promoting export with hermes cover

Transcription

1 promoting export with hermes cover

2 Dear reader, Today exports are the most natural thing in the world. In order to safeguard and to enhance the competitiveness of German companies, protection against the risks that may arise from exports has to be provided. This booklet is intended to give you a first overview over the products we offer and the services we provide. If you have any specific questions regarding the export credit guarantees of the Federal Republic of Germany also known as Hermes Cover, please do not hesitate to contact our staff at the Head Office of Euler Hermes Aktiengesellschaft at Hamburg or at any of our branch offices who will be pleased to assist you. You can also send us your queries directly via . In addition, we offer a wide range of information on the Internet. Besides, we regularly hold information workshops where we inform about the cover options and the procedure in case of a loss. We would be pleased to invite you to such an event. What are export credit guarantees? What can we do for you? Federal Export Credit Guarantees provide protection for your 4 receivables all over the world 4 Support for German exporters Political and 5 commercial events of loss Export Credit Guarantees 6 of the Federal Republic of Germany The IMC decides 6 on applications for cover 7 Special support for SMEs A broad range 8 of options for exporters and banks Cover options Our products Cover of export transactions 11 on short credit terms Cover of export transactions 14 on medium and long credit terms 16 Cover for tied buyer credits 18 Manufacturing risk cover Structured finance and 19 project finance From making the application to receiving the money 20 Making an application Is the transaction eligible 21 for cover and is the risk justified? 21 Granting cover

3 Model calculations When a loss occurs Sustainability and environment The history of the Federal Export Credit Guarantees International cooperation 22 How much does Hermes Cover cost? 23 When a loss occurs Export credits 24 and sustainable development 24 The environmental audit 24 Practical experience 25 Transparency 26 Many years of success Federal Export Credit Guarantees 26 as a key to success 27 Change and reliability International cooperation 28 creates a level playing field One-stop shopping 28 for insurance needs The cooperation 29 between the state credit insurers

4 4 what are export credit guarantees? federal export credit guarantees provide protection for your receivables all over the world support for german exporters Federal Export Credit Guarantees Hermes Cover protect your export business against the risk of bad debt losses. The export credit guarantees of the Federal Republic of Germany offer an array of insurance options which are mainly targeted at exports to developing countries and emerging markets. As a matter of fact, Hermes Cover is by no means the only protection available against bad debt losses in connection with export business. But more often than not cover for long credit periods or customized projects is only available from the state. Here, the Federal Republic of Germany offers its services as a reliable partner to the German exporters. The fact that Federal Export Credit Guarantees are necessary has been impressively proven during the more than 60 years of their existence when it came to opening up difficult markets and maintaining trading links despite troubled times. In such circumstances German exporters were able to build or maintain their market po si - tion with the assistance of state export credit guarantees. In the past three years, German exporter and banks in - volved in financing German exports received almost 900 million euros in indemnification from the Federal Republic of Germany for their export transactions insured with Hermes guarantees. Without this security many companies with low equity capitalization would be threatened in their existence. With today s tightly calculated profit margins bad debt losses can soon result in a difficult situation. The Federal Government s export credit guarantee scheme protects your company from the risk of bad debt losses in connection with export transactions. Budgetary re - sponsibility is borne by the Federal Republic of Germany. The two companies Euler Hermes Aktiengesellschaft (Euler Hermes) and PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (PwC) support the Fed er al A bad debt loss is a heavy blow A loss of receivables can deal a heavy blow to a company s balance sheet which is often difficult to compensate. For example, if you sustain a bad debt loss of EUR 100,000 at a pre-tax profit of 2 percent on turnover, this means that you need to make EUR 5,000,000 in extra sales to compensate the loss. The adjacent table shows what extra turnover is necessary to compensate various losses at different rates of return on sales:

5 5 The Federal Republic of Germany provides cover of your receivables against political and commercial risks Government in implementing and managing this scheme for the promotion of exports. In particular for exports to high-risk markets as well as exports of capital goods with extended credit periods it is difficult to secure sufficient cover on the private market. The government thus steps into the breach when the pri - required additional turnover Bad debt Extra sales necessary in thousand EUR loss at a pre-tax profit of thousand EUR 2% 4% 6% , ,500 1, ,000 2,500 1, ,000 5,000 3,333 1,000 50,000 25,000 16,667 vately-owned insurance industry does not provide sufficient cover. For this reason all the Western industrialized countries, but also several developing and threshold countries, have established state-supported schemes for the promotion of their national exporting companies. Thus the German Hermes Cover provides a level playing field in the international competitive arena. political and commercial events of loss Export credit guarantees protect your company from losses due to non-payment for political and commercial reasons. political events of loss can be, besides lack of hard currency in the buyer s country, for example wars, civil unrest or a payment moratorium imposed by a government due to currency restrictions. commercial events of loss are, for example, payment default by the customer or his insolvency. Political Bad debt losses due to legislative or administrative measures, war, civil commotion or revolution abroad (so-called general political Losses due to non-conversion and transfer of amounts paid by the debtor in local currency due to restrictions in the international payment Loss of the right to receive payment due to frustration of contract for political The loss of goods before the risk has passed to the foreign buyer due to political circumstances (e.g., the goods are confiscated, destroyed etc. before reaching the buyer) Commercial Loss of receivables due to non-payment after a certain period (protracted Loss of receivables due to bankruptcy of the buyer, a composition settlement in or out of court, an unsuccessful judgement execution or suspension of payment by the buyer

