Table of Contents 1 Organization of the Export Financing Department 2 Export Financing 3 Export Financing Products 4 Payment Terms in Export Transactions 5 Credit Guarantees and Insurance 6 Rescheduling of Official Credits 7 Export Financing Costs 8 Industry Fairs 9 Foreign Exchange and Country Information 10 Export Financing Checklist Chapter 1 Organization 1.1 Organization of the Export Financing Department 1.2 Organization of UBS - Worldwide 1.1 July 1989 Organization Export Financing Department Department Management Direct Dialling Dr.J.Pumplün First Vice President/Department Manager 235 42 10 Export and Project Financing R.Binz First Vice President/Deputy Department 235 42 60 Manager Export Financing Section R.Binz First Vice President/Section Head 235 42 60 Customer Services for Swiss Exporters Group l Dr.G.Gonzenbach Asst. Vice President/Head of Group 235 46 11 H.-P.Oppikofer Asst. Vice President 235 47 23 S.Kneschaurek Asst. Treasurer 235 50 58 I.Chmiel Asst. Treasurer 235 47 04 B.Huber Account Officer 235 56 31 Group 2 H.E.Hof Asst. Vice President/Head of Group 235 46 36 P.Silberschmidt Asst. Vice President 235 45 27 Credit Administr. H.P.Fischer Asst. Vice President/Head of Group 235 47 25 P.Feldmann Asst. Treasurer 235 47 18 P.Bänninger Asst. Treasurer 235 47 26 International Export Financing Section H.-P.Gämperli First Vice President/Section Head 235 45 13 Customer Services K.Elser Asst. Vice President 235 79 51 H.Droege Asst. Vice President 235 77 73 B.den Hollander Account Officer, Airplane Financing 235 46 65 Communication Telephone: 01/234 11 11 (Switchboard) Fax: 01/235 45 69/70 Telex: 813811 / 822802 Address Union Bank of Switzerland Export Financing Department Bahnhofstrasse 45 P.O.Box 8021 Zurich Office Location Weberstrasse 5 8004 Zurich 1.2 July 1989 Organization UBS Worldwide See Booklet UBS - Your Partner (Available on request) Chapter 2 Export Financing 2.1 Export Financing in Switzerland 2.2 International Export Financing 2.1 July 1989 2.l Export Financing in Switzerland Definition Export Financing in general Export financing in the wider sense of the word is the action taken to effect the financial processing of an export transaction. Export Financing in particular Export financing in the narrower sense of the word refers to the financing of capital goods, making use of the guarantees and other types of security specially created for this financing mode. The most prominent of these payment insurance instruments is the Swiss Federal Government Export Risk Guarantee (ERG). Financing Capital Goods In the case of small to medium-sized export transactions, the principal financing instrument is the supplier's credit. This is agreed in the delivery contract and granted by the exporter to the buyer. The exporter negotiates the credit during the sales discussions and acts as lender to the buyer. Should the exporter want to obtain an export risk guarantee to cover the risks involved, he must take this into consideration when negotiating the payment terms. Exporters willing or able to assume the role of lender do not require the assistance of a bank. However, many exporters either do not wish or cannot afford to perform this function and so call upon a bank to assist them in the financing. They then ask the bank to refinance the supplier's credit that they have granted to the buyer. The bank acquires the exporter's claim on the buyer and concludes an agreement to this effect with the exporter (purchase of claim). If an exporter holds a claim on a foreign buyer in the form of a bill of exchange amounting to the deferred payments (plus interest), the refinancing can then be handled as discounting with or without recourse. In some cases the exporter asks the bank to grant the buyer a credit directly, i.e. a so-called "buyer's credit". If large contracts are involved, the bank normally grants a buyer's credit at the initiative of the exporter or at the direct request of the buyer. The bank negotiates the credit with the buyer and signs a credit agreement with him. 2.2/Sheet 1 July 1989 2.2 International Export Financing This term relates to the financing of exports worldwide, with no or only partial involvement of Switzerland in the transaction. Several different forms are conceivable for this financing operation, ranging from the direct support of a foreign exporter (comparable to a pure Swiss export financing transaction) to complex forms of international transactions, including their structuring and syndication. Multi-Source Financing Multi-source financing is the medium to long-term financing of capital goods and services exported to developing and threshold countries. In this context, - the exports usually originate in several OECD countries (as an individual transaction or an international consortium or syndicate of suppliers), in which case - the financing is often covered not only by an importer's bank guarantee but also by one or several export credit guarantee institutions (ECA = Export Credit Agency, see 5.2. Export Risk Guarantees of Foreign Countries). However, international cooperation within a large group of companies or collaboration between a large number of different suppliers is virtually mandatory today in the case of large-scale or special projects. This trend also necessitates a complicated and voluminous financing structure insofar as the aim is to integrate the different exporters in various countries into a homogeneous group, so to say, and to back the project with a global credit offer usually syndicated among the banks. This activity presupposes diverse skills and capabilities of a financial and legal nature in the various supplier countries on the part of the bank acting as the syndicate's lead manager. Since the handling and processing problems are generally complex and time-consuming, such financing schemes are, in principle, employed only if large-scale transactions are involved. The basic structure of a multi-source export financing operation does not differ essentially from that of a traditional (i.e. ERG-covered) Swiss export financing transaction. The complexity is the result of combining various financing operations with ECA coverage and sometimes even private insurance coverage from different countries, and their consolidation in a single global financing offer. 2.2/Sheet 2 July 1989 Co-Financing Roughly one third of all development projects assisted by the World Bank or the IFC receive financial support of some kind or other from a co-financing party. Although co-financing is not a new banking activity, in the present unstable and uncertain economic environment it has assumed much greater importance than in the past, so that the various potential lender groups collaborate as closely as possible. Co-financing offers one of the most effective methods of attaining this target. Co-financing benefits both lenders (pooling of professional expert reports; the World Bank assures a high general quality level and strict project monitoring; credits are not subject to reschedulings etc.) and borrowers (their most urgent projects are financed at the best possible terms and conditions, and this particular financing mode gives them readier access to the financial markets etc.). Characteristics of World Bank/IFC Co-Financing Contract Clauses - non-rescheduling - cross default Track Record - no rescheduling to date - established policy - strong position of the World Bank - contract clause provides veto right - special status for co-financings (better conditions for maturities and interest rates) all elements which considerably reduce the country risks. Assured Project Quality - careful investigation and analysis of the investment projects - permanent monitoring and reporting - World Bank briefing on creditworthiness and credit rating Market-like Conditions - involvement of the commercial banks in transactions with longer maturities and smaller margins feasible thanks to the - guarantee/participation of the World Bank in the final repayments. For addresses of the World Bank Group see 2.2/Sheet 3 2.2/Sheet 3 July 1989 World Bank Group and Regional Development Banks World Bank Inter-American Development Bank 1818 H Street, N.W. 808 17th Street, N.W. Washington, Washington, D.C. 20433, U.S.A. D.C. 20577, U.S.A. Tel.:(001-202) 477-1234 Tel.: (001-202) 6231000 Tlx: 248423 intbafrad Tlx: (RCA) 248352 idb ur 64145 intbafrad 440124 idb ur 440098 intbafrad European Office: European Office: World Bank Inter-American 66, avenue d'Inéa Development Bank 75116 Paris, France 17, avenue Matignon 75008 Paris, France Tel.: (00331) 47235421 Tel.: (00331) 42560382 Tlx: 620628 ibrd Tlx: 650052 itamdev African Development Bank Asian Development Bank 01.B.P. 1387 P.O. Box 789 Abidjan-01, Manila, Philippines 2800 Ivory Coast Tel.: (00225) 320711 or Tel.: (00632) 834444 325010 or Tlx: 23103 adb ph 331550 40571 adb pm Tlx: 3717 afdev ci 63587 adb pn afved ci West African Development Bank Carribean Development Bank P.O. Box 1172 P.O. Box 408 Wildey Lomé, Togo St. Michael, Barbados, W.I. Tel.: 21 59 06/21 42 44 Tel.: (00500 809) 426 1152 Tlx: 5289 boad to Tlx: 2287 caribank wb Central African Development Bank P.O. Box 1177 Brazzaville, Congo Tel.: (00242) 810121 or 810212-21 Tlx: 5306 kg Chapter 3 Export Financing Products 3.1 Trade Financing 3.2 Classical Export Financing 3.2.1 Export Credit Structure 3.2.2 Forms of Export Credit 3.2.3 Comparison of Buyer's Credit and Purchase of the Claim 3.3 Export Finance Credit 3.4 Block Credits 3.4.1 Credit Lines with Foreign Banks 3.4.2 Transfer Credits 3.4.3 Mixed Credits 3.5 International Export Financing 3.6 Forfaiting 3.7 Miscellaneous Products 3.1/Sheet 1 July 1989 3.1 Trade Financing Unsecured Working Capital Credits Financing of current assets, which may in part consist of accounts receivable