based on ECA cover to promote and finance European/Iraqi trade.

Ralph Eckle Trade Risk Facilitation

PERSPECTIVES

Iraq is open for business with thanks taken from TBI Ralph Eckle Trade Risk Facilitation

Your contact

UniCredit Corporate & Investment Banking UniCredit Bank AG Ralph Eckle Director Trade Risk Facilitation Global Financial Institutions & Trade Finance Global Transaction Banking Tel. +49 89 378 26597 Fax +49 89 378 26598 Mobile +49 172 7930085 [email protected] Imprint UniCredit Corporate & Investment Banking UniCredit Bank AG GTB4F2 Tucherpark 1 80538 Munich

Ralph Eckle Trade Risk Facilitation