6 6 export credit guarantees of the federal republic of germany the imc decides on applications for cover Budgetary responsibility for the instrument for the pro motion of exports with export credit guarantees lies with the Federal Government. They decide on basic issues of cover policy and the granting of guarantees in an Inter min isterial Committee (IMC). Back in 1949 two private companies today called Euler Hermes Aktiengesellschaft and Pricewater house Coopers Aktiengesellschaft Wirtschaftsprüfungs gesell schaft interministerial committee imc were entrusted with the management of the export credit guarantee scheme as agents (man dataries). Since Euler Hermes is the lead partner in this consortium, this type of cover became known among German com panies as Hermes Cover. In the course of the almost 60 years since assuming the mandate the two companies have built up a comprehensive know- how base in the field of export finance and export credit cover. Euler Hermes and PwC prepare the applications for a de cision on cover. The Federal Ministry for Economic Af - fairs and Energy, which has the lead function, decides on the merits of an application for cover in the Interministerial Committee (IMC) with the Federal Ministry of Finance approval and after agreement has been reached in con - sultation with the Federal Foreign Office and the Federal Ministry for Economic Cooperation and Development. Not only the representatives of these four ministries take part in the meetings of the IMC but also as advisors staff of Euler Hermes and PwC, who are charged with handling the scheme, as well as experts from industry, the banking sector, and institutions which play an important role for exporting industry. Thus it is ensured that the decisions are in line with the practical exporters needs. BMWi Federal Ministry for Economic Affairs and Energy (lead BMF Federal Ministry of AA Federal Foreign BMZ Federal Ministry for Economic Cooperation and Development Agents Euler Hermes Aktiengesellschaft (Euler PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungs gesellschaft (PwC) representatives of exporting KfW IPEX-Bank AKA Ausfuhrkreditgesellschaft Federal Audit Office

7 7 Maximilian Schneider special support for smes Commercial Director, Brückner Maschinen bau GmbH, Siegsdorf One important focus of the Federal Government s work is on promoting the interests of small and medium-sized enterprises. This is also true of the export guarantee scheme. Our advisory services and the information avail - able have always been particularly tailored to the needs of small and medium-sized enterprises. Small and mediumsized exporters, in particular, can execute orders from high-risk countries in many cases only with the help of Hermes Cover. They are much less able to absorb possible bad debt losses than larger companies. Three out of four applications for cover about 30,000 applications every year come from small and medium-sized companies. Hermes Cover requires no minimum contract value. In many cases these applications are for small transactions on short credit terms. But small firms are regularly in - volved as subcontractors in large-scale projects as well. Euler Hermes has further expanded its advisory facilities for small and medium-sized enterprises. Our experts for small business can visit you at short notice, stand ready to answer questions and provide the benefit of their wide knowledge in specific cases and on complicated issues. They are there to help finding the most suitable cover solution for the business transaction in question. This service is available to you under the telephone number +49 (0) 40/ For several years the Brückner Group, the leading manufacturer of foil stretching machines with a share in the world market of more than 60 %, has been benefiting from export credit guarantees by safeguarding its exports all over the world. So far 18 projects in 12 different countries in Eastern Europe, Latin America and Southeast Asia have been brought to a successful conclusion with the support from Federal Export Credit Guarantees. In the international market of foil manufacturing machines the application of sophisticated technology alone does not suffice anymore what the customers demand these days is the provision of a broad range of consulting and other services: market analyses, feasibil - ity studies and, of course, the presentation of reliable and thorough financing solutions. Here the Federal Export Credit Guarantee scheme due to its flexibility and wide range of products on offer provides the adequate framework for developing cover solutions tailored to each individual project.

8 8 what can we do for you? a broad range of options for exporter and banks Whether you supply goods on short or longer credit terms to one or several buyers, whether these are one-off or recurring supplies, whether you use bank loans or buyer credits or want to finance complex projects: For every export deal you transact there is suitable Hermes Cover available. Manufacturing risk cover protects you from risk during the manufacture of the goods earmarked for export. Export risks following the goods shipment are covered by export credit guarantees. In order to finance the export transactions, your foreign buyer can make use either of a supplier credit or a buyer credit. In the case of supplier credits, the German exporter applies for cover of his transaction. If a bank finances the export business through a tied buyer credit, it can obtain cover of the default risk in the form of a Hermes guarantee.