on exports. A working capital credit may be utilized either on an overdraft basis or as a fixed advance. Loan against Assignment of Receivables Financing of claims on domestic and foreign buyers within a specified limit (blanket assignment) or of individual, precisely designated accounts receivable (individual assignment). Both existing and/or future accounts receivable are assigned. As a rule a margin of at least 30% is deducted from the loan against receivables. Loan against Documentary Collections In certain countries there are considerable delays in collections against documents and frequently there is also a delay in transferring payment. As a result, the exporter may not obtain payment until several months after having presented the documents. This delay may necessitate an advance credit against collection. Loan against Documentary Credits If the exporter grants deferred payment terms to the buyer, such deferral may be accomplished either by means of a time draft or by deferring payment of the documentary credit. With a time draft, an acceptance - usually an acceptance of the negotiating/confirming bank - for 90, 120, 180 or (as is quite common nowadays) up to 360 days is presented to the exporter. The exporter may have the acceptance discounted or present it for payment on the due date. If the documentary credit provides for a deferred payment without a draft, the beneficiary has the choice of either waiting for the due date of the liability or of obtaining an advance on his claim. Discounting The bank purchases from the exporter a claim evidenced by a bill of exchange prior to its due date. The face value of the bill is immediately credited to the exporter's account after deduction of the discount (equal to the interest to the due date). If the bank grants the exporter a discount line, the latter can continuously present new bills for discounting up to the total amount of the line. 3.1/Sheet 2 July 1989 Factoring In the case of export factoring, all of the exporter's short-term receivables are taken over by a factor (a bank) in the form of a blanket assignment. The factor assumes the commercial (contingency) risk, whereas the political and transfer risks usually remain with the exporter. The factor handles the bookkeeping for the accounts receivable, sends out payment reminders as needed and collects the payments. Advances and other services are available on request, e.g. lists of balances and sales statistics. 3.2.1/Sheet 1 July 1989 3.2 Classical Export Financing 3.2.1 Export Credit Structure Export credits are used to finance capital goods and services earmarked for export, utilizing guarantees or cover specially created for this financing mode, the most commonly employed being the Swiss Federal Government Export Risk Guarantee. Reference is being made here to classical medium to long-term ERG-covered export credit generally available only for Swiss deliveries and services with a limited foreign portion and granted subject to certain conditions and prerequisites. Lender Either the exporter (supplier's credit) or the financing bank (Union Bank of Switzerland - possibly as member of a bank consortium or syndicate) - acts as lender. Borrower The borrower is either a bank in the import country or the importer himself. Processing Form The export credit is processed either on the basis of a seller's credit, a purchase of receivables (refinancing of the supplier's credit), a buyer's credit or a bank-to-bank credit. Credit Amount The financing undertaken by the bank is limited to the deferred payments, i.e. to the claim of the exporter still outstanding after deduction of the advance and interim payments and not exceeding 85% of the export value. In special cases, banks are prepared to co-finance advance and interim payments. However, the financing of this part depends on the credit standing of the buyer's country, the duration of the credit and the security offered. Duration of Credit The duration of the credit depends on the value of the credit and ranges from three to five years. But in view of the strong international competition, the five-year limit is often exceeded in the case of large-scale orders or contracts. The five-year limit is the rule within the parameters agreed by OECD consensus for large-scale contracts. Credit Repayment Export credits are generally repaid in equal, consecutive semiannual installments. The first installment falls due six months after delivery or credit drawdown (otherwise six months after the installation was commissioned) and always includes a clause stipulating a final date. 3.2.1/Sheet 2 July 1989 Security Export credits are granted only against the following security: a) assignment of the exporter's basic claim on the buyer and of his claims arising from the ERG. b) assignment of the exporter's claims arising from a payment guarantee, bill guarantee (aval) or the documentary credit issued by an acceptable bank in the buyer's country. Interest Rate The interest rate applied to export financing is generally determined by the refinancing costs of the bank. It consists of a basic interest rate which is equal to the current interest rate for medium-term notes with the same duration as the term of the credit, plus an interest margin usually ranging between 1 1/4% and 1 7/8%, depending on how high the ERG coverage rate is, the quality of the security and guarantees offered, the credit terms and the risk portion assumed by the bank. Risk Sharing Ordinarily, the bank assumes the interest risk not covered by the ERG, whereas the exporter assumes the risk of the principal not covered by the ERG. The bank will examine in each individual case whether it is prepared to assume additional risks. If sufficient security or guarantees have been provided, the bank assumes all risks. For the exporter this would be tantamount to forfaiting. If the ERG does not include the commercial risk in its coverage, the bank is as a rule prepared to assume the entire commercial risk on condition that adequate security (payment guarantee, bill guarantee or aval, documentary credit) is provided. Time Limits on Offers Offers or bids are generally submitted with an individually specified time limit, which normally ranges from 3 to 6 months. 3.2.2/Sheet 1 July 1989 3.2.2 Forms of Export Credit Refinancing of a Supplier's Credit Purchase of Claim Since many exporters either cannot or do not want to undertake internal financing themselves, they call upon a bank for assistance in the financing operation at an early stage. As a result of the bank's purchasing the claim or receivable, the supplier's credit (granted by the exporter to the buyer) is refinanced and the bank becomes the lender (creditor). This eliminates the need for the frequently protracted negotiations concerning the wording of the credit agreement specifying requirements and conditions. Moreover, the exporter is at liberty to stipulate the interest terms and can, under certain circumstances, agree on a higher interest rate than he is charged by the bank and so increase his income from the export transaction. Repayment is either in the form of an account receivable or by discounting bills of exchange, with the buyer notified that the account receivable has been assigned to the financing bank. Seller's Financing In the case of smaller export transactions, the bank may grant the exporter a credit directly against the assignment of the claim and of all rights arising from the security (ERG, guarantees). The buyer is notified of the assignment of the creditor's rights to the bank. The exporter conducts the credit negotiations as part of his sales talks, acts as lender vis-à-vis the buyer and stipulates the conditions for the deferred payments in an external relationship. Buyer's Financing Buyer's Credit In the case of large-scale orders it is standard practice for the bank to grant a buyer's credit at the initiative of the exporter or at the direct request of the buyer. The financing conditions are generally agreed without the participation/collaboration of the exporter. It must merely be specified under the payment conditions in the delivery contract that 80-85% of the contract value is being financed under a separate credit agreement between the buyer/ borrower and the bank. For exporters the advantage of a buyer's credit is that the often difficult and time-consuming commercial and credit-specific negotiations are handled by the bank, which can enforce a clear and stricter wording of the credit agreement (especially payment default, legal opinions, place of jurisdiction, etc.), and that interest on defaulted payments is borne by the financing bank. Besides, the bank normally occupies a stronger position than the exporter in the event of payment difficulties and reschedulings. 