After a review of NZECO’s operations, the Government has announced decisions to renew NZECO’s mandate and to amend some operational criteria and products.
NZECO will continue to provide a range of trade credit insurance and financial guarantees in a manner that complements the banks and trade credit insurers, in support of New Zealand exports and exporters.
What is new:
- NZECO mandate
- Increased level of cover
- NZECO Loan Guarantee eligibility criteria
- Export Supply chain support for domestic firms
- Political Risk Insurance
The new changes will enable NZECO to support a wider range of SME firms and larger exporters, while also helping NZECO develop a more diversified risk portfolio. It also brings NZECO closer to the international best-practice of other Export Credit Agencies who provide insurance and financial guarantees.
Refreshing NZECO’s mandate
NZECO’s mandate has been refreshed to clearly describe three important objectives for NZECO, namely:
“The primary purpose of the New Zealand Export Credit Office is to provide a range of export credit and financial guarantees which:
- promote and support New Zealand exports and the internationalisation of New Zealand exporters;
- complement and do not compete with the private sector; and
- apply risk-appropriate commercial premiums in order to fully cover NZECO’s operating costs and claims over the longer term.”
Increased Level of Cover
Increasing NZECO’s maximum level of cover to 100% when underwriting letters of credit and export credit guarantees, in certain circumstances
NZECO can now provide 100% political and commercial risk cover in respect to underwriting letters of credit issued by foreign banks in support of New Zealand exports. This will enable NZECO to meet the industry practice and market demand to underwrite 100% for such transactions, in circumstances where the New Zealand banks have limited credit capacity or appetite for certain regions and banks.
NZECO does not offer 100% political and commercial risk cover in respect to trade credit insurance for open account terms. NZECO will continue to apply the trade credit insurance practice of requiring some risk sharing from the insured exporters when underwriting their foreign buyer’s payments (more information).
In relation to its export credit guarantees, NZECO’s standard approach is to also require a degree of risk-sharing by the insured party. However NZECO now has the discretion to cover up to 100% political and commercial risk cover in respect to export credit guarantees where:
- the counterparty is a sovereign or investment-grade corporate; and/or
- NZECO is co-insuring or reinsuring a transaction with another export credit agency, who are seeking NZECO to match their higher levels of political and commercial risk cover. This will enable NZECO to help New Zealand exporters being part of an international joint venture or consortium on significant projects that are being supported by other export credit agencies.
NZECO Loan Guarantee
Removing the criterion that only firms with an annual turnover of less than $50m are eligible for NZECO’s Loan Guarantee
NZECO’s Loan Guarantee helps firms access additional loan facilities from their bank to help fund export contract(s).
Previously, the Loan Guarantee was limited to small to medium sized firms with an annual turnover of less than $50 million. This turnover cap has now been removed, and NZECO is able to assess and support additional, export-related funding for larger firms in partnership with their banks.
This change will not reduce the support available by NZECO to smaller firms, but instead broadens the range of New Zealand companies that NZECO can support via this “access to finance” solution.
Extending the maximum term of the loan guarantee from three to five years
This change is intended to support firms seeking NZECO’s support to underwrite longer-term debt funding for capital investments. In addition to a satisfactory credit assessment, NZECO’s support will be conditional on risk sharing with the firm’s bank as well as evidence of new equity being invested into the firm.
Export Supply Chain support for domestic firms
NZECO’s solutions can now be provided to domestic firms providing goods and services integral to an exporter’s supply chain
In New Zealand, many smaller firms provide goods and services that are integral to an exporter’s performance of their export contract. Often these domestic firms may have to accept payment terms or bonding requirements from the exporter (sometimes in order to match the terms required by their foreign buyer) which in turn can constrain their own working capital and ability to deliver their supply contract.
NZECO can now provide its solutions in support of a domestic firm that has been awarded an export supply chain contract that is integral to the ultimate delivery of exports.
In addition to NZECO’s standard credit assessment, product and New Zealand benefits criteria, it must be demonstrated that the domestic goods and services are integral to an exporter’s performance. This assessment will be on a case by case basis and include the following considerations:
- how the domestic goods or services are integral to the performance of an export contract(s);
- the implications for the exporter if their chosen domestic supplier’s goods or services are not provided; and
- how far removed the domestic supplier’s contract is from the ultimate export.
NZECO is unable to support domestic contracts that a general business support services to an exporting firm.
Political Risk Investment Insurance
Authorising NZECO to introduce a political risk insurance product, in support of firms’ overseas direct investment
When performing projects, investing in assets and/or sharing ownership in a foreign subsidiary or joint venture in an emerging market, New Zealand exporters are exposed to political risks that can result in losses to their overseas investments or projects. Examples of such risks include political violence that can damage or destroy your assets, or a foreign government taking control of your company or property.
NZECO has approval to provide political risk investment insurance to New Zealand exporters, which complements similar insurance offered by specialist political risk private insurers and multilateral agencies. This form of protection can provide greater confidence to an exporter investing or undertaking projects in an emerging market.
NZECO is now in the process of formalising its policies, processes and documentation in respect to this product, and we will announce publicly once we are ready to receive applications.