9 9 If requested, cover exists for the entire period before and after the shipment of the goods until the receivables are paid. Please consider before making an application what option may be the most appropriate type of cover for your goods deliveries or the services you intend to perform, in order to receive the ideal protection from the specific risks attached to your export transaction. Export credit guarantees With the export credit guarantees the Federal Government provides an efficient instrument for the promotion of exports. Export credit make it possible to open up difficult offer protection from make export financing create a level playing field in international support also small and medium-sized preserve jobs in Germany

10 cover options our products 10 the advantages of the various cover options Supplier credit many possible customized cover cover before shipment possible Wholeturnover and revolving flexible insurance easy and swift minimal administrative low costs Buyer credit immediate relief for the balance enhanced no negotiations about credit terms and revolving: simple and swift handling

11 11 Stephan Siegel Managing Director SAXONIA EuroCoin GmbH, Halsbrücke Cover of export transactions on short credit terms The Federal Government offers five different types of cover for export transactions on short credit terms of up to 24 months. Short-term supplier credit cover For receivables arising from a single transaction with one foreign debtor the Federal Government grants shortterm supplier credit cover if the agreed credit period does not exceed 24 months. When raw materials, semi-finished goods, components, consumer goods and spare parts are supplied, the accepted credit period is normally only up to six months maximum. For high-value components and consumer durables, the acceptable credit period is 12 months, and in exceptional cases two years. Revolving supplier credit cover If you regularly deliver to a foreign buyer on short credit terms, the Federal Government can also cover this business with a revolving supplier credit guarantee. The scope of cover and the premium rate are the same as for short-term supplier credit cover, however, it is much easier for you to handle. After your application has been approved, you will receive a policy in which the maximum liability accepted ( maximum amount or limit ), the permissible payment terms and other general conditions are specified. Every delivery is set off against this maximum amount. If the limit is exhausted, any new receivables can only be included in the cover to the extent that old receivables are paid by your customer the contract revolves. There is no need to file separate applications for supplier credit cover for each order and you can react much more flexible to market trends. Wholeturnover Policies SAXONIA EuroCoin manufactures coin blanks which are used for minting coins of different currencies worldwide. The Wholeturnover Policy is an ideal and simple form of cover for the business on short credit terms, which supports our business development with a lasting effect.

12 cover options our products 12 Wholeturnover Policies A centre-piece of the state export guarantee scheme is wholeturnover cover (APG). It is the most suitable form of cover for all exporters who supply several foreign buyers in various countries on short credit terms of up to one year and where there is a balanced spread of risk. The revenues from export business which qualifies for cover should reach at least EUR 500,000 per year. A Wholeturnover Policy offers a comprehensive and flexible means of protecting your export revenues. At the same time the handling is easy and cost-effective because no application and handling fees will be charged. In most cases the premium rate is also much more favourable than for individual supplier credit guarantees. Besides, a favourable loss experience will result in a lower premium because of a system of no-claims bonuses/risk surcharges. Under a Wholeturnover Policy you can obtain cover of buyers in all countries which do not belong to the OECD or the EU plus the OECD member states Chile, Israel, South Korea, Mexico and Turkey. The flexibility of this type of cover makes it pos sible for you to select the countries which are to be included in the cover. In addition, you can optionally include other receivables, e.g. receivables covered by a letter of credit, on a country-bycountry basis. A Wholeturnover Policy protects you from bad debt losses due to your buyer s insolvency, non-payment of receiv - ables within six months following due date as well as due to political risks, especially to lack of hard currency or restrictions on the international payment system.

13 13 Wholeturnover Policies Light Minor turnover in export and credit periods of not more than four months are the most important arguments for choosing a Wholeturnover Policy light (APG-light) as means of cover. Similar to a standard Wholeturnover Policy the Federal Government only provides cover of export business with buyers domiciled outside the EU and the OECD core countries under such a policy. However, for the sake of easy handling you do not have any choice in respect of the countries and types of receivables to be included in the cover. Receivables secured on a letter of credit, receivables from affiliated companies or due for services rendered cannot be covered. There is only a single event of loss: The Federal Gov ernment will indemnify an insured account if and when it remains unpaid six months after the due date. Revolving buyer credit cover Revolving buyer credit guarantees are a form of cover de signed for short-term buyer credits. If your con - tinuous supplies to one foreign business partner on short credit terms are financed by a bank, this credit can be in - sured under a revolving buyer credit guarantee. This type of cover frees up additional liquidity for the exporters.