3.2.2/Sheet 2 July 1989 Bank-to-Bank Credit Bank-to-bank credits can be utilized either in the form of individual credits (analogously to 3.2.1), credit lines or block credits (3.4). Credit lines constitute loan agreements between a bank in the export country and a bank in the buyer's country. Both the credit and the agreement establishing an overall credit line are of a private-enterprise nature. The credit facilities offer major advantages to both the exporter and the importer. Since all terms and conditions are stipulated in advance, there is no need for related negotiations, which can often be quite protracted. It is sufficient to refer to the credit line involved in the delivery contract. For both credit types mentioned above it is necessary for the exporter to obtain ERG coverage and to assign the claims to the bank. In order to regulate the internal conditions and relations between the exporter and the bank, in particular those referring to the obligation of the exporter to assume the risks of principal not covered by the ERG, the exporter must sign a so-called "Agreement and Joint and Several Guarantee for Export Financing" with the bank. 3.2.3 July 1989 3.2.3 Comparison Facility Buyer's Credit Purchase of the Claim -credit: bank to importer -credit: exporter to importer or his bank -refinancing through bank "purchase of claim" Utilization -more than SFr. 2-5 million -small/medium-sized deals -longer-term credits -first-rate security -first-rate security -simple processing -medium-size deals under credit lines Processing -bank offer to importer -delivery offer with (via exporter) credit offer -offer is accepted -parallel bank offer -bank negotiates to exporter -agreement is signed -agreement negotiations/ conclusion -agreement with exporter - -delivery -agreement with bank -documents to bank (purchase of claim) -bank pays exporter -delivery -repayment to bank -documents to bank -bank pays exporter -bank is repaid Advantages -fewer exporter concessions -no default interest on credit conditions incurred by exporter -clauses are more effective -simple contract and greater in number construction (default interest, due -early conclusion dates, applicable law) -flexibility of price -stronger position of bank and conditions in case of payment difficulties and consolidations Disadvantages -long contract negotiations -importer can bring -little flexibility during more pressure to bear offering phase -importer can voice objections and state preferences -assignment not assured -exporter disadvantaged in case of payment difficulties/consolidation -default interest to the debit of the exporter 3.3 July 1989 3.3 Export Finance Credit Purpose Export finance credits are used to finance advance and interim payments as well as local costs. This kind of credit is granted only in conjunction with an export credit. Lender Unlike in the case of an export credit, only the financing bank (Union Bank of Switzerland) can act as lender (according to the Guidelines for the OECD Consensus). Borrower The borrower may be a bank in the import country or the importer himself. Processing Processing takes place on the basis of a buyer's credit or a bank-to-bank credit. Credit Amount Financing includes advance and interim payments which make up at least 15% of the contract value and/or the amount that local costs can reasonably expected to run to. Credit Duration Export finance credits have shorter terms than export credits. Credit Repayment Repayment of the credit is normally effected in equal, consecutive semi-annual installments, with the first installment due 6 months after the credit drawdown date or 6 months after commissioning congruent with the export credit; a clause stipulating a final date is mandatory. Security - To be agreed between the lending bank and the borrower. - As a rule by furnishing an unconditional bank guarantee. Interest Rate/Commission A higher margin is demanded for an export finance credit since the lending bank assumes the country risks. In addition to the interest, other costs are charged in compliance with the Euromarket conditions: a) - a commitment fee of about 1/2% p.a. b) - a one-time front-end fee of appr. 1/2%. Risk Sharing All risks associated with the principal and interest are borne by the financing bank. Time Limits on Offers Offer deadlines are set individually as in the case of export credits; they usually range from three to six months. 3.4.1/Sheet 1 July 1989 3.4 Block Credits 3.4.1 Credit Lines with Foreign Banks General Credit lines are credit agreements between a bank in the export country and a bank in the buyer's country. In such an agreement the bank in Switzerland grants the bank in the buyer's country a credit line (usually in the amount of several million Swiss francs) for financing the exports of Swiss capital goods. The financing operation takes the form of export credits at specified terms and conditions. Syndicated credit lines are known as block credits. Credit lines are generally granted in support of Swiss exports to specific markets and are designed chiefly for small and medium-sized deliveries and services. The precondition for a credit line of this kind is ERG acceptance of the country concerned. Application Procedure The individual transactions can be submitted to the relevant bank either by the exporter or by the buyer. The delivery contract must stipulate that payments and financing are handled in accordance with the conditions of a credit line. Since ERG coverage cannot be obtained for spare parts and raw-material-like products, they cannot be financed by a credit line. The minimum value per delivery transaction is SFr. 100.000.--. Payment Terms and Credit Utilization Payment terms are generally agreed as follows: 5% prepayment at the time the contract is signed 95% against shipping documents under an irrevocable documentary credit opened by the buyer's bank at his instructions and advised by the bank in the export country in favor of the supplier. The documentary credit is payable as follows: 10% of the delivery value in cash outside the credit line, while 85% of the delivery value is financed by means of the credit line. 3.4.1/Sheet 2 July 1988 Credit Duration The credit term must be specified in the delivery contract according to the following scheme: Delivery value Credit Term SFr. 100,000 to SFr. 150,000 2 years from SFr. 150,000 to SFr. 250,000 max. 3 years from SFr. 250,000 to SFr. 1,000,000 max. 4 years above SFr. 1,000,000 max. 5 years The credit duration must be agreed between seller and buyer at the time the delivery contract is signed. The maximum terms outlined above may not be exceeded. The minimum running period is 2 years. Credit Repayment Repayment always takes place in equal, semiannual installments. The first rate, together with the interest payment, is due six months after credit utilization. Interest Interest is paid by the bank in the buyer's country. The interest rate is fixed for the entire duration of the credit at the time of drawdown. Export Risk Guarantee The exporter must obtain an export risk guarantee, covering the delivery value and interest, for each delivery transaction conducted under a credit agreement. The fee for the ERG coverage is charged to the exporter. Risk Sharing As a rule, the bank in Switzerland will assume the interest risk not covered by the export risk guarantee, whereas the Swiss exporter is liable towards the bank for the risk of principal not covered by the ERG. In this context, it is imperative to sign an Agreement and Joint and Several Guarantee under which the basic claim and the claims arising from the ERG coverage must also be assigned to the bank. UBS will be pleased to furnish a list of existing general credit lines (see Sheet 3 below) or the related leaflet. Our business offices and our Export Financing Department at Zurich Head Office (01/235 56 31 or 253 47 04) will be glad to provide further information. 3.4.1/Sheet 3 July 1989 List of Credit Lines (as of May 1988) Country Borrower Amount in SFr. Mill. Bulgaria Bank for Economic Projects (Mineral Bank), Sofia 10 Bulgarian Foreign Trade Bank, Sofia 50 Commercial Bank Biochim, Sofia 5 The Economic Bank, Sofia 10 CSSR Ceskoslovenska Obchodni Banka AS (CSOB), Prague 50 GDR Deutsche Aussenhandelsbank AG, Berlin 40 Deutsche Handelsbank AG, Berlin 16 Israel Bank Hapoalim B.M., Tel Aviv 10 Bank Leumi Le-Israel B.M., Tel Aviv 10 First International Bank of Israel, Ltd., Tel Aviv 5 Israel Chemicals Ltd., Tel Aviv 5 Israel Continental Bank Ltd., Tel Aviv 4 Israel Discount Bank Ltd., Tel Aviv 10 Union Bank of Israel, Ltd., Tel Aviv 5 United Mizrahi Bank Ltd., Tel Aviv 10 Mexico* Banco Nacional de Comercio Exterior, S.N.C., Mexico Banco Nacional de Mexico, S.N.C., Mexico Nacional Financiera S.A., Mexico Bancomer S.N.C., Mexico Portugal Banco Borges & Irmao, Porto 5 Banco Pinto & Sotto Mayor, Porto 50 Banco Portugues do Atlantico, Lisbon 10 BPI-Banco Portugues de Investimento, Porto 5 Thailand Thai Farmers Bank, Bangkok 10 Yugoslavia Jugobanka-Udruzena Banka, Belgrade 20 Llubljanska Banka-Udruzena Banka, Llubljana 20 Privredna Banka Sarajevo, Sarajevo 10 Udruzena Beogradska Banka, Belgrade 20 Udruzena Banka Hrvatske, Zagreb 10 Turkey Turkiye Vakiflar Bankasi T.A.O., Ankara 20 Turkiye Sinaî Kalkinma Bankasi A.S., Istanbul 30 Hungary Hungarian National Bank, Budapest 50 * currently no general ERG coverage 3.4.2/Sheet 1 July 1989 3.4.2 Transfer Credit General A transfer credit is a block credit granted by a banking syndicate for the purpose of financing the export of Swiss capital goods and services. The borrower (usually a development bank or the government itself) concludes an agreement or treaty with the Swiss Confederation. All negotiations are carried on via the Swiss Confederation. Payment Terms For Capital Goods and Project Financing 5% after receiving confirmation that the transaction will be financed under this transfer credit. 10% pro rata shipment against shipping documents or presentation of documents covering work already performed, by means of an irrevocable documentary credit. The documentary credits must be opened via one of the financing banks as soon as confirmation has been obtained both from the responsible authorities in the buyer's country and from the Swiss authorities. The delivery transaction will then be financed with this transfer credit. 