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Document 52016PC0779
Proposal for a COUNCIL DECISION on the position to be taken by the Union in the Working Party of the Participants to the OECD Arrangement on Officially Supported Export Credits with regard to Market Benchmark Pricing Rules
Proposal for a COUNCIL DECISION on the position to be taken by the Union in the Working Party of the Participants to the OECD Arrangement on Officially Supported Export Credits with regard to Market Benchmark Pricing Rules
Proposal for a COUNCIL DECISION on the position to be taken by the Union in the Working Party of the Participants to the OECD Arrangement on Officially Supported Export Credits with regard to Market Benchmark Pricing Rules
COM/2016/0779 final - 2016/0385 (NLE)
EUROPEAN COMMISSION
Brussels, 8.12.2016
COM(2016) 779 final
2016/0385(NLE)
Proposal for a
COUNCIL DECISION
on the position to be taken by the Union in the Working Party of the Participants to the OECD Arrangement on Officially Supported Export Credits with regard to Market Benchmark Pricing Rules
EXPLANATORY MEMORANDUM
1.CONTEXT OF THE PROPOSAL
Reasons for and objectives of the proposal
The OECD Arrangement on Officially Supported Export Credits (the "Arrangement") is a Gentlemen's Agreement between Australia, Canada, the European Union, Japan, Korea (Republic of), New Zealand, Norway, Switzerland and the United States. Brazil, although not an OECD member, is a Participant to the Arrangement's Sector Understanding on Export Credits for Civil Aircraft.
The main purpose of the Arrangement is to provide a framework for the orderly use of officially supported export credits. In practice, this means providing for a level playing field, whereby competition is based on the price and the quality of the exported goods and not the financial terms provided. Furthermore, it aims to eliminate subsidies and trade distortions related to officially supported export credits.
The Arrangement came into existence in 1978, building on the export credit "Consensus" agreed among a number of OECD countries in 1976. Prior to this time, the lack of rules set the stage for competition amongst governments to provide the most attractive financial terms in support of exporters competing for trade contracts resulting in the emergence of financial subsidies and potential trade distortions. The Arrangement places limitations on the terms and conditions of officially supported export credits and the provision of tied aid. The Arrangement is updated regularly taking into account inter alia, policy developments and the evolving global financial markets.
The guidelines on market benchmark pricing provide guiding in setting premium in transactions involving obligors in Category 0 countries, high-income OECD countries and high-income euro area countries. The current guidelines on market benchmark pricing in the Arrangement were put in place as part of the Malzkuhn-Drysdale Package that entered into force on September 2011. While the current guidelines provide a framework for not undercutting the private market pricing, the scope for interpretation and the emergence of different practices among participants of the Arrangement is still significant. The proposal put forward by the OECD secretariat, Chairman's Revised Proposal for Market Benchmark Pricing Rules, will give clearer guidelines and thereby improve the level playing field within the OECD.
Consistency with existing policy provisions in the policy area
The proposal, if approved, will replace the current guidelines on market benchmark pricing in the Arrangement, while complying with the current structure of the Arrangement.
The decision of approval will be taken by the Working Party of the Participants to the Arrangement on Officially Supported Export Credits. The position of the European Union will be expressed by the Commission.
The OECD Participants to the Arrangement is likely to agree on the Chairman's Revised Proposal for Market Benchmark Pricing Rules at their regular meeting in mid-November 2016 or through a written procedure in close connection to the meeting and to adopt the necessary modifications to the OECD Arrangement with the goal to implement the new rules by 1 February 2017. As negotiations have successfully been completed and the Chairman's Revised Proposal for Market Benchmark Pricing Rules has been tabled for decision, it is crucial the European Union is enabled to formalise its approval of the current proposal on Market Benchmark Pricing and the modifications to the OECD Arrangement.
The new version of the Arrangement will be incorporated in EU acquis by a delegated act. The OECD Arrangement including its Annexes and its modifications has legal effects in the Union by virtue of Regulation (EU) No 1233/2011 of the European Parliament and of the Council. Article 2 of Regulation (EU) No 1233/2011 states that "[t]he Commission shall adopt delegated acts in accordance with Article 3 to amend Annex II as a result of amendments to the guidelines agreed upon by the Participants to the Arrangement".
Consistency with other Union policies
Not applicable.