14 cover options our products 14 Cover of export transactions on medium and long credit terms Export transactions where the agreed credit term is between two and five years long are classified by us as medium term business. Long-term credits may have a repayment term of up to 15 years from commissioning. For such transactions we provide individual specific guarantees. Transactions on credit terms of more than two years generally require an advance payment of 15 % of the order value and payment of the remaining 85 % in at least half-yearly instalments. When granting cover for export transactions on credit terms of more than two years, Germany as member of the OECD has to obey its guidelines, the oecd consensus. Therefore, the maximum or minimum preconditions fixed in the Consensus also apply to your export transactions:

15 15 Claus Hartung Sales Manager Koenig & Bauer AG Planeta-Bogenoffset, Radebeul These guidelines govern, for example, the differentiated minimum premium rates according to country categories and maximum credit periods for certain types of products or for poorer and richer countries. In practice, four out of five extended-term export transactions are financed by banks. The risk involved in such tied buyer credits can be covered by a Federal Government buyer credit guarantee. The provision of security in the form of contract bonds may put a considerable strain on the liquidity of small and medium-sized exporters. The sum to be fixed and re - quested as collateral by the bank providing the credit may amount to as much as 80 percent of the value of the supplies. Here, we assist you with a federal counterguarantee. The amount of the bond is no longer debited against your credit line and that gives you greater freedom to do business. In addition there are further special forms of cover, e.g. for constructional works and for leasing business. With an export credit guarantee for service providers you can insure receivables arising from an export transaction for the rendering of services which are not linked to the export of goods. Supplier credit guarantee Our customers wishes determine our action this is our company s first business principle. In order to meet our customers current needs, especially in risky countries, it never has been more important than today to offer not only high tech products but also a feasible financing plan. The array of options offered by the Federal Export Credit Guarantee scheme makes it possible for us to offer our customers customized solutions and maintain or further intensify our business relations also in difficult times. We thus reduce the risk and preserve jobs even if our customers fail to effect payment.

16 cover options our products 16 Matthias Wietbrock Director Head of Product Advisory and Trade Finance KfW IPEX-Bank GmbH, Frankfurt Buyer credit cover With buyer credit guarantees we can cover our claim for the repayment of loans granted to finance German exports. They enable us to finance exports of German companies to difficult markets at favourable terms and conditions. The companies appreciate this type of cover because it can ease the strain on their balance sheets immediately upon delivery. Cover of tied buyer credits Large-scale export transactions are increasingly bankfinanced: A bank extends a loan to your foreign buyer, enabling him to pay the purchase price to you at the point when the goods are delivered. A buyer credit guarantee then covers the bank s risk. The bank has thus a claim on the foreign buyer for the repayment of the loan. For you as exporter a buyer credit brings immediate relief for your balance sheet and in creased liquidity. buyer credit cover is insurance for an abstract claim under a loan contract, unconnected with the delivery of the goods. Particular problems can therefore arise if the repayment of the loan is refused by the buyer on the grounds of some deficiency of the performance of the

17 17 supplier s contract. For this reason, you as exporter are tied to the contractual relationship with the bank via a so-called Letter of Undertaking: You remain liable towards the Federal Government to provide all information con - cerning the underlying export transaction. Under certain circumstances you also undertake to release the Federal Government from its liability to indemnify. tied buyer credit covered by a buyer credit guarantee in favour of a bank Delivery@ Foreign buyer Loan contract@ Repayment of the Payment of the purchase price upon delivery Letter of undertaking@ Bank (or forfaiting Buyer credit guarantee of the Federal Republic of Germany

18 cover options our products 18 Manufacturing risk cover With manufacturing risk cover you can protect yourself already while the goods are produced. Manufacturing risk guarantees can be combined with export credit guarantees and are recommended in particular for customized goods which cannot be sold to another buyer if they cannot be delivered. The insured event for manufacturing risk cover occurs if political and commercial circum - stances prevent the completion or the despatch of the goods. The risk of an embargo being imposed is also covered. The period covered is from the commencement of manufacture up to the point at which the goods are despatched. Manufacturing risk cover includes the actual prime costs you incurred. These are estimated in advance by you and form the basis for the maximum cover amount given. If an insured event occurs, the actual amount of the loss is ascertained by a specially prepared expertise.