85% to the debit of the transfer credit. For Services 20% after receiving confirmation that the transaction will be financed under this transfer credit 10% to the debit of the transfer credit Utilization The credit can be utilized upon shipment of the goods or against presentation of the documents concerning work already performed, provided confirmation has been received from the exporter that he has received the advance payment of 15% or 20% of the delivery value, as the case may be. Repayments Capital Goods Repayments for capital goods must be effected within 10 years in 20 equal semiannual installments, with the first due 6 months after expiration of a 6-month utilization period. Project Financing Repayments must be effected within 10 years in 20 equal semiannual installments, with the first due 6 months after the underlying project was commissioned and at the latest 66 months after the agreement went into effect, subject to ERG approval. Services Repayment must take place within 5 years in 10 equal, semiannual installments, the first due 6 months after completion of the services and the last one not later than 66 months after the agreement went into effect, subject to ERG approval. Interest Rate The interest rate is relatively low as a result of the extraordinarily extensive ERG coverage. For Capital Goods and Project Financing Variant I: A net margin above the issuing rate applied by the lending banks for their 5-year medium-term notes at the time of the respective credit utilization, firm for the first 5 years with subsequent readjustment on the same basis. If the duration of the credit exceeds 10 years, the interest rate is newly fixed after 10 years at a net margin above the issuing rate applied by the banks for their 3-year medium-term notes. Variant II. A net margin above the issuing rate applied by the lending banks for their 8-year medium-term notes at the time of the relevant credit utilization, firm for 10 years. If the credit duration exceeds 10 years, the interest rate is fixed anew at a net margin above the issuing rate applied by the banks for their 3-year medium-term notes. The government or bank in the buyer's country selects one of the two variants at the time of the relevant delivery offer. For Services A net margin above the issuing rate applied by the lending banks at the time of the respective credit utilization for those medium-term notes whose terms are equal to the entire credit duration. Preconditions for the Utilization of the Credit a) Only those deliveries which were approved by the Ministry of Finance or the bank, the Federal Office for Foreign Trade in Berne and the Swiss Banking Syndicate can be financed by a transfer credit. The credit agreement provides for a minimum amount of SFr. 100,000.--. Partial deliveries and progress payments are possible for contracts exceeding SFr. 200,000.--, with the proviso that amounts invoiced for individual partial deliveries or payments (with the exception of the last partial delivery or payment) must be at least SFr. 50,000.--. b) Requests for financing must be filed with the Federal Office for Foreign Trade, Berne, by the government of the buyer's country within 3 years after the treaty went into effect. c) The ERG must be obtained by the exporter. ERG coverage usually amounts to 90% (including the commercial risk). The premium must be paid by the exporter but he is at liberty to pass it on to the importer. If the interest rate charged the borrower exceeds the interest rate insured by the ERG during the credit period in the case of credit utilization or a new stipulation of the interest rate, the exporter must obtain additional insurance cover for the higher interest rates from the ERG. d) The exporter assigns the rights arising from the delivery contract and the ERG to the banking syndicate. Approval Procedure The importer files a request with the Ministry of Finance or the bank asking that the delivery contract he plans to conclude with the Swiss exporter be made subject of a transfer credit. After approval to this effect has been received, the Federal Office for Foreign Trade in Berne will be so informed by diplomatic channels. The Federal Office for Foreign Trade shall then notify the lead bank of the syndicate of its approval. The lead bank, in turn, advises the exporters, whereupon these must obtain the basic financing consent of the banking syndicate. The Head Offices of the member banks of the syndicate and all of their Swiss offices are prepared to accept such financing requests. Once in possession of the banks' agreement to finance the project, the exporters must submit the application for the export risk guarantee. It should be pointed out that, as a rule, not only the principal but also the interest must be insured. In this connection, the exporter must sign the customary "Agreement for Export Financing". Our Export Financing Department at the Zurich Head Office (Tel.: 01-235 47 04) will be pleased to answer any questions you might have in connection with a transfer credit. A list of existing transfer credits (see 3.4.3., Sheet 7) or the related leaflet will be forwarded to interested parties upon request. 3.4.3/Sheet 1 July 1989 3.4.3 Mixed Credit A mixed credit is a credit agreement between a syndicate (consortium) of Swiss banks and the Swiss Confederation on the one hand and the government or central bank of the buyer's country on the other. The banking syndicate consists of Union Bank of Switzerland, Credit Suisse and Swiss Bank Corporation with a 26% participation each, the Cantonal Bank of Berne with a 10%, Swiss Volksbank with a 9% and Bank Leu with a 3% participation. The Swiss Federal Government's share of the entire credit amount ranges from 35% to 50%. A mixed credit serves to finance private industry capital goods and services and constitutes a kind of development aid. The attached Annex lists the individual capital goods and services which meet the financing purpose. Both credit tranches (i.e. that of the banks and that of the Confederation) are administered by the banking syndicate. Precondition for Credit Utilization a) ERG-covered delivery and service contracts approved by the Ministry of Finance or government office in the buyer's country, the Federal Office for Foreign Trade in Berne and the banking syndicate can be financed by a mixed credit. b) Service contracts must provide for an appropriate completion date. However, this date may under no circumstances be later than 60 months after the signing of the service contract and must be approved by the Swiss authorities specified above. c) The contract value of the individual delivery and service contracts should not be less than SFr. 100,000.--. Partial deliveries and progress payments for service contracts are possible only if the total invoice value exceeds SFr. 200,000.-- and the amount of the individual invoice is not less than SFr. 100,000.--, except for the last partial delivery or last progress payment under a single contract. d) The applications for the financing of a delivery or service contract with a mixed credit must be submitted to the Federal Office for Foreign Trade in Berne by the authorities in the buyer's country by a specified date (as a rule 24 months after the credit agreement has entered into effect). 3.4.3/Sheet 2 July 1989 Approval Procedure In a first step, the importer files an application with the Ministry of Finance, the central bank or another government agency requesting that the delivery or service contract he intends to conclude with the Swiss exporter be covered by the agreement between Switzerland and the buyer's country. A clause stipulating that the credit is to be financed under the terms of such a credit agreement must be included in this contract. The approval granted in the buyer's country will be communicated to the Federal Office for Foreign Trade in Berne through diplomatic channels via the Swiss Embassy in the buyer's country. The Federal Office for Foreign Trade will then review the financing request. An initial check will be made to examine whether the deliveries, or the project it supports, are urgent and essential for the development aspirations of the receiving country. Given that the Swiss Confederation's share is financed out of the "Block Credit for Economic and Trade Policy Measures within the Framework of Development Cooperation," that is, out of the Federal Government's development budget, the Federal Office for Foreign Trade scrutinizes the applications under the aspects of the objectives and criteria contained in the Federal Law of March 19, 1976, on the subject of international development cooperation and humanitarian aid. Ordinarily, the following elements are considered in the approval procedure: the aim and benefit of the project, its effects on the various segments of the population, the role it plays in the realization of national, regional or sectoral development schemes, the adequacy of the training provided for the personnel of the project's operating company or the importer in respect of the deliveries, the measures taken for the upkeep and maintenance of the delivered equipment and material and, last but not least, the selection procedure and the price/quality relationship of the delivered goods and services. The documentary material for an evaluation and subsequent decision on these questions is to be forwarded to the Federal Office for Foreign Trade by the Ministry of Planning or a similar government agency. If the application is approved, the Federal Office for Foreign Trade in Berne will notify the banking syndicate of its basic consent. The banking syndicate will inform the Swiss exporter in writing of the approval granted in the buyer's country, whereupon the exporter has to obtain confirmation from the banking syndicate that it is, in principle, willing to finance the project. The Head Offices of the banks in the syndicate as well as all of their Swiss offices accept such financing requests. Upon receipt of financing approval from the banking syndicate, the exporter then has to file a request for ERG coverage at the maximum rate of 95% allowed under the law (see Chapter 7). Once the banks and the ERG have given the transaction their final approval, the