Credits: Balachandran Ramamurthi; Banking, Reliance Industries Limited
ECAs (Export Credit Agency) are
Government agencies or ministries/ departments
Private insurers with public mandate
Provides financial assistance to promote exports from their home country. ECAs are public risk insurer in the Export Credit Business and provides coverage against:
Political risk associated with Borrower’s home country
Commercial risk of repayment by the Borrower
Primary pre-requisites for an ECA backed Financing:
Minimum Home Country Content Requirement. Generally , all ECAs require majority content from home country.
85% of Imported Goods & Services (subject to fulfillment of applicable minimum home country content requirement) including Foreign content
Max. up to 30% of the export contract value as Local Cost
For ECA finacnicing of long lead item, the delivery of the equipment can take somewhere around 20 months, and so will the subsequent payment; also companies may want to consolidate all the financing done in a particular country. Taking all this into consideration companies normally require a Utilization Period/ Availment Period of 3 Years and Repayment Period of 10 Years.
Reach Back: In this case bank will give loans for order which have been placed even before the contract between borrower and agency.
Advantage of ECA financing:
Borrower: Gets loan at a much cheaper rate :)
Seller/ Manufacturer: Has risk mitigated, since bank are in the same country :)
Agency: Export improved in home country :)
The strategy here should be to maximize ECA financing as much as possible.
Lets suppose, manufacturing is in supplier scope while to get the advantage of bulk transportation you have kept transportation in your scope ... so the shady idea here is to keep transportation under seller scope (so as to get ECA financing), but ship on your own (to get bulk discount). ... awesome :)