19 19 Gerdpeter von Guretzky-Cornitz Head of Financial Services SMS Demag AG, Düsseldorf Structured finance and project finance Structured finance constructions look primarily at the economic viability of a project. Therefore projects deserving of support may qualify for Hermes Cover even if conventional cover available is limited due to the economic situation in the country concerned. A form of structured finance which has long since established itself is project finance. project financing constructions are complex export transactions in which the operating costs and the repay - ment of any loans taken out are generated by the project itself. In this type of business, the Federal Government s emphasis is thus on an extremely careful analysis and evalu - ation of the project risks. The credit standing of the foreign buyer plays less of a role here than the project itself. A security construction tailored individually to each project guarantees that the revenues from the project are used to service the loans. In countries with a substantial transfer risk, it is essential that the hard currency revenues of the project are paid into offshore escrow accounts outside the country of the project. One type of project finance transaction is the so-called BOT model (Build-Own/Operate-Transfer). In this type of project, which often generates revenues in non-convertible currencies, the exporter takes over the responsibility for operating the project for a specified period. In terms of eligibility for cover and the justifiability of the risk, the same basic criteria apply to project financing as to other types of business. Particular attention must be paid to whether the risk is justifiable, and above all to the economic viability of the project. Project financing Export credit guarantees play an important role in the structuring of project finance transactions in the steel sector, especially where greenfield investments are concerned. The advice and active support during the early phase as well as extensive discussions with the staff of the Export Credit Guarantee Department about the project and the options available for financing it are a core element of a project s overall success. SMS DEMAG is currently discussing several projects in different countries with Euler Hermes which will require lengthy negotiations due to their size and complexity also in respect of procuring the required equity.

20 20 from making the application to receiving the money application procedure for an export credit - Submits an application to Euler Hermes Euler Hermes Aktiengesellschaft - Assesses whether the transaction is eligible for cover - Checks whether the risk involved is justifiable - Prepares report on the transaction Interministerial Committee - Offer of cover (where appropriate subject to certain conditions) Exporter/bank - Notifies the conclusion of the export/loan agreement Euler Hermes - Passes the firm commitment for cover on - Issues the export credit guarantee declaration making an application If you plan to export goods or services, you should contact Euler Hermes already while still in negotiations and, in any case, before signing the export contract. Thus you will receive clear indications as to whether and subject to what conditions your planned transaction is eligible for cover while the negotiations are still in an early stage. In case of a positive decision you receive an offer for cover under an export credit guarantee already before a contract is signed. The exporter or the bank which finances the export transaction applies to Euler Hermes Aktiengesellschaft for ex port guarantee cover. It facilitates fast processing of the ap plication if relevant information material if avail able is enclosed with the application. In the case of applica tions exceeding a value of EUR 15 million, a memorandum giving details of financing, infrastructure, environmental aspects and the macro-economic sig - nificance of the project is also required. If you have any questions, we will be happy to answer them.

21 21 is the transaction eligible for cover and is the risk justified? The Federal Government gives export credit guarantees only for transactions which are eligible for cover and involve a risk that is justified. Most German export business meets this demand. Criteria for eligibility for cover are for example whether the export transaction safeguards or creates jobs (principally in the Federal Republic of Germany) and issues relevant to overall foreign, developmental or structural policy. The par - ticipation of small and medium-sized enterprises as well as infrastructure projects of considerable economic importance also play an important role. A guarantee can only be granted, however, if the risk is justifiable. The IMC stipulates the requirements for each country and thus assesses the risk. This takes into account the financial strength and economic policies of the country concerned, as well as macro-economic and political factors. In addition to this, the foreign buyer s creditworthiness and his payment record are scrutinized. Even if a buyer s creditworthiness is insufficient, it may be possible to cover the transaction if a state or bank guarantee is forthcoming. No cover can be given, how - ever, in cases where there is a high probability of loss. granting cover An offer of cover issued by the Federal Government is binding: If the transaction complies with all the criteria stipulated in this with no changes in substantive or legal status the Federal Government guarantees the assumption of cover in the event of the export contract and, where necessary, the financing loan contract being signed. Offers of cover thus make your position in the negotiations safer. After the contracts have been signed, a decision is made on whether to confirm the granting of cover. If this results in a positive decision, the Federal Government concludes a contract of guarantee with the insured and issues a certificate of guarantee (guarantee declaration). This certificate contains all the details material to the cover, such as the type and amount of the risks insured and a description of the business transaction.