Federal Office for Foreign Trade shall notify both the country for which the mixed credit is destined and the banking syndicate of this fact. Payment Terms The payment terms are usually agreed as follows: a) Subsequent to approval of the delivery or service contract by the authorities in both countries, the importer must make an advance payment amounting to 5% of the delivery value outside of this credit agreement. b) At the same time, the buyer must open an irrevocable documentary credit in favor of the Swiss exporter for 10% of the contract value. The documentary credit must be drawable against presentation of the following documents: - Receipt from the Swiss exporter for the 5% advance payment - Shipping documents according to the documentary credit conditions All payments under such documentary credits must be effected by the importers outside the credit agreement. The documentary credit must be channeled via the Swiss member bank of the syndicate where the application for the transaction was originally filed. It must be endorsed as follows: "The financing of the export shall be made under the mixed credit between Switzerland and the buyer's country." All fees and commissions in connection with the opening of such documentary credits are charged to the importer. Credit Utilization a) The drawdown of 85% the invoice value for exports of capital goods and services - after deduction of the taxes, fees and duties payable in the buyer's country - is to coincide with the utilization of the documentary credit. b) All credit utilizations with the same interest rate and the same repayment period are combined for each utilization period: - Utilization period 1: Utilization between April 1 and September 30 - Utilization period 2: Utilization between October 1 and March 31. c) Each drawdown shall be paid proportionately out of the Federal Government tranche and the banks' tranche. Credit Repayment The banks' tranche with a term of 10 years after credit utilization becomes repayable in 14 equal, semiannual installments after a grace period of 3 years. The Federal Government tranche under the Second Credit Line Agreement (1982/83) with a term of 20-25 years after credit utilization is repayable in 20-30 equal, semiannual installments after a grace period of 10 years. The Federal Government tranches within the mixed credits under the Third Credit Line Agreement (1987) of the Confederation are provided as "grants" and so do not have to be repaid. Interest Rate Interest on the outstanding credit amounts is payable at the following rates: Federal Government Tranche under the 2nd Agreement 0% Bank Tranche: Variant I A margin is added to the issuing rate applied by the lead-managing Swiss bank for its 5-year medium-term notes at the time of the individual credit utilizations. The interest rate is firm for 5 years. After expiration of the 5-year period, the interest rate is fixed for the remaining life of the credit with the same margin above the issuing rate then being charged by the lead-managing Swiss bank for its 5-year medium-term notes. Variant II A margin above the issuing rate applied by the lead-managing Swiss bank for its 8-year medium-term notes at the time of the individual credit utilizations. The interest rate is firm for 8 years. After expiration of the 8 years, the interest rate is newly fixed for the remaining life of the credit with the same margin above the issuing rate then being charged by the lead-managing Swiss bank for its 3-year medium-term notes. The borrower must inform the banking syndicate which variant he has selected one month prior to the first credit utilization. Conditions for Conveying the Credits to the Importers The mixed credit is used for urgent development projects and programs in the public, private and mixed ownership sectors of the economy. The conditions for conveying this credit to the end user should be no less favorable than the conditions applying to comparable borrowing agreements containing preferential conditions. Risk Sharing and ERG Federal Government Tranche With effect from the credit drawdown, the Swiss Federal Government either assumes the full risk for its tranche or provides the principal amount as a grant. Manufacturing Risk: Upon separate application, the exporter usually also has the option of insuring the manufacturing risk with the ERG in an amount equal to the Confederation's tranche (Federal Government portion of the contract value, without interest, for the duration of the manufacturing process). Bank Tranche a) The Swiss exporter is obligated to cover the bank tranche portion of the total credit amount (principal plus interest) through the export risk guarantee at the agreed legal maximum cover rate of 95%, including coverage of the commercial risk. The guarantee application can be reviewed by the ERG authorities only if a copy of the bank's financing confirmation (see 2. "Approval Procedure") is attached to it. In the ERG application for coverage of the bank tranche the exporter must list the bank's portion expressed as a percentage of the entire contract value, plus the interests costs incurred in connection with the bank tranche for the full term of the credit. Immediately upon receipt, a photocopy of the ERG decision must be forwarded to the syndicate member bank where the transaction was originally applied for. The exporter must assign his claims arising from the ERG coverage, together with his basic claim and all ancillary rights, to his bank represented in the syndicate and must request the ERG in writing to confirm the approval of the guarantee assignment to the bank concerned. Such confirmation can be given only upon receipt of the ERG fee due. The entire ERG fee, including any subsequent or additional insurance, is payable by the Swiss exporter. b) The Swiss banking syndicate assumes the interest risk which is not covered by the ERG; the Swiss exporter is liable for the risks of principal not covered by the ERG. The exporter must sign the related "Agreement and Joint and Several Guarantee for Export Financing" for each individual transaction. Our Export Financing Department at the Zurich Head Office (Tel.: 01/235 47 04) will gladly supply any additional information and forward a list of the existing mixed credits (see next Sheet 7) or a related fact sheet upon request. LIST - EXPORT FINANCING (as of May 1988) Mixed Credit (MC) Transfer Credit (TC) Block Credit (BC) Country Borrower Amount in Application Bank SFr. Mill. Deadline Algeria Banque Extérieure d'Algérie 80 12/31/1988 BC CS Argentina Banco Nacional de Desarollo, 87.5 12/31/1987* TC UBS Buenos Aires Argentina Banco Nacional de Desarollo, 100 12/31/1988* BC UBS Buenos Aires Cameroon I Government of Cameroon 20 1/20/1989 MC CS Cameroon II Government of Cameroon 60 6/11,l989 MC CS China Bank of China, Beijing 80 5/14/1989 MC SBC China II Bank of China, Beijing 100 12/9/89 Egypt II Government of Egypt 90 7/24/1988 MC CS India Government of India 100 12/31/1989 MC SBC Indonesia Government of Indonesia 255 12/31/1988 TC UBS Jordan Government of Jordan 60 2/19/1990 MC SBC Kenya Industrial Development Bank, 20 12/31/1988 MC UBS Nairobi Malaysia Government, Rep. of Malaysia 51 8/13/1987* SBC Mexico Nacional Financiera S.A., 50 12/31/1986* BC SBC Mexico Morocco Government of Morocco 55 8/11/1989 MC SBC Pakistan Government of Pakistan 90 1/21/1990 MC SBC Philippines Philippine National Bank, 100 8/10/1984* TC SBC Manila Thailand II Government of Thailand 64 1/24/1989 MC CS Togo Banque Ouest Africaine de 20 6/19/1988 MC CS Dévelopment, Lomé Tunesia II Government of Tunesia 60 9/17/1989 MC CS * prolongation / approval pending 3.5 International Export Financing The same types of credit are offered in the international export financing sector as in classical export financing. However, international export financing differs from classical export financing originating in Switzerland in that it concerns exports and the inclusion of export risk guarantees from the industrial countries or a combination thereof. Owing to the greater complexity of the transactions and the wider scope of the contracts and agreements involved, tailor-made structures and conditions are employed with regard to minimum requirements and pricing. In the case of the OECD countries, the structure conforms with the so-called "Consensus Agreement". 3.6 Forfaiting 3.6 Forfaiting (also known as non-recourse financing) consists of the purchase of receivables due at a later date arising from deliveries of goods or services - frequently involving export transactions - waiving the right of recourse on the seller or exporter. It concerns short to medium-term claims or receivables with terms ranging from 6 months to a maximum of 7 years. The claims may be in the form of drawn bills of exchange and promissory notes, accounts receivable or confirmed documentary credits (documents against promissory notes or acceptances, or with deferred payment). The currency must be freely negotiable, i.e. eligible for refinancing, and the country risk must be calculable. The advantages for the exporter are a refinancing facility without retention, balance sheet improvement, firm interest rate, no exchange rate risk and no credit monitoring and collection work. Our Bank provides non-recourse financing facilities as part of the services offered by the Export Financing Department located at the Head Office in Zurich. We would be glad to furnish information and quote credit offers. 3.7 Other Products - Factoring - Leasing These products are offered by the UBS subsidiary Aufina Leasing and Factoring AG Badenerstr. 11 5200 Brugg Telephone: 056/42 81 22 Telex: 53 584 aufich Chapter 4 Payment Terms in Export Transactions 4.1 Types 4.2 Examples The payment terms specify when, under what conditions, in which currency, in which mode and at what place the buyer must execute the payment. 