Exim Bank-funding Options organised by ICSI Apr 06, 2012

Exim Bank

Section I : EXIM BANK

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EXIM BANK OF INDIA Exim Bank

India’s Premier Export Finance Institution  Established in 1982 under an Act of Parliament to finance, facilitate and promote India’s international trade and investment.  Principal financial institution in India for coordinating working of institutions

engaged in financing exports and imports.  Range of Financing Programmes:  Export Credits.  Finance for Export Oriented Companies.

 Export Advisory Services. 3

EXIM BANK OF INDIA - Financials 2010-11 Exim Bank

 Loan Approvals : `. 47798 crore  Disbursements : `. 34423 crore  Profit Before Tax : `. 868 crore  Profit After Tax : `. 585 crore  Paid Up Capital : `. 2000 crore

 Networth : `. 5230 crore

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Evolving Vision Product Centric Approach Export Credits 1982-85

Exim Bank

“To develop commercially viable relationships with a target set of externally oriented companies by offering them a comprehensive range of products and services, aimed at enhancing their internationalisation efforts”

Export Capability Creation 1986-94

Customer Centric Approach

Comprehensive Range of Products And Services – All Stages of the Export Business Cycle – Exim Bank TODAY

Leadership and Expertise in India’s Export Finance 5

RANGE OF PRODUCTS & SERVICES At All Stages of Export Business Cycle

Export Marketing

Exim Bank

Value Based Services to Exporters

PreShipment Information

Export Production

PostShipment

Export Product Development

Investment Abroad Import Finance

Knowledge Building – Research & Analysis

Value Added Business Advisory Services

Advisory Services SUPPLEMENTS FINANCING PROGRAMMES

FINANCING, FACILITATING INDIA’S TWO WAY TRADE & INVESTMENT

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Financing Programmes Exim Bank

Financing Programmes (Various Currencies) Export Credit

Import Credit

Medium / Long Term

- Import Loan for capital

- Lines of Credit

goods

- Buyer’s Credit

- Bulk Import Loan for

- Supplier’s Credit

Raw Materials

Short Term - Pre/Post Shipment Credit

Loans for Exporting Units

- Term Loans for expansion/ diversification/ new projects/ export product development/ export marketing/ research & development - Term Loans for overseas equity investment

- Direct equity stake in Indian/ Overseas ventures of exporting companies

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Exim Bank

Section II : PROJECT EXPORTS & EXPORT CREDIT FINANCING

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WHAT IS PROJECT EXPORT?

Exim Bank

TYPES OF PROJECT EXPORTS

Supply of machinery and equipments on deferred payment terms (beyond one year credit) e.g. supply of buses, tractors, textile machinery

Turnkey Projects (involve setting up of industrial projects on turnkey basis = supply of machinery plus services like erection and commissioning) e.g. Sugar plant, Cement plant, Water treatment plant, power generation plant, transmission lines

Civil construction contracts (construction of dams, roads, bridges, railways)

Consultancy Services (e.g. engineering design, O & M contracts, ITEducation projects) usually on cash payment terms

Features: (i) Long gestation period; (ii) relatively large values; (iii) Importing countries from India are normally developing economies – require medium to long term credit 9

EXPORT CREDIT FINANCING

Exim Bank

TYPES OF TERM EXPORT CREDITS Supplier’s Credit: Exim Bank extends credit to Indian supplier / exporter  Indian supplier extends matching credit to overseas buyer Exim Bank has recourse to Indian supplier Indian supplier’s recourse is to his overseas buyer Indian supplier is liable to pay Exim Bank even if not paid by his buyer

Buyer’s Credit: Exim Bank extends credits directly to overseas buyers of Indian projects / goods / services Exim Bank has no recourse to Indian exporter Indian exporter carries no credit risk: preferred option for him

Seeks Insurance Cover for credits from ECGC

Lines of Credit:  Exim Bank extends credits to foreign governments / overseas financial institutions Usually to finance a series of transactions No recourse to exporter: preferred route for him