22 22 model calculations calculation examples for the premium payable for export credit cover (table) how much does hermes cover cost? case 1a: Order value: EUR 1 million Covered amount: EUR 850,000 Risk period: six months Delivery to a country with medium risk level: Country Risk Category 4 Public buyer: SOV Cost of cover: EUR 8,755 plus fees* or 1.03 % of the guaranteed amount You pay premium and administrative fees for your export cred it insurance cover. The administrative fees depend on the order value. When an application is made, we charge an application fee. For each prolongation of the provisional offer of cover beyond one year, a prolongation fee must be paid. There is in addition an issuance fee for issuing the guar antee declaration. We do not charge any credit rating fees. The premium rate depends primarily on the premium category into which the country of the buyer falls in a harmonized OECD system. Category 0 means a very low risk and thus the lowest premium rate, while Category 7 signifies the highest risk and the highest premium rate. The premium is further influenced by the order value, the length of the credit period and the status of the buyer and/or guarantor. In addition to the buyer s credit stand - ing certain types of security interests, which reduce the creditor s risk, may affect the calculation of the premium. case 1b: case 2a: case 2b: Order value: EUR 1 million Covered amount: EUR 850,000 Risk period: six months Delivery to a country with medium risk level: Country Risk Category 4 Private buyer: CC3 Cost of cover: EUR 11,220 plus fees* or 1.32 % of the guaranteed amount Order value: EUR 1 million Covered amount: EUR 850,000 Risk period: five years Delivery to a country with medium risk level: Country Risk Category 4 Public buyer: SOV Cost of cover: Order value: EUR 1 million Covered amount: EUR 850,000 Risk period: five years Delivery to a country with medium risk level: Country Risk Category 4 Private buyer: CC3 Cost of cover: EUR 25,925 plus fees* or 3.05 % of the guaranteed amount EUR 40,545 plus fees* or 4.77 % of the guaranteed amount * For transactions of this volume an application fee of EUR and an issuing fee for the guarantee declaration of EUR 250 will be charged in addition.

23 when a loss occurs 23 If there are any payment delays, please contact the employees of Euler Hermes early on in order to discuss the specific situation and the necessary steps to be taken. The purpose of this is to assist you with your obligation to take all measures required to collect the outstanding receivables. Because if a loss is looming, team-work between the Federal Government, the exporter, the bank providing the credit and Euler Hermes frequently makes it possible to stabilize a project which has become economically un stable and to avoid indemnification payments at least partially. In most cases the restructuring will be in the form of a prolongation. This has also advantages for you as exporter. If receivables due from a foreign buyer are not paid as agreed in the contract, you or the bank submit a claim for indemnification to Euler Hermes. We check whether the export business was transacted in accordance with the terms of the guarantee and then indemnify you within one month of the claim being ascertained. Your claim, in the amount indemnified, is then subrogated to the Federal Republic of Germany. You or the bank retains the uninsured percentage agreed for your/its own account. Only legally valid claims can be indemnified. If a foreign debtor disputes his liability to pay, the Federal Government is entitled to suspend indemnification pend - ing final clarification. The Federal Government participates in the costs, e.g. court costs or lawyers fees. In the case of political claims it normally tries to recover the sums indemnified in the form of a rescheduling agreement with the country concerned. Uninsured percentage You and the Federal Republic of Germany share the risk. This also holds true in case of a loss. Therefore every type of cover includes a percentage of any loss which you must bear for your own In the case of supplier credit cover and revolving cover for political risks, it is 5% and for commercial risks and protracted default, it is normally In the case of Wholeturnover Policies for political risks, it is 5% and for commercial risks, it is In the case of Wholeturnover Policies light for all types of risk, it is 10 In case of buyer credit cover for all types of risk, it is In case of manufacturing risk cover for all types of risk, it is 5% You are not permitted to insure the uninsured percentage elsewhere or to otherwise secure it.

24 24 sustainability and environment export credits and sustainable development A prerequisite for the granting of cover is that the export transaction is eligible for support and involves a risk that is justified. In this context the environmental and social impact especially of sensitive projects plays an important role, because the Federal Government does not want to support such projects which may have serious adverse ecological, social or developmental impacts. The basis for the environmental assessment is the OECD Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (Common Approaches). These common rules define the procedural requirements and the standards for the environmental and social review. This creates a level playing field for German exporters and strengthens their competitive position on the international market. the environmental and social audit To enable an efficient processing, you should submit all relevant information with regard to the potential en - vironmental and social impacts of the project to benefit from official support as early as possible. On our Internet pages you will find questionnaires indicating what information may be relevant in connection with your appli ca - tion. In the case of sensitive projects, we will hold initial advisory meetings already before or shortly after receipt of the application for cover to inform the exporter and the financing bank beforehand about the potential requirements demanded by the Interministerial Committee in relation to the environmental impacts of the respective project. In individual cases all relevant information from other sources will be taken into account. These may be other export credit agencies or financing banks involved in the project. In addition, reports prepared by the German embassy in the respective buyer country or information obtained from non-governmental organizations (NGOs) may also be taken into account. In the case of projects with a high environmental impact (so-called Category A projects) the submission of an Environmental and Social Impact Assessment Report (ESIA) is mandatory. practical experience During the last years there have been ongoing discussions on the practical implementation of the environmental and social guidelines with the exporters, banks and industry s representatives which have shown that these guidelines have proved to be practical. Today sustainability aspects play a key role when a transaction s eligibility for sup port is examined. Information flow on individual projects be - tween the German supplier, the foreign buyer, the mandatary consortium and other export credit agencies or financ - ing institutions involved is improving as all concerned are gaining experience in applying the environmental and social guidelines.