4.1 Types The following types of payment terms and conditions are used in export transactions: - Advance payment or prepayment (rarely available) - Progress payments graduated according to the progress recorded in the production process - Cash payment a) against running account b) against waybill (dispatch note) c) against documents (documentary collection) d) after receipt of the goods/service e) through a documentary credit (sight letter of credit) - Deferred payment (shipment on credit) a) as account receivable b) as claim under a bill of exchange with or without security c) as documentary credit with deferred payment In the case of consumer goods, the payment modes listed under "Cash payment" are generally applied. Importers are increasingly demanding payment terms ranging from 180 to 360 days starting from the date of shipment or receipt of the merchandise or service. In the case of exports to threshold and developing countries, the structure of the payment modalities largely complies with the ERG regulations in conformity with the OECD guidelines. The following payment terms are usually applied: - an advance payment amounting to 5-10% of the delivery value (20% in exceptional cases) falls due when the order or contract is awarded. - at the time of delivery a) either the remaining invoice amount of 85-95% b) or another 5-10% of the delivery value as interim payment against a sight letter of credit; for the remaining 80-95% a credit is granted by the supplier (deferred payment) or by means of a buyer's credit issued by a bank. In the case of large-scale deliveries or projects for the construction of industrial installations, the remaining 5-10% of the invoice value will be paid out only after the installation acceptance certificate has been issued. This payment deferral represents a guarantee for the buyer that the equipment or installation is operational and that its performance meets the standards stipulated in the contract. 4.2 Examples Buyer's Credit - Payment Terms 5% advance payment within 10 days after signing the delivery contract, against payment guarantee. 10% interim payment pro rata delivery/service performance by means of an irrevocable documentary credit and confirmed by a first-rate bank in Switzerland (Union Bank of Switzerland). 85% payable pro rata delivery/service performance financed by an export credit granted by the bank (Union Bank of Switzerland) to the buyer. Supplier's Credit - Payment Terms (Purchase of the Claim) 5% due and payable at the time the order is given or the contract is awarded, against provision of an advance payment guarantee. 10% due and payable pro rata delivery/service performance, secured by an irrevocable documentary credit and confirmed by a first-rate bank in Switzerland (Union Bank of Switzerland). 85% in 10 equal and consecutive semiannual installments, the first due 6 months after the last delivery, but no later than ... months after placing the order, plus interest at the rate of ...% p.a. net, calculated on the outstanding principal. Security and Guarantees - through an irrevocable, unconditional and assignable payment guarantee provided by a first-rate bank in the buyer's country, to be surrendered on ..... (date) or - against bill acceptances with the guarantee of a first-rate bank in the buyer's country. Chapter 5 Credit Guarantees and Insurance 5.1 Swiss Federal Government Export Risk Guarantee - ERG 5.2 Export Risk Guarantees in Other Countries 5.3 Private Credit Insurance 5.4 Summary of Risk Insurers 5.1 Swiss Federal Government Export Risk Guarantee - ERG General Information - UBS Booklet: Export Risk Guarantee (ERG) April 1987 Edition Contact Units Export Risk Guarantee Office P.O. Box Kirchenweg 4 8032 Zurich Tel.: 01/47 66 54 Telex: 816519 VSM CH Fax: 01/47 86 81 Union Bank of Switzerland Export Financing P.O.Box 8021 Zurich Tel.: 01/234 11 11 (switchboard) Telex: 813 811 / 822 802 Fax: 01/235 45 69/70 ERG Fees (approximate) Credit Term Fee on the Fee on the Fee on the Relevant Delivery Credit Amount, Amount Value, i.e. i.e. 85% 100% flat flat p.a. % % % % 36 months 1.875 2.1891 2.5754 1.47 42 months 1.975 2.3273 2.7379 1.37 48 months 2.075 2.4684 2.9040 1.29 54 months 2.175 2.6125 3.0735 1.23 60 months 2.275 2.7596 3.2466 1.18 66 months 2.475 3.0226 3.5562 1.19 72 months 2.675 3.2775 3.8558 1.19 78 months 2.875 3.5516 4.1784 1.19 84 months 3.075 3.8318 4.5079 1.20 90 months 3.275 4.1179 4.8446 1.21 96 months 3.475 4.4100 5.1882 1.22 102 months 3.675 4.7081 5.5390 1.23 108 months 3.875 5.0123 5.8968 l.24 114 months 4.075 5.3224 6.2616 1.25 120 months 4.275 5.6385 6.6335 1.26 126 months 4.475 5.9606 7.0125 1.28 132 months 4.675 6.2888 7.3985 1.29 138 months 4.875 6.6229 7.7916 1.30 144 months 5.075 6.9630 8.1918 1.31 Basis of calculation: Conditions incl. coverage of commercial risk 25% Interest rate 6.0% p.a. 5.2 Export Risk Guarantees in Other Countries Maximum Cover Rate for Country/Institution Buyer's Supplier's In SFr. Political Commercial Credit Credit and Risk Risk Transfer State % Private % Risk Switzerland (ERG) assign. assign. yes 95* 95* 0 Fed.Rep.of Germany direct assign. no 95 95 95 (HERMES) Gt.Britain (ECGD) direct direct yes 100 l00 100 U.S.A. (EXIMBANK) direct assign. yes 100 100 90 France (COFACE) direct direct yes 95 95 85 Italy (SACE) direct direct yes 95 95 95 Austria (OEKB) direct assign. yes 100 100 100 Sweden (EKN) direct assign. yes 90 85 85 Norway (GIEK) direct assign. yes 90 85 85 Finland (VTL) direct direct yes 100 100 100 Denmark (EKR) no assign. yes 90 90 90 Belgium (OND) direct assign. yes 95 95 90 Netherlands (NCM) no assign. no 95 95 95 Spain (CESCE) direct assign. yes 100 100 100 Canada (EDC) direct direct yes 100 100 100 Japan (MITI) no** no** yes 90 90 90 * Only mixed credits, usually 70-90% ** Only if Japan's EXIM participates in the credit 5.3 Private Credit Insurance (selection) A: Political and Transfer Risks - American Home Assurance Co., Zurich (sub- sidiary of AIG, New York) - Lloyd's, London B: Commercial Risk - The Federal Insurance Company Ltd., Zurich - Gerling Konzern, Speziale Kreditversicherungs AG, Zurich - and the insurers listed under A (the two companies listed first operate only within OECD countries) 5.4 Risks Associated with Export Transactions Political and Transfer Risks (= country risk) ERG covers from 50% to a maximum of 95% of the losses, depending on the quality and standing of the borrowing country - financing bank against payment of a risk premium or an interest surcharge charged by the exporter for export credits - confirmed documentary credit (possibly with ERG). Depending on the credit standing of the borrowing country, the bank may require a risk premium from the exporter as a condition for the confirmation in addition to the confirmation commission. - certain financial institutions specializing in this field (forfaiting, i.e. non-recourse financing) - private insurance companies Commercial Risk - ERG, covering up to a maximum of 95%, provided the buyer is majority government or publicly owned (= commercial risk), or else a private company with public utility character, or a private company whose guarantor is, in its majority, a state or public-law entity. - Payment guarantee or bill guarantee of a first-rate bank in the buyer's country or a third country, or a stand-by letter of credit - irrevocable, confirmed documentary credit - guarantee or surety of an associated or affiliated company of the buyer (such as a group company) - bank handling the export financing, provided the borrower (buyer) enjoys an adequate credit rating - private insurance companies Manufacturing Risk - ERG, depending on the credit standing of the buyer's country, from 50% to a maximum of 95% of the accrued costs - advance payment or payment prior to delivery (shipment) or progress payments, that is, payments according to manufacturing progress - documentary credit with warehouse receipt Chapter 6 Rescheduling 6.1 Rescheduling Official Credits 6.2 List of Rescheduling Agreements 6.1 Rescheduling Officially Guaranteed Credits Losses Definition A loss under ERG coverage means that a claim or receivable insured by the ERG has remained partly or entirely unpaid and has been classified as a loss by the ERG Commission. A loss is only deemed to have been suffered if the Office for the Export Risk Guarantee (ERG) officially recognizes the fact (i.e. the occurrence of a loss). However, the ERG will only decide on whether or not to acknowledge an occurrence of loss if a claim for damages has been filed under the guarantee (exporter). Procedure - The amount falls due and remains unpaid. - Prior to the expiration of the grace period, the bank informs the beneficiary under the guarantee (usually the exporter) that the installment has not been paid. The bank requests the guarantee recipient to file the unpaid installment as a loss with the ERG authority. - The guarantee recipient reports the loss to the ERG. - After making its decision, the ERG Commission notifies the guarantee recipient of the amount of the damages. - The guarantee beneficiary acknowledges receipt of the decision by returning the copy of the damages advice. - The ERG pays out the damages to the beneficiary. - Payment by the ERG is tantamount to recognition of a loss. This enables the financing bank to take action against the guarantee beneficiary or the parties liable for recourse for their proportional share of the damages. - The claim on the borrower is continued by the bank in its entirety in the form of a fixed advance. In compensation of the damages paid by all participants (ERG/insurance companies/exporters) to the financing bank, they each receive a loss subparticipation in the outstanding