2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
Legal basis
The OECD Arrangement is a gentlemen's agreement between the EU and the eight other Participants (United States, Canada, Japan, Korea, Norway, Switzerland, New Zealand and Australia). The Arrangement including its Annexes and its successive modifications is incorporated into EU law by virtue of Articles 1 and 2 of Regulation (EU) No 1233/2011 of the European Parliament and of the Council of 16 November 2011 on the application of certain guidelines in the field of officially supported export credits and repealing Council Decisions 2001/76/EC and 2001/77/EC. The Arrangement including its Annexes and its amendments thus has legal effects for the purposes of Article 218(9) TFEU (see Judgment of the Court of 7 October 2014 in case C-399/12 - Germany v Council (OIV), paragraph 63). On substance, as set out in its paragraph 1, the Arrangement aims at providing a framework for the orderly use of officially supported export credits, and seeks to foster a level playing field and fair competition between exporters at a global scale; hence to facilitate and regulate international trade, and in particular export policy, within the meaning of Article 207 TFEU. For this reason, a Council decision based on Articles 207 TFEU and Article 218(9) TFEU is required to establish the position to be adopted, on behalf of the European Union, in the OECD Participants to the Arrangement on Officially Supported Export Credits.
Subsidiarity (for non-exclusive competence)
The OECD Arrangement form part of Member States' trade policy, which is the exclusive competence of the European Union.
Proportionality
Not applicable.
Choice of the instrument
Not applicable.
3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
Ex-post evaluation/fitness checks of existing legislation
No impact assessment with regard to the present proposal was carried out as the proposed modifications are a continuation of a long-standing EU policy on export credits, implemented after every yearly modification of the Arrangement into EU law by delegated Act. The content of the proposal was endorsed by the Council Working Group on Export Credits at its meeting on 31/05/2016.
Stakeholder consultations
Not applicable.
Collection and use of expertise
Not applicable.
Impact assessment
Not applicable.
Regulatory fitness and simplification
Not applicable.
Fundamental rights
Not applicable.
4.BUDGETARY IMPLICATIONS
Budgetary implications are limited to administrative expenditure.
5.OTHER ELEMENTS
Implementation plans and monitoring, evaluation and reporting arrangements
Not applicable.
Explanatory documents (for directives)
Not applicable.
Detailed explanation of the specific provisions of the proposal - Summary of proposed modifications to the OECD arrangement and recommended position of the European Union
Proposal
The proposal is annexed to the Council Decision.
Recommended Position:
Support for the proposal.
2016/0385 (NLE)
Proposal for a
COUNCIL DECISION
on the position to be taken by the Union in the Working Party of the Participants to the OECD Arrangement on Officially Supported Export Credits with regard to Market Benchmark Pricing Rules
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Article 207, in conjunction with Article 218(9) thereof,
Having regard to the proposal from the European Commission,
Whereas:
(1)An international framework for the orderly use of export credits is essential for a global level playing field and for facilitating international trade. Such a framework has to be regularly updated, such as in the proposed update of Market Benchmark Pricing Rules being discussed among Participants to the OECD Arrangement on Officially Supported Export Credits ('the OECD Arrangement').
(2)Extensive discussions on Market Benchmark Pricing Rules have taken place in the OECD Working Party on Export Credits and Credit Guarantees.
(3)Modifications to the OECD Arrangement in respect of Market Benchmark Pricing Rules are expected to be adopted on 1 February 2017.
(5)The OECD Arrangement including its Annexes and its modifications has legal effects in the Union by virtue of Regulation (EU) No 1233/2011 of the European Parliament and of the Council 1 . Article 2 of Regulation (EU) No 1233/2011 states that "[t]he Commission shall adopt delegated acts in accordance with Article 3 to amend Annex II as a result of amendments to the guidelines agreed upon by the Participants to the Arrangement".
(6)Accordingly, in accordance with Article 218(9) TFEU, it is necessary to establish the position to be taken by the Union within the Export Credit Committees of the OECD on the modifications to the OECD Arrangement
(7)A modification to the OECD Arrangement on the basis of the main orientations of the Revised Chairman's Proposal with regard to Market Benchmark Pricing Rules, attached to this Decision, should be agreed to by the representatives of the Union in the OECD Export Credit Committees. This may include agreement to changes on specific points that do not alter the main orientations without further decision of the Council.