25 25 The environmental and social audit publication of project information Provided that you as insured give your permission, some project details of transactions with an order value of EUR 15 mil lion or more are published over the Internet. In the case of Category A projects we publish additional in - formation on the environmental impacts before the final decision whether to grant cover is made. The main points of the Our experts assess the environmental and social impacts of all projects and exports of capital goods and services destined for projects with a repayment term of two years or more and a German portion of more than EUR 15 million and evaluate them according to the guidelines established in the Common Approaches. If there are special indications, an assessment of transactions with credit terms of less than two years may be required in individual cases (e.g. in particularly sensitive sectors of industry or if people are affected by the Each project will be classified in accordance with its potential adverse environmental impacts and the industrial sector it is in. Depending on the category, the extent of the environmental assessment is determined. If a project has the potential to have significant environmental impacts, it is classified as Category A, whereas projects with less adverse environmental impacts are classified as Category B and projects with no or only minor adverse environmental impacts are classified as Category Officially supported projects should, in all cases, comply with the environmental standards of the buyer country. Besides, projects will be benchmarked against international standards (above all those published by the World Bank Group). The review for closer scrutiny of environ - mental and social impacts takes into account the individual circumstances of each project, in particular the ability of the German exporter to influence the overall project, especially with regard to the type of environmental information required. To the extent that the German portion of the transaction allows such a positive influence to be exerted on the overall project, we will make full use of such influence. This may include international cooperation with other state export credit agencies involved in the project.

26 26 the history of the federal export credit guarantees The history of the export credit guarantee scheme The origins of the German Export Credit Guarantee scheme date back to The then Ministry of Economic Affairs signed a general contract with the then Hermes Kreditversicherungsbank AG, which specified among other matters the division of risk between the state and the private credit insurer. The commercial risks involved in German companies export business were borne by the private insurer, while the state gave 100 % reinsurance for the political risks. Like Euler Hermes, PwC, an auditing and consulting company which is in large part a successor to Deutsche Revisions- und Treuhand AG, founded in 1922 (formerly known also as Treuarbeit AG), has also been involved in export credit insurance since the twenties of the last century. Following the founding of the Federal Republic of Germany, a state-supported export credit scheme was also re-established: The state mandated two companies to manage the scheme and has since that time been the insurer for both political and commercial risks. many years of success The export credit guarantee scheme has proved its worth over many decades and its underwriting tools have be - come an indispensable instrument in the protection of export cred its. This makes them a major element in the Federal Repub lic s activities to promote foreign trade. And they also have a huge influence on the German job market: According to an expertise compiled by the Munich-based research agency ifo-institut, Hermes Cover se cures up to 240,000 jobs in Germany across all sectors of the econo my. And it is not only to the benefit of German exporters: Federal Export Credit Guarantees play an important role for the buyer countries too. With their help, less developed countries are enabled to import state-of-the-art technology from Germany. More than 80% of specific guarantees are in respect of plant, machinery and equipment, ships and aircraft. Also many developing and threshold countries can only realize infrastructure development programmes with the help of these export guarantees, thus laying the foundations for their future economic development. federal export credit guarantees as a key to success The Federal Government with its export credit guarantee scheme is an important and reliable partner for the German export industry in the international competitive environment. Federal Export Credit Guarantees enable German exporters to offer their high-quality goods especially in difficult times and high-risk markets, thus safeguarding jobs in Germany. The Federal Government aims at operating a policy of long-term cooperation with the buyer countries. An intensive dialogue and the sharing of information and experience with exporters and banks is the basis for constantly adapting export credit guarantees to latest developments and changes in the market. This ongoing

