THE EXPORT-IMPORT BANK OF BOEING

The Export-Import Bank of Boeing



The Export-Import Bank of Boeing

The export credit agency will provide cover either by means of insurance to the exporters or bankers or by means of a direct guarantee of payment to the bank covering a loan to an overseas borrower to finance the supply of goods and services in the event of any default in payment by the buyer or the borrower under a loan agreement. Such insurance cover or guarantees could be a combination of comprehensive cover (i.e., commercial and political) or only political risk cover (Andersen, 2011, Pp.96).

Previously export credit agencies promoted exports through subsidies that assisted those exporters who were able to obtain cover from them. Where credit agencies were involved, exporters were likely to offer more competitive business terms. The use of credit agencies was and is helpful to exporters in those markets where the political situation is more risky. Credit agencies can provide appropriate cover when commercial lenders are more reluctant to take political risks.

All countries that have official export credit agencies are now party to the "Arrangement on Guidelines for Officially Supported Export Credits". The arrangement seeks to harmonise the support credit agencies offer, and applies to officially supported export credits relating to contracts for sale of goods or services, or both, which have a repayment term of two years or more. The arrangement does not apply to export of military equipment and agricultural commodities. Special rules also apply to ships, nuclear power plants and aircraft.

The arrangement provides specific rules for project finance, which derogate from the usual Consensus Rules and essentially provide for a longer repayment term of up to 14 years, and, depending on the nature of the transaction, for repayments to be made in unequal instalments and for interest payments and principal repayments to be made less frequently than semi-annually. More flexible minimum repayments terms for project finance transactions are subject to the following conditions:

• the aggregate amount repaid in any single six-month period shall not exceed 25 per cent of the principal sum of the credit;

• the first repayment of principal shall be made no later than 24 months after the "starting point of credit" and must not be less than 2 per cent of the principal sum of the credit;

• interest must be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months from the starting point of credit; and

• the weighted average life of the payment period must not exceed 7.25 years (or 5.25 years where the shorter 10-year repayment term for high-income OECD countries applies).

The purpose of this paper is to concentrate on project financing and the relationship between ECAs, multilaterals, lenders and sponsors in a typical project financing. As a result of developing country indebtedness and substantial defaults on sovereign loans, the financial world, rather than depending on sovereign guarantees, has looked at other forms of financing. Project finance became fashionable again in the mid-1990s, when a ...