On its own: Commercial terms

At the behest and with support of GOVT. OF INDIA 10

Exim Bank

Section III : LINES OF CREDIT

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Lines of Credit Programme Exim Bank

Lines of Credit (LOCs) Exim’s own LOCs to economically strong developing countries and regional development banks

At behest of GOI, concessional LOCs to developing countries in Asia/ Africa/ Latin America with a long-term perspective. While Exim raises the resources and funds disbursement, GOI guarantee and provide interest equalisation support under India Development Initiative

Status of LOCs No. of LOCs operative

:

139

No. of countries covered

:

72

Total amount of LOCs sanctioned

:

US$ 6.68 billion 12

Lines of Credit

Exim Bank

Extended to



Overseas Governments



Government agencies overseas



National/regional development banks abroad



Commercial banks abroad

GOI Lines of Credit also extended through Exim Bank

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Lines of Credit

Exim Bank

A Catalyst for Trade Promotion  LOC is a proactive mechanism to promote exports of goods and services from India to target countries  Extended to foreign Governments, Agencies nominated by the Government e.g. Central banks abroad, Development banks

 Non-recourse export finance to Indian exporters  Enable recipient countries to import Indian projects, technologies and equipment on concessional terms

 Creates visible socio-economic impact in LOC recipient country  Promotes long term economic and political relations with LOC recipient countries

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Broad terms under Exim Bank’s LOCs  Advance Payment :

10% of FOB/CFR/CIF value

 Credit offered

:

90% of FOB/CFR/CIF value

 Credit Period

:

Exim Bank

 5 years for capital and engineering goods  2 years for industrial manufactures and consumer durables

 1 year for commodities  Availability period :

36 months for opening L/c 42 months for disbursement

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Broad terms of GOI-LOCs routed through Exim Bank

Exim Bank

 Credit offered

:

100% of FOB/CFR/CIF /CIP value

 Credit Period

:

8-20 years (inclusive of moratorium of

2-5 years  Availability period :

48 months from the scheduled completion date for project exports 72 months from the execution of the Credit Agreement for supply contracts 16

GOI-Lines of Credit

Origination of LOC Proposal Exim Bank

PreApproval Stage

confirms

Exim Bank comes in picture 17

Establishing the LOC – Pre-signing stage

Exim Bank

Origination of a proposal For Exim LOCs:  Exim Bank’s Representative offices around the world  Requests from exporters for financing a project found viable by the Bank  Requests from the financial organisation/ government in the borrower country  Proposals originating from Exim Bank’s partner organisations

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Lines of Credit

Exim Bank SIGNING OF LOC AGREEMENT Exim Bank of India

Sends draft LOC Agreement through Indian Mission Borrower (Applicant Govt. / Institution ) If Acceptable

If Not Acceptable Suggests

amendments

Conveys

Acceptance

Exim Bank of India

AGREEMENT SIGNED

Concurs

Agreement Finalised

Borrower (Applicant Govt. / Institution )

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Lines of Credit

Exim Bank

MAKING LOC AGREEMENT EFFECTIVE

Borrower (Applicant Govt./Institution) Forwards 1.Legal Opinion 2. List of Authorised Signatories and 3. Guarantee of recipient Government if Borrower is an agency nominated by Government

Exim Bank of India

Scrutinises the documents and if found in order Agreement effective Conveys effectiveness

Borrower (Applicant Govt./Institution) 20

Lines of Credit

Contract Approval Exim Bank

Borrower Government is expected to conduct Fair and Transparent selection process with wider participation of Indian companies.

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Lines of Credit

Disbursements & Repayment Exim Bank

Disbursements are linked to the progress of execution of the contract.