(8)In order to ensure that the measures provided for in this Decision are effective, it should enter into force immediately,
HAS ADOPTED THIS DECISION:
Article 1
The position to be taken by the European Union within the Working Party on Export Credits and Credit Guarantees of the Participants to the OECD Arrangement on Officially Supported Export Credits shall be to support and adopt the main orientations of the Revised Chairman's Proposal on Market Benchmark Pricing Rules, attached to this Decision.
Article 2
Changes to specific points that do not alter the main orientations of the attached proposal may be agreed to by the representatives of the Union in the Export Credit Committees of the OECD without further decision of the Council.
Article 3
This Decision shall enter into force on the day of its adoption.
Done at Brussels,
For the Council
The President
EUROPEAN COMMISSION
Brussels, 8.12.2016
COM(2016) 779 final
ANNEX
to the
Proposal for a Council Decision
on the position to be taken by the Union in the Working Party of the Participants to the OECD Arrangement on Officially Supported Export Credits with regard to Market Benchmark Pricing Rules
ATTACHMENT
PROPOSAL
24.MINIMUM PREMIUM RATES FOR CREDIT RISK
The Participants shall charge no less than the applicable Minimum Premium Rate (MPR) for Credit Risk.
a)The applicable MPR is determined according to the following factors:
–the applicable country risk classification;
–the time at risk (i.e. the Horizon of Risk or HOR);
–the selected buyer risk category of the obligor;
–the percentage of political and commercial risk cover and quality of official export credit product provided;
–any country risk mitigation technique applied; and
–any buyer risk credit enhancements that have been applied.
b)MPRs are expressed in percentages of the principal value of the credit as if premium were collected in full at the date of the first drawdown of the credit. An explanation of how to calculate the MPRs, including the mathematical formula, is provided in Annex IX.
c)Irrespective of the destination country the premium rates charged by Participants for Market Benchmark transactions, i.e., involving obligors/guarantors (i.e. credit risk entities) in Category 0 countries, High Income OECD Countries and High Income Euro Area Countries 1 shall be determined on a case-by-case basis. In order to ensure that the premium rates charged for transactions involving obligors, and where appropriate guarantors, in such countries do not undercut private market pricing, the Participants shall adhere to the following procedures, using agreed conventions to translate the relevant benchmark pricing into premium:
1.Where a Participant provides official support as part of a syndicated loan package that is structured as either an asset-backed 2 or project finance 3 transaction, then the all-in cost of the official supported portion shall be no less than the all-in cost charged by the commercial market participant(s) in the syndicate, respectively, the premium charged shall be not less than the one charged by the commercial market participant(s). To qualify as a syndicated loan package, the following conditions must be met:
–At least 25% 4 of the syndicate is commercial market loan(s)/guarantee(s), without any bilateral or multilateral support (e.g., ECA, DFI, IFI or MDB) 5 , where all parties to the financing are on pari passu terms on all financial terms and conditions, includingsecurity package; and
–The transaction financial terms and conditions are fully compliant with the Arrangement, as modified by these provisions of Market Benchmark pricing in syndicated loans transactions.
2.For all other Market Benchmark Transactions, the following procedures shall apply:
–Taking into consideration the availability of market information and the characteristics of the underlying transaction, Participants shall determine the premium rate to be applied by benchmarking against one or more of the market benchmarks set forth in Annex X, choosing the benchmark(s) deemed most appropriate for the specific transaction.
–In determining the premium rate, a Participant shall determine a risk rating for the obligor, including whether the obligor is rated by an Accredited Credit Rating Agency 6 (CRA). A Participant may set a rating one notch better (on the Accredited CRA’s scale) than that provided by an Accredited CRA 7 . If there is no Accredited CRA rating the risk classification may not exceed (be more favourable than) the CRA rating of the sovereign in the obligor/guarantor's domicile by more than two notches. Where a Participant classifies the obligor/guarantor as better than the best rating from an Accredited CRA, or if there is no Accredited CRA rating, where a Participant classifies a transaction as CC2 or better, or a credit rating letter equivalent to AAA to A-, or equal to or more favourable than the best Accredited CRA rating of the sovereign in the obligor’s/guarantor’s domicile, then the Participant shall give prior notification in accordance with Article 48.