installment. This participation is not subject to withholding tax. - Any payments made by the borrower are deducted from the fixed advance and paid out to the subparticipants to the debit of their participation. The bank does not assume any liability for the existence and collectability of amounts in favor of the participants. Only those amounts which have been actually paid by the borrower will be passed on to the participants. Rescheduling Definition From the viewpoint of the party financing the export, consolidation or rescheduling means that amounts due or becoming due from certain credit groups of a country, a bank or a company are combined. A new credit with a new agreement, new repayment terms and, possibly, new currency, is formed out of these combined amounts. The procedure is for the borrower to contact the lender and to request a rescheduling of his liabilities. In the case of officially guaranteed credits, the review of the borrower's request usually takes place in the so-called Paris Club, a multilateral ad hoc meeting. The French Treasury acts as host. The meetings are called only if a borrower country addresses the Paris Club with a rescheduling request. The Club is not a permanent institution and does not have a fixed or appointed body or affiliated members. Since it does not have any authority to issue rules, instructions or regulations but merely guidelines, the Paris Club is also unable to exert any political pressure. The purpose of all reschedulings is to examine the liquid funds of the borrower - giving due account to his most essential short-term requirements - and to offer the borrower the possibility of paying back his debts out of his own financial resources. The borrower is obligated to make realistic payments commensurate with his financial capabilities. The aim is to keep both capital outflow and capital inflow within reasonable confines for all parties involved. Debt adjustments help to solve the financial problems of the borrower and provide scope for additional credits. This, in turn, is a precondition for further economic growth by all parties and for an improvement in the borrower's liquidity. Procedure - As a rule the borrowing country must first come to an agreement with the International Monetary Fund. The stabilization program of the IMF is aimed at supporting any rescheduling operations that prove necessary. - Once the borrowing country has signed an agreement with the IMF, the borrower meets with the representatives of the lenders (usually within the framework of the Paris Club), and negotiates the possible rescheduling of his debts. A letter of intent is signed if the negotiations were successful. Switzerland delegates a representative of the Federal Office for Foreign Trade to the meetings of the Paris Club. The letter of intent signed by all parties is not binding. Each lending country must still sign a separate bilateral agreement with the borrowing country, the terms of which agreement are usually largely identical with those negotiated in Paris. - In order to determine the volume of the amounts which are to be rescheduled, the ERG asks the guarantee beneficiary to complete a questionnaire which must be signed by the recipient of the guarantee and returned to the ERG. - Once a bilateral agreement has been signed, a meeting of the ERG Commission decides on the payment of the guarantee amount. If the decision is in favor of paying under the guarantee, the amount in question is paid out. A damages advice is not needed since the borrower has acknowledged the claim. - The claims of recourse against the exporter or the other guarantors also become due no later than upon payment of the damages by the ERG. - Since the ERG lacks sufficient personnel to fully administer all consolidations itself, one of the big commercial banks will supervise the administrative work for the rescheduling operation. The claim on the borrower is represented by this managing bank on behalf of the Swiss Confederation. This procedure is in accordance with Art. 10A of the Federal Law on the Export Risk Guarantee. - Each of the participating parties thus receives a subparticipation account with the lead managing bank, making it possible to report the correct claim amount. The lead managing bank channels the amounts to be distributed to the various beneficiaries. 6.2 List of Rescheduling Agreements Concluded (as of December 31, 1986) Country Agreement Repayment dated 1st installment Last installment Argentina 1/A 8/14/86 8/1/86 2/1/93 1/B 8/14/86 12/31/86 7/1/95 Bangladesh 12/4/74 6/30/84 6/30/23 Brazil 1 9/3/84 1/1/89 7/1/92 Central Africa 1 8/22/81 12/31/85 6/30/90 2 12/3/83 12/31/88 6/30/93 3 5/31/86 9/30/91 3/31/96 Congo 1A 10/24/86 7/31/90 1/31/95 1/B 10/24/86 11/30/91 5/31/97 Cuba 1 8/12/83 7/1/86 1/1/91 2 1/22/85 7/1/89 7/1/93 Ecuador 1 3/30/84 5/31/87 11/30/91 Guinea 1/A 10/10/86 12/31/90 6/30/95 1/B 10/10/86 1/31/92 7/31/95 Ivory Coast 1 8/31/84 12/31/88 6/30/93 2 9/3/85 12/31/89 6/30/94 Jamaica 1/A 9/18/85 2/15/89 8/15/93 1/B 9/18/85 8/15/86 8/15/90 Madagaskar 1/B 9/10/81 3/31/86 9/30/90 2/B 10/12/82 3/31/87 9/30/91 3/A+B 9/14/84 9/30/89 3/31/95 4/A+B 10/18/85 2/15/91 8/15/95 Pakistan 3 12/5/74 6/30/89 6/30/05 Peru 1 3/23/79 1/1/82 7/1/85 2 12/28/83 4/30/87 10/31/91 Philippines 1/B 11/29/85 3/15/91 9/15/95 1/C 11/29/85 9/15/86 9/15/87 Poland 1 7/24/81 1/1/86 7/1/89 2/A 5/21/86 1/1/90 7/1/95 2/B 5/21/86 12/31/85 12/31/89 3 5/21/86 1/1/91 7/1/95 Romania 1 12/31/82 12/31/85 12/31/88 2 9/14/83 12/31/86 12/31/89 Senegal 1 1/20/82 6/30/86 12/31/90 2 11/18/83 9/30/87 3/31/92 3 4/2/84 6/30/88 12/31/92 4/A 6/11/85 1/31/88 1/31/92 4/B-D 6/11/85 3/31/90 9/30/94 Sierra Leone 1 5/22/81 12/31/85 6/30/91 2/A+B 4/6/84 9/30/85 9/30/88 2/C 4/6/84 6/30/90 12/31/94 Sudan 1/A 4/1/80 6/30/83 12/31/89 1/B 4/1/80 6/30/84 12/31/90 2 10/19/82 7/1/87 7/1/92 3 11/23/83 6/30/89 12/31/98 4 12/3/84 1/1/91 7/1/00 Togo 1/A 9/27/79 12/31/82 6/30/88 1/B 9/27/79 12/31/83 6/30/89 2/A 6/15/81 12/31/85 6/30/90 2/B 6/15/81 12/31/86 6/30/91 3/A+B 6/30/83 12/31/88 6/30/93 3/C 6/30/83 12/31/83 6/30/88 4/A+B 9/4/84 2/28/90 8/31/94 5 1/17/86 5/1/91 11/1/96 Turkey 2/B 1/17/80 6/30/83 12/31/87 3/A 12/19/80 7/1/85 1/1/90 3/B 12/19/80 1/2/86 7/1/90 3/C 12/19/80 1/2/87 7/1/91 3/D 12/19/80 1/2/88 7/1/92 3/E 12/19/80 7/1/84 1/1/88 3/F 12/19/80 1/2/85 7/1/88 Yugoslavia 1 7/26/84 12/31/88 6/30/91 2 10/10/85 3/1/90 9/1/94 Zaire 2/28/84 12/31/87 6/30/90 Zambia 1/A 8/19/83 12/31/88 6/30/93 1/B 8/19/83 12/31/83 6/30/88 2/A+B 12/14/84 12/31/89 6/30/94 2/C 12/14/84 8/31/84 7/31/85 Chapter 7 Export Financing Costs 7.1 Price Formation at UBS 7.2 Issuing Rates of Medium-Term Notes 7.3 OECD Interest Rates 7.1 Price Formation at UBS Fixing Interest Rates Export Credits Buyer's Credit, Bank-to-Bank Credit, Purchase of Receivables a) ERG coverage, incl. commercial risk Margin over Issuing Rate ERG Cover Rate of UBS Medium-Term Notes 1 1/4% p.a. 95%* 1 1/4% p.a. 90% 1 3/8% p.a. 85% 1 1/2% p.a. 80% 1 5/8% p.a. 75% 1 7/8% p.a. 70% or less * mixed credits Fixed interest rates in accordance with the above margins quoted on request b) ERG coverage, excl. commercial risk (with bank guarantee) Same basis as listed under a), plus - margin increase by 1/8% - 1/4% p.a., depending on risk classification Export Finance Credits a) Interest rate Same basis as accompanying export credit with ERG coverage, plus margin increase by 1/4% - 3/4% p.a., depending on risk classification b) Commissions The commitment fee and the management fee are fixed in line with the conditions on the Euromarket. Export Credits without ERG can be granted on a selective basis. Interest rates, fees and commissions are similar to point a) under "Export Finance Credits." Export Credits The credit instruments presented so far can also in Foreign Currencies be offered and processed in foreign currencies on a selective basis. Refinancing: Euromarket Interest rates: on roll-over basis with a margin above 3/6/12-month LIBOR Fixed interest rates for the principal foreign currencies are quoted on request. Current Interest Rates Medium to long-term financing in SFr. p.a. (as of June 15, l988) - ERG covered export credits: 3-8 year term 4 3/4% - 6 1/8% if fixed interest starting with 8-12 year term 5 1/2% - 6 1/4% offer acceptance: plus (financing to commitment fee of completion) 1/4% per quarter - Export finance 5% - 5 3/4% plus commitment fee credits of appr. 1/2% p.a. and management fee of ca.1/4% - 1/2% flat - International export credits Rate and fee structure determined indi- vidually, but close to the standard rates and fees listed. 7.2 Issuing Rates of UBS Medium-Term Notes Valid after 3 years 4 years 5 years 6 years 7 years 8 years l/9/80 3 3/3% 3 3/4% 4 % 4 % 4 1/4% 4 1/4% 1/28/80 4 1/4% 4 1/4% 4 1/2% 4 1/2% 4 1/2% 4 1/2% 3/18/80 5 % 5 % 5 1/4% 5 1/4% 5 1/4% 5 1/4% 7/16/80 4 3/4% 4 3/4% 5 % 5 % 5 1/4% 5 1/4% 8/26/80 4 1/2% 4 1/2% 4 3/4% 4 3/4% 5 % 5 % 1/26/81 5 % 5 % 5 % 5 % 5 % 5 % 2/12/81 5 % 5 % 5 1/4% 5 1/4% 5 1/4% 5 1/4% 3/9/81 5 1/2% 5 1/2% 5 3/4% 5 3/4% 6 % 6 % 6/4/81 6 % 6 % 6 % 6 % 6 % 6 % 8/17/81 6 1/4% 6 1/4% 6 1/4% 6 1/4% 6 1/4% 6 1/4% 9/16/81 6 3/4% 6 3/4% 6 1/2% 6 1/2% 6 1/4% 6 1/4% 12/11/81 6 1/2% 6 1/4% 6 1/4% 6 1/4% 6 1/4% 6 1/4% 1/21/82 6 % 6 % 6 % 6 % 6 % 6 % 3/16/82 5 3/4% 5 3/4% 5 3/4% 5 3/4% 5 3/4% 5 3/4% 4/13/82 5 1/4% 5 1/2% 5 1/2% 5 1/2% 5 1/2% 5 1/2% 5/14/82 4 3/4% 5 % 5 % 5 % 5 1/4% 5 1/4% 9/13/82 4 1/2% 4 3/4% 4 3/4% 4 3/4% 5 % 5 % 10/13/82 4 1/2% 4 3/4% 4 3/4% 4 3/4% 4 3/4% 4 3/4% 11/8/82 4 1/4% 4 1/4% 4 1/2% 4 1/2% 4 1/2% 4 1/2% 1/6/83 4 % 4 % 4 % 4 1/4% 4 1/4% 4 1/4% 1/8/83 3 3/4% 3 3/4% 4 % 4 % 4 1/4% 4 1/4% 6/9/83 4 1/4% 4 1/4% 4 1/4% 4 1/2% 4 1/2% 4 1/2% 8/25/83 4 3/4% 4 3/4% 4 3/4% 4 3/4% 4 3/4% 4 3/4% 10/19/83 4 1/2% 4 3/4% 4 3/4% 4 3/4% 4 3/4% 4 3/4% 6/12/84 4 3/4% 4 3/4% 4 3/4% 4 3/4% 5 % 5 % 10/17/84 5 % 5 % 5 1/4% 5 1/4% 5 1/4% 5 1/4% 11/27/84 4 3/4% 4 3/4% 5 % 5 % 5 % 5 % 2/26/85 5 % 5 % 5 % 5 % 5 1/4% 5 1/4% 8/27/85 4 3/4% 4 3/4% 5 % 5 % 5 % 5 % 12/3/85 4 1/2% 4 1/2% 4 3/4% 4 3/4% 4 3/4% 5 % 1/7/86 4 1/2% 4 1/2% 4 3/4% 4 3/4% 4 3/4% 4 3/4% 3/10/86 4 1/4% 4 1/4% 4 1/2% 4 1/2% 4 3/4% 4 3/4% 6/17/86 4 1/2% 4 1/2% 4 1/2% 4 1/2% 4 3/4% 4 3/4% 1/6/87 4 1/4% 4 1/2% 4 1/2% 4 1/2% 4 1/2% 4 1/2% 2/9/87 4 1/4% 4 1/4% 4 1/4% 4 1/4% 4 1/4% 4 1/4% 9/30/87 4 1/2% 4 1/2% 4 3/4% 4 3/4% 4 3/4% 4 3/4% 12/14/87 4 1/2% 4 1/2% 4 1/2% 4 1/2% 4 1/2% 4 1/2% 1/6/88 4 1/4% 4 1/4% 4 1/4% 4 1/4% 4 1/2% 4 1/2% 2/8/88 4 % 4 % 4 % 4 1/4% 4 1/2% 4 1/2% 2/15/88 3 3/4% 3 3/4% 3 3/4% 4 % 4 1/4% 4 1/2% 4/20/88 3 1/2% 3 1/2% 3 3/4% 3 3/4% 4 1/4% 4 1/4% 7.3 OECD Interest Rates Agreed Minimum Interest Rates Country Classification Credit Term 2 - 5 5 - 8.5 above 8.5 % % % 1. Countries with a per 10.15 10.40 -- capita GNP exceeding U.S.