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Exim Bank’s Operative Lines of Credit  Total operative LOC

:

139

 Amount

:

US$ 6.68 billion

 Regions

:

Africa, Asia (South, South

Exim Bank

East & West), LAC, Europe

and Oceania 23

Lines of Credit

Success Stories: Ghana Exim Bank

 Landmark and monumental structure in entire West African region  True representation of Indian

expertise in construction sector  Symbol of enhanced Indo-Ghana relationship  Provided jobs to semi-skilled A landmark structure to house Seat of the Government and

Presidency has been constructed by Shapoorji Pallonji & Co., Mumbai, financed under the GOI-supported LOC to Ghana

and un-skilled labourers of Ghana

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Lines of Credit

Success Stories: Senegal Exim Bank

 Coverage area under irrigation has increased more than two fold from 24,500 ha in 2006-07 to 65,000 ha in 2008-09.  Rice production in the region has also gone up by 177% from 130,000 tonnes in 2006-07 to 360,000 tonnes in 2008-09.  Around 40% of the rice demand of Northern Senegal could be met by local production, as compared to the earlier 19% of local demand.

Under the LOC of US$ 27 mn to Senegal, Kirloskar Brothers Ltd.,

in January 2007, manufactured, supplied and installed 2394 diesel engine pumpsets in rice producing zones of Senegal

 Reduced the import bill of food products as also generated employment as field workers (particularly women farmers) and servicing staff of equipment. 25

Exim Bank

Section IV : BUYER’S CREDIT

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Buyer’s Credit : Salient Features

Exim Bank

Buyer’s Credit extended by Exim Bank facilitates exports from small and medium sized Indian companies by providing credit to overseas buyer to import goods from India. Savings on LC charges by way of financing non-LC transactions in exceptional cases. Provides non-recourse finance to Indian Exporter by converting the deferred credit contract into cash contract. Buyer’s credit finance can be a transaction specific financing or it could be a renewable limit, thereby financing the working capital requirement of overseas company. 27

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Buyer’s Credit :Procedural Flow

Exim Bank

1. Contract is signed between Overseas Buyer (borrower) and Indian exporter. 2. Overseas Buyer requests Exim Bank to sanction credit facility to fund the contract. 3. Exim Bank after due diligence sanctions Buyer’s Credit to the Overseas Borrower (i.e. Buyer) on mutually agreed terms that include security, rate of interest, repayment schedule. 4. Exim Bank and Overseas Borrower execute Buyer’s Credit Agreement (BCA) and create security as per the BCA. 5. Indian exporter ships the goods and despatches copies of the export documents either directly to Borrower’s banker or through its banker in India. . 28

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Buyer’s Credit :Procedural Flow (Contd)

Exim Bank

6. Indian exporter submits set of non-negotiable export documents to Exim Bank. 7. Overseas borrower accepts documents presented by its banker and makes arrangement for payment by way of disbursement from the Buyer’s Credit for which, it forwards payment authorisation along with payment instructions requesting Exim Bank to make disbursement under the credit facility. 8. Exim Bank disburses to Indian exporter through its banker and debits loan account of overseas borrower. 9. Indian exporter’s banker receives payment in its Nostro account, credits the proceeds in exporter’s accounts and issues advise/FIRC to Indian exporter. 10. Overseas borrower services the Buyer’s Credit extended by Exim Bank as per the terms & conditions of the sanction. 29

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Role of Commercial Banks under Buyer’s Credit

Exim Bank

 L/c negotiations, if required, through designated commercial banks

 Funds are routed through the bank by Exim Bank.  Supplementary support facilities are offered by commercial banks. 30

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Buyer’s Credit (Contd..)