–Notwithstanding the preceding paragraphs, Participants shall charge a premium rate that is no lower than the corresponding premium determined by the Through the Cycle Market Benchmark (TCMB) model, based on the risk classification and tenor of the transaction, unless the market benchmark is derived from a Name-Specific or Related Entity (i) secondary market bond or (ii) Credit Default Swap (CDS). A Participant charging a premium rate lower than the corresponding premium determined by the TCMB model, based on the Accredited CRA rating of the Name-Specific market benchmark 8 , shall give prior notification in accordance with Article 48.
d)The “highest risk” countries in Category 7 shall, in principle, be subject to premium rates in excess of the MPRs established for that Category; these premium rates shall be determined by the Participant providing official support.
e)In calculating the MPR for a transaction, the applicable country risk classification shall be the classification of the obligor’s country and the applicable buyer risk classification shall be the classification of the obligor 9 , unless:
–security in the form of an irrevocable, unconditional, on-demand, legally valid and enforceable guarantee of the total debt repayment obligation for the entire duration of the credit is provided by a third party that is creditworthy in relation to the size of the guaranteed debt. In the case of a third party guarantee, a Participant may choose to apply the country risk classification of the country in which the guarantor is located and the buyer risk category of the guarantor 10 ; or
–a Multilateral or Regional Institution as set out in Article 28 is acting either as borrower or guarantor for the transaction, in which case the applicable Country Risk Classification and buyer risk category may be that of the specific Multilateral or Regional Institution involved.
f)The criteria and conditions relating to the application of a third party guarantee according to the situations described in the first and second tirets of paragraph e) above are set out in Annex XI.
g)The HOR convention used in the calculation of an MPR is one-half of the disbursement period plus the entire repayment period and assumes a regular export credit repayment profile, i.e. repayment in equal semi-annual instalments of principal plus accrued interest beginning six months after the starting point of credit. For export credits with non-standard repayment profiles, the equivalent repayment period (expressed in terms of equal, semi-annual instalments) is calculated using the following formula: equivalent repayment period = (average weighted life of the repayment period -0.25) / 0.5.
h)The Participant choosing to apply an MPR associated with a third party guarantor located in a country other than that of the obligor shall give prior notification according to Article 47. The Participant choosing to apply a MPR associated with a Multilateral or Regional Institution acting as a guarantor shall give prior notification in accordance with Article 48.
25.COUNTRY RISK CLASSIFICATION
With the exception of High Income OECD countries and High Income Euro Area countries, countries shall be classified according to the likelihood of whether they will service their external debts (i.e. country credit risk).
a)The five elements of country credit risk are:
–general moratorium on repayments decreed by the obligor’s/guarantor's government or by that agency of a country through which repayment is effected;
–political events and/or economic difficulties arising outside the country of the notifying Participant or legislative/administrative measures taken outside the country of the notifying Participant which prevent or delay the transfer of funds paid in respect of the credit;
–legal provisions adopted in the obligor’s/guarantor’s country declaring repayments made in local currency to be a valid discharge of the debt, notwithstanding that, as a result of fluctuations in exchange rates, such repayments, when converted into the currency of the credit, no longer cover the amount of the debt at the date of the transfer of funds;
–any other measure or decision of the government of a foreign country which prevents repayment under a credit; and
–cases of force majeure occurring outside the country of the notifying Participant, i.e. war (including civil war), expropriation, revolution, riot, civil disturbances, cyclones, floods, earthquakes, eruptions, tidal waves and nuclear accidents.
b)Countries are classified into one of eight Country Risk Categories (0-7). MPRs have been established for Categories 1 through 7, but not for Category 0, as the level of country risk is considered to be negligible for countries in this Category. The credit risk associated with transactions in Category 0 countries is predominantly related to the risk of the obligor/guarantor.
c)The classification of countries 11 is achieved through the Country Risk Classification Methodology, which is comprised of:
–The Country Risk Assessment Model (the Model), which produces a quantitative assessment of country credit risk which is based, for each country, on three groups of risk indicators: the payment experience of the Participants, the financial situation and the economic situation. The methodology of the Model consists of different steps including the assessment of the three groups of risk indicators, and the combination and flexible weighting of the risk indicator groups.
–The qualitative assessment of the Model results, considered country-by-country to integrate the political risk and/or other risk factors not taken into account in full or in part by the Model. If appropriate, this may lead to an adjustment to the quantitative Model assessment to reflect the final assessment of the country credit risk.
d)Country Risk Classifications shall be monitored on an on-going basis and reviewed at least annually and changes resulting from the Country Risk Classification Methodology shall be immediately communicated by the Secretariat. When a country is re-classified in a lower or higher Country Risk Category, the Participants shall, no later than five working days after the reclassification has been communicated by the Secretariat, charge premium rates at or above the MPRs associated with the new Country Risk Category.
e)The country risk classifications shall be made public by the Secretariat.