$ 4,000.-- in 1979 2. Countries with a 8.85 9.35 -- median GNP 3. Countries with a per 8.00 8.00 8.00 capita GNP of less than U.S.$ 625.-- in 1978 OECD Reference Interest Rates 1987 Agreement Term Currency April May June July August 2-5 years U.S.$ 8.47 9.19 8.92 8.91 9.22 Base rate 7.57 8.26 8.02 8.03 8.32 Margin 0.90 0.90 0.90 0.90 0.90 5-10 years 8.87 9.56 9.32 9.31 9.62 Base rate 7.57 8.26 8.02 8.01 8.32 Margin 1.30 1.30 1.30 1.30 1.30 Agreement DM 6.13 6.05 6.29 6.54 6.71 Base rate 5.13 5.05 5.29 5.54 5.71 Margin 1.00 1.00 1.00 1.00 1.00 Agreement £ 9.94 9.44 9.63 10.05 11.11 Base rate 8.94 8.44 8.63 9.05 10.11 Margin 1.00 1.00 1.00 1.00 1.00 Agreement YEN 5.00 4.70 4.70 5.00 5.00 Base rate 5.20 4.90 4.90 5.20 5.20 Margin -0.20 -0.20 -0.20 -0.20 -0.20 Agreement ECU 8.33 8.40. 8.53 8.63 8.84 Base rate 7.83 7.90 8.03 8.13 8.34 Margin 0.5 0.5 0.5 0.5 0.5 0.5 Agreement FF 10.05 10.30 10.71 10.65 10.91 Base rate 9.05 9.30 9.71 9.65 9.91 Margin 1.00 1.00 1.00 1.00 1.00 up to 8 years SFr. 6.55 6.55 6.55 6.55 6.55 Base rate 4.50 4.50 4.50 4.50 4.50 Margin 2.05 2.05 2.05 2.05 2.05 8-10 years 6.80 6.80 6.80 6.80 6.80 Base rate 4.50 4.50 4.50 4.50 4.50 Margin 2.30 2.30 2.30 2.30 2.30 Other currencies on request Chapter 8 Industry Fairs Union Bank of Switzerland was represented by an expert in the field of export financing at the following industry fairs: Country Place Event Date USSR Moscow INGLEMASCH - Textile Machinery Aug. 2 - 11, 1988 China Beijing CTME - International Textile Machinery Fair July 6 - 12, 1988 GDR Leipzig Leipzig Autumn Fair Sept. 4 - 10, 1988 CSSR Brno International Engineering Fair Sept. 14 - 21, 1988 Bulgaria Plovdiv International Technical Fair Sept. 26 - Oct. 2, 1988 India Bombay IMTEX December 1988 Chapter 9 Foreign Exchange and Country Information 9.1 Foreign Exchange 9.1.1 Instruments 9.1.2 Reports 9.2 Data on Specific Countries 9.1 Foreign Exchange 9.l.1 Instruments for Currency Risk Hedging Instrument As of Costs Other Observations Advantages Compensation Contract No direct None Forward rate forms signing costs basis for offer, no favorable forward rate for imports Currency Offer date None up to Small rate gain De facto SFr. clause max. +/- de- possible invoicing viation al- lowed Forward Agreement Interest Imports usually Forward rate forms contract signing difference cheaper as for- basis for offer, on Euro- eign curren- forward terms in market cies are ob- major currencies to tainable at a l year, for DM, £ discount and $ up to 5 years, banks charge margin, liquidity and bank credit lines required Option Offer date Premium, Possibility of Suitable for real costs currency gains hedging possible known only if value is currency risks, at close-out hedged SFr., U.S.$, £ and or expira- DM up to 12 months. ration date Premiums reduce liquidity Foreign Agreement Depends on None Terms to 12 months, currency signing use. Euro- with longer terms advance rate basis usually on roll- over basis. Creates liquidity, requires bank credit lines Foreign Delivery Same as None Only for periods up currency for advance to 1 year. No 100% discount hedging of currency (bill discount) risk due to bank's right of recourse. Creates liquidity, requires bank credit lines Instrument As of Costs Other Observations Advantages Forfaiting Delivery Equal to None Fixed rate for (bill pre- Eurorate 1-2 months before sentation) plus margin/ presentation of risk premium documents possible depending on cur- rency and country. Cash transaction Factoring Delivery Market rate None Only for consumer for advance; goods. Advance up to for services 80% of invoice value depending on in foreign currency volume Leasing Delivery None for None Advantage for im- exporter porter in that lease does not affect balance sheet Remarks: - Costs depend on market situation - Not all instruments are available for each currency/country - It is advisable to contact the supplier of the hedging instrument in good time Chapter 10 Checklist and Application 10.1 Checklist for Export Financing 10.2 Application for Export Financing Filed with UBS Checklist for Export Financing Open Done Notes 1. Marketing Phase - Information on . Payment terms in buyer's country . Rating of buyer's country/buyer . Taxes/duties, levies - Structure of the Transaction . Individual . Export syndicate (CH/Int.) . Swiss share . Foreign share . Local costs . Profitability . Investment calculation . Financing costs - Currencies - Cash Transaction - Credit Transaction . Supplier's credit/Self- financing . Buyer's credit/Block credit . Mixed credit/Soft loans - Alternative . Multisource . Project financing . Offset transaction/Barter - Feasibility - Possibilities of the Competition - Risk Factors 2. Offer Stage Conditions stipulated by customer/ invitation to tender must be taken into consideration 2.1 ERG - File application/Approval - Cover rate - Manufacturing risk - Local costs - Currencies - Payment terms - Scope of coverage . Selling price . Interest . Bank guarantees - Deadlines - Deliveries/Services - Commissioning 2.2 Financing Offer Choice of suitable instruments Draft alternative offers, if needed Details - Importer/Importing country - Exported goods or services - Delivery value - Deadlines . Delivery, commissioning . Completion of delivery contract - Payment terms (ERG approved) - Credit amount - Interest rate charged by customer (in ...% p.a) - Type of claim - Bills or accounts receivable - ERG . Guarantee rate . With/Without coverage of the commercial risk . With/Without coverage of the manufacturing risk - Security regarding commercial risk . Guarantee/Aval of ... . Credit insurance with cover rate of ... - Interest . Fixed interest rate as of credit utilization, reset after ... years . Fixed interest rate for entire term as of: . Credit utilization . Acceptance of delivery offer - Forfaiting - Data on importer/project . Balance sheet data . Project study 2.3 Calculations Factors concerning payment handling which may need to be considered when prices and rates are calculated - Premiums . ERG premium . Credit insurance . Calculatory premium for the risks assumed by the exporter - Commissions . Buyer's guarantee costs . Bid bond, advance payment guarantee, performance bond Bank charges, grace period - Interest . Interest differential (external/internal rates) . Calculatory interest . Withholding tax on interest in importer's country . Negotiating leeway for in- terest rate reduction - Possible fees and levies abroad - Premium for offset/barter transaction 3. Commercial Offer - Offer (bid) documentation - Financing offer (bid) - Bank guarantee (bid bond) 4. Execution of the Transaction - Selection of the instrument - Credit agreement - Bank agreement - Security . ERG decision/Assignment . Guarantees/Avals - Approvals . Import . Foreign exchange/Transfer . Swiss National Bank - Advance payments - Documentary credit opening 5. Credit Utilization - Receipt/Presentation . Advance/Interim payment . Assignment and counter confirmation - User documents . Documentary credit utiliza- tion . Commercial invoice . Shipping documents . Certificates (acceptance) - Bills of exchange - Complete (aval/signature) - Actual currency clause - Domiciliation - Endorsement 6. Monitoring Operations - Risk management - Incoming payments - Interest differentials - Risk of rescheduling - Sale/repurchase of claim or receivable Sender/Company Place and Date Union Bank of Switzerland Export Financing Department P.O. Box 8021 Zurich Switzerland Application for EXPORT FINANCING (Import Country) Dear Sirs, We kindly request you to submit to us an offer for the financing of the export transaction specified below: l. Project Data Buyer: Borrower: Merchandise/Project Exporter Country of Currency Amount Origin Delivery value: Stage: () Offer () Negotiations () Completed on Delivery date(s) / / / Commissioning / / / 2. Payment Terms/Guarantees and Insurance % advance payment to with/without advance payment guarantee % on delivery: () L/C () Collection % in semiannual installments, first due on external interest rate State Export Risk Guarantee(s) Cover Rate % with/without coverage of commercial risk with/without manufacturing risk firm/likely % with/without coverage of commercial risk with/without manufacturing risk firm/likely Payment guarantee of () private () state Promissory note(s)/Acceptances of the buyer, with aval of Other security 3. Desired Financing () Indication () Firm offer valid to Risk sharing: () No UBS risk sharing in principal () UBS risk sharing in principal () commercial risk % () country risk 1 Interest rate fixing: () on utilization () on acceptance of financing offer 4. Bank Guarantee Requested: Currency Amount Maturities (from/to) () Bid Bond () Advance Payment Guarantee () Performance Bond 5. Observations The offer is to be issued to: Contact person: Tel. Sincerely yours, (company stamp) Signature(s) Enclosure(s)