Exim Bank

Critical Points for Consideration:  Country Risk

 Risk of default by the Borrower

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Exim Bank

Section V : BUYER’S CREDIT UNDER NEIA

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BUYER’S CREDIT UNDER NEIA: APPROVAL PROCESS

Exim Bank

(8) Signing of Commercial Contract

Indian Exporter (1) Approaches for Buyer’s Credit and Terms

(5) For proposals exceeding USD 20 mn, approval is sought

Working Group: Exim Bank, RBI, ECGC, Sponsoring Bank

(7) Buyer’s Credit Approval

Overseas Buyer

(9) Signing of Buyer’s Credit Agreement (2) Due EXIM BANK Diligence (3) Seeks In-principle approval for cover and premium rates

(6) Approval accorded (4) Conveys In-principle approval and premium

ECGC - NEIA

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BUYER’S CREDIT UNDER NEIA: CONTRACT EXECUTION AND DISBURSEMENT

Indian Exporter

(4) Funds Transfer

(2) Submits shipping documents and Claims disbursement

(1) Supplies goods / provides services

Exim Bank

Overseas Buyers

(3) Exim Bank will negotiate documents under Letter of Credit or payment will be made to exporter against Payment Authorisations

EXIM BANK

(5) Advises buyer about disbursement and debit his Buyer’s Credit a/c with Exim Bank

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BUYER’S CREDIT UNDER NEIA: FEATURES Eligible Buyer

Exim Bank

Sovereign governments and government owned entities

overseas Eligible Goods

Project exports from India

Quantum of Credit

Generally, not more than 85% of the contract value

Rate of Interest

Linked to Exim Bank’s cost of funds plus spread

Premium on NEIA cover

On case-by-case basis; to be borne by exporter

Repayment

Credit period would normally be 5 to 8 years. Longer credit period could be considered in deserving cases

Security

 Sovereign guarantee if the borrower is other than the foreign government  Any other security, on case-to-case basis. 35

COVER FOR PROJECT EXPORTSCHALLENGES

Exim Bank

 Long Horizon of Risk  Difficult to predict Risk  Concentration of Risk  Destination of Indian Project Exports  Large Exposures  Inadequate Reinsurance

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NEIA - DETAILS

Exim Bank

 Size of the corpus  Coverage of Buyer’s Credit of Exim Bank

 Special term of cover: 100% cover including exchange rate fluctuation Cover for principal and interest @ floating interest rate Waiting period of three months

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POSITIVE LIST OF COUNTRIES CRITERIA

Exim Bank

 Countries offering sovereign guarantees

 Countries in ECGC’s RCC II list excluded  Selective inclusion of RCC I countries

 Selective inclusion of open cover category countries with ECGC ratings from A2 (2/7) to C1 (5/7)  ECGC’s Underwriting Experience, and inputs from MEA & MOC  Positive List of 30 shortlisted countries based on business potential, strength of the sovereign guarantee, need for financial support etc.

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Positive List - Countries Exim Bank

SAARC

ASEAN

WANA

West Africa

East Africa

1.Afghanistan 2.Bangladesh 2. Bhutan 3. Nepal 4. Sri Lanka 5. Maldives 6. Nepal

7. Indonesia 8.Vietnam

9. Algeria 10. Egypt 11. Libya 12. Kuwait 13. Morocco 14. Syria

15. Ghana 16. Nigeria

17. Ethopia 18. Kenya 19. Tanzania

Southern Africa

Central Africa

Central Asian Republic( CAR)

Central Asia

Eastern Europe

28. Mongolia 30. Belarus 20. Botswana 21.Mozambique 22. Zambia 23. Namibia

24. Uganda 25. Malawi

26. Kazakhstan 27. Uzbekistan

Eurasia 29. Russia

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WHY BUYER’S CREDIT UNDER NEIA?

Exim Bank

 Number of project exporters from India is dwindling

 Availability of Buyer’s Credit for high-risk countries / high value complex projects on the wane for want of suitable cover  Markets for India’s project exports are Sub-Saharan Africa, Latin America, South Asia, South-East Asia besides West Asia and North Africa. These markets demand long term credit up to 15 years  High value contracts in sectors like Infrastructure & Construction, Oil & Gas, Electricity [Generation / Transmission] require long term credits  Project exporters will be able to penetrate new markets and expand business in the existing markets. 40

EXIM BANK

THANK YOU Fore more information, visit us at www.eximbankindia.in www.eximbankagro.in