27 Landmarks of the export credit guarantee scheme 27 process makes finding practical and tailor-made solutions for each individual export transaction possible. Because of the ever greater international interconncetedness of business, the cooperation between Germany and the foreign countries is constantly being intensified. And in all of this the Federal Government places great emphasis on tailoring its instruments especially to the needs of small and medium-sized enterprises. The key to this success is not least an efficient organiza - tion al framework. On the one hand, the Federal Government fixes the forms of cover, decides on cover policy for the buyer countries and takes the decision whether to grant a guarantee in the case of major transactions in the IMC. On the other hand, it delegates the day-to-day han dling of the scheme to a private mandatary consor tium with long years of experience in state export credit insur - ance. This trustworthy collaboration is the guarantee for customer focus and fast decisions which take account of individual needs. change and reliability The underwriting tools of the export credit guarantee scheme are adapted to constantly changing economic developments in an ongoing process so that a funda - mental change in the system is not needed. It is planned, however, that the next few years will see an even greater focus on the needs of small and medium-sized exporting companies and more stringent attention to environmental and developmental aspects in individual critical cases. Despite all these processes of adaptation and continuing development of the scheme, the goal of the Federal Government, represented by the IMC, remains steady, to promote export business and by doing so to create and safeguard jobs Law for the Assumption of Security Instruments and Guarantees for Exports passed 1949 Amount of statutory cover limit: DM 120 million 1952 Introduction of the wholeturnover policy 1956 First meeting of the Paris Club 1960 Introduction of cover for tied buyer credits 1975 First cover given for Airbus business, an A300 for the Belgian airline Trans European Airways 1977 Amount of statutory cover limit: DM 100 billion 1978 Guidelines for Officially Supported Export Credits resolved (OECD Consensus) 1984 New version and first publication of the guidelines 1985 First offers of cover for project financed transactions 1990 Federal Government cover given for companies in the GDR 1992 Cover of countertrade transactions with CIS countries 1998 Introduction in Germany of the premium system harmonized throughout the OECD; Premium rates by country category th anniversary of the export guarantee scheme 1999 The government ministries responsible for the scheme move from Bonn to Berlin 2001 Environmental guiding principles passed 2008 Amount of statutory cover limit: EUR 117 billion th anniversary of the export guarantee scheme ( German version only) 2010 Record result in the amount of EUR 32.5 billion (previous year: EUR 22.4 billion)

28 28 international cooperation international cooperation creates a level playing field one-stop shopping for insurance needs The increasing globalization of business leads to ever closer international cooperation. This has not passed the state export credit insurers. In order to create a level playing field in international competition and to harmonize procedures, the state export credit agencies cooperate closely in the various committees and organisations. In major projects, an ever greater number of suppliers and manufacturers from different countries are increasingly involved. This leads to a growing role for reinsurance and coinsurance schemes. If an exporter has receivables due from a foreign customer in his own name, each supplier can get cover from his own credit insurer to guard against bad debt losses (parallel insurance). If the receivables are all in the name of the lead contractor, there is the option of reinsurance or the proportional inclusion of a foreign share in the deliv eries. If the payment risks are passed on, application can be made for a coinsurance agreement. One example of tried and proven international co - operation is the cover given for airbus business where the countries involved, the United Kingdom, France and Germany, work together according to an agreement specially drafted for this purpose.

29 29 the cooperation between the state credit insurers The member countries of the OECD have been working since 1978 to reach agreement on minimum standards in payment terms and credit periods (OECD Consensus). Since 1999, country risk categories have also been harmonized in the OECD and minimum premium rates allocated to the various risk categories. This is intended to ensure that the exporters compete via pricing and the quality of the goods exported, and not in terms of how much support a state gives to its exporters. The state export credit insurers intensively cooperate at the multilateral and bilateral level. The most important groups at oecd level the the Export Credit the Consultations the Premium the Country Risk Experts Group In the European Union there is a working group to coor - dinate policy on credit insurance cover, guarantees and buyer credits. The Berne Union is the biggest private-law association of credit and foreign investment insurers from OECD and non-oecd countries worldwide. The OECD consensus regulates payments in several Advance and interim payments of at least 15% of the total order Maximum credit periods, differentiated by country It limits the level of local costs to be It excludes capitalization of interest from the commencement of the credit It stipulates capital repayment instalments at least every six months from the commencement of the credit The commencement of the credit period must be clearly Credit interest must be on a reducing balance It regulates minimum interest rates for officially supported financing It regulates basic principles for tied aid credits

30 30 Federal Export Credit Guarantees Export Credit Guarantees of the Federal Republic of Germany are granted under the control of the federal ministry for economic affairs and energy. Bundesministerium für Wirtschaft und Energie Referat VC2 Scharnhorststr Berlin Internet: The Federal Government has appointed a consortium formed by euler hermes aktiengesellschaft, Hamburg, as lead partner, and pricewaterhouse coopers aktiengesellschaft wirt schafts prü fungs gesell - schaft, Frankfurt am Main, branch office Hamburg, to manage the official export guarantee scheme. You can find out more details and request information material as well as advice on the options and procedures open to you under the export credit guarantees scheme of the Federal Republic of Germany either from the Euler Hermes Head Office or from the regional branch office for your area. You can also dial up more information via the Internet: e.g. the latest AGA-Report, General Terms and Conditions and information leaflets, the Annual Report in German and English as well as information on events. head office Euler Hermes Aktiengesellschaft Gasstraße Hamburg Phone: +49 (0)40/ Fax: +49 (0)40/ info@exportkreditgarantien.de berlin liaison office Friedrichstadt-Passagen Quartier 205 Friedrichstraße Berlin Phone: +49 (0)30 / Fax: +49 (0)30 / aga-berlin@exportkreditgarantien.de