26.SOVEREIGN RISK ASSESSMENT
a)For all countries classified through the Country Risk Classification Methodology according to Article 25 d), the risk of the sovereign shall be assessed in order to identify, on an exceptional basis, those sovereigns:
–that are not the lowest-risk obligor in the country and;
–whose credit risk is significantly higher than country risk.
b)The identification of sovereigns meeting the criteria listed in paragraph a) above shall be undertaken according to the Sovereign Risk Assessment Methodology that has been developed and agreed by the Participants.
c)The list of sovereigns identified as meeting the criteria listed in paragraph a) above shall be monitored on an on-going basis and reviewed at least annually and changes resulting from the Sovereign Risk Assessment Methodology shall be immediately communicated by the Secretariat.
d)The list of sovereigns identified under paragraph b) above shall be made public by the Secretariat.
27.BUYER RISK CLASSIFICATION
Obligors and, as appropriate, guarantors in countries classified in Country Risk Categories 1-7 shall be classified into one of the buyer risk categories that have been established in relation to the country of the obligor/guarantor 12 . The matrix of buyer risk categories into which obligors and guarantors shall be classified is provided in Annex IX. Qualitative descriptions of the buyer risk categories are provided in Annex XII.
a)Buyer-risk classifications shall be based on the senior unsecured credit rating of the obligor/guarantor as determined by the Participant.
b)Notwithstanding paragraph a) above, transactions supported according to the terms and conditions of Annex VII and transactions having a credit value of SDR 5 million or less may be classified on a transaction basis, i.e. after the application of any buyer risk credit enhancements; however, such transactions, regardless of how they are classified, are not eligible for any discounts for the application of buyer risk credit enhancements.
c)Sovereign obligors and guarantors are classified in buyer risk category SOV/CC0.
d)On an exceptional basis, non-sovereign obligors and guarantors may be classified in the “Better than Sovereign” (SOV+) buyer risk category 13 if:
–the obligor/guarantor has a foreign currency rating from an Accredited CRA that is better than the foreign currency rating (from the same CRA) of their respective sovereign, or
–the obligor/guarantor’s is located in a country in which sovereign risk has been identified as being significantly higher than country risk.
e)The Participants shall give prior notification according to Article 48 for transactions:
–with a non-sovereign obligor/guarantor where the premium charged is below that set by Buyer Risk Category CC1, i.e. CC0 or SOV+;
–with a non-sovereign obligor/guarantor having a credit value of greater than SDR 5 million where a Participant assesses a buyer risk rating for a non-sovereign obligor/guarantor that is rated by an Accredited CRA, and the buyer risk rating assessed is better than the Accredited CRA rating 14 .
e)In the event of competition for a specific transaction, whereby the obligor/guarantor has been classified by competing Participants in different buyer risk categories, the competing Participants shall seek to arrive at a common buyer risk classification. If agreement on a common classification is not reached, the Participant(s) having classified the obligor/guarantor in a higher buyer risk classification are not prohibited from applying the lower buyer risk classification.
28.CLASSIFICATION OF MULTILATERAL AND REGIONAL INSTITUTIONS
Multilateral and Regional Institutions shall be classified into one of eight Country Risk Categories (07) 15 and reviewed as appropriate; such applicable classifications shall be made public by the Secretariat.
29.PERCENTAGE AND QUALITY OF OFFICIAL EXPORT CREDIT COVER
The MPRs are differentiated to take account of the differing quality of export credit products and percentage of cover provided by the Participants as set out in Annex IX. The differentiation is based on the exporter’s perspective (i.e. to neutralise the competitive effect arising from the differing qualities of product provided to the exporter/financial institution).
a)The quality of an export credit product is a function of whether the product is insurance, guarantee or direct credit/financing, and for insurance products whether cover of interest during the claims waiting period (i.e. the period between the due date of payment by the obligor and the date that the insurer is liable to reimburse the exporter/financial institution) is provided without a surcharge.
b)All existing export credit products offered by the Participants shall be classified into one of the three product categories which are:
–Below standard product, i.e. insurance without cover of interest during the claims waiting period and insurance with cover of interest during the claims waiting period with an appropriate premium surcharge;
–Standard product, i.e. insurance with cover of interest during the claims waiting period without an appropriate premium surcharge and direct credit/financing; and
–Above standard product, i.e. guarantees.
30.COUNTRY RISK MITIGATION TECHNIQUES
a)The Participants may apply the following country risk mitigation techniques, the specific application of which is set out in Annex XIII:
–Offshore Future Flow Structure Combined with Offshore Escrow Account
–Local Currency Financing
b)The Participant applying an MPR reflecting the use of country risk mitigation shall give prior notification according to Article 47.
31.BUYER RISK CREDIT ENHANCEMENTS
a)The Participants may apply the following buyer risk credit enhancements (BRCE) which allow for the application of a Credit Enhancement Factor (CEF) greater than 0:
–Assignment of Contract Proceeds or Receivables
–Asset Based Security
–Fixed Asset Security
–Escrow Account
b)Definitions of the BRCE and maximum CEF values are set out in Annex XIII.
c)BRCEs may be used alone or in combination with the following restrictions:
–The maximum CEF that can be achieved through the use of the BRCEs is 0.35.
–“Asset Based Security” and “Fixed Asset Security” cannot be used together in one transaction.
–In the event that applicable country risk classification has been improved through the use of “Offshore Future Flow Structure Combined with Offshore Escrow Account”, no BRCEs may be applied.
d)For transactions involving Market Benchmark obligors, the following discounts may be applied to the risk premium derived from senior, unsecured Name Specific CDS and Bond market benchmarks, or the TCMB model:
–For Asset Based Security: a maximum discount of 15%,
–For Fixed Asset Security: a maximum discount of 10%,
–For Escrow Account (debt service reserve account): a maximum discount of 10%, and
–For a Combination of CEFs, in total: a maximum discount of 25%.
e)The Participants shall give prior notification according to Article 48 for transactions with a nonsovereign obligor/guarantor having a credit of greater than SDR 5 million where BRCEs result in the application of a CEF of greater than 0, or whenever BRCEs are used in a Market Benchmark transaction that result in pricing below the corresponding TCMB MPR.
32.REVIEW OF THE VALIDITY OF THE MINIMUM PREMIUM RATES
FOR CREDIT RISK
a)To assess the adequacy of MPRs and to allow, if necessary, for adjustments, either upwards or downwards, Premium Feedback Tools (PFTs), shall be used in parallel to monitor and adjust the MPRs on a regular basis.
b)The PFTs shall assess the adequacy of the MPRs in terms of both the actual experience of institutions providing official export credits as well as private market information on the pricing of credit risk.
c)A comprehensive review of all aspects of the premium rules of the Arrangement, with a special emphasis on the Market Benchmark Pricing Rules, shall take place no later than 31 December 2018.
48.PRIOR NOTIFICATION
a)A Participant shall, in accordance with Annex VIII, notify all other Participants at least ten calendar days before issuing any commitment if it intends to:
1)Provide support in accordance with Article 10 d) 3).
2)Support a repayment term of more than five years to a Category I country.
3)Provide support in accordance with Article 13 a).
4)Provide support in accordance with Article 14 d).
5)Apply a premium rate in accordance with the provisions of Article 24 c) 1) when participating as part of a syndicated loan package.
6)In a Market Benchmark transaction, classify the obligor/guarantor as better than the best rating from an Accredited CRA, or if there is no Accredited CRA rating, classify a transaction as CC2 or better, or a credit rating letter equivalent to AAA to A-, or equal to or more favourable than the best Accredited CRA rating of the sovereign in the obligor’s/guarantor’s domicile.
7)Apply a premium rate lower than the corresponding premium determined by the TCMB model, in accordance with the third tiret of Article 24 c) 2).
8)Apply a premium rate in accordance with the second tiret of Article 24 e), whereby the applicable country risk classification and buyer risk category used to calculate the MPR have been determined by the involvement as obligor or guarantor of a classified multilateral or regional institution.
9)Apply a premium rate in accordance with Article 27 e) whereby the selected buyer risk category used to calculate the MPR for a transaction:
–with a non-sovereign obligor/guarantor is lower than CC1 (i.e. CC0 or SOV+);
–with a non-sovereign obligor/guarantor having a credit of greater than SDR 5 million is better than the Accredited CRA rating.
10)Apply a premium rate in accordance with Article 31 a) whereby the use of buyer risk credit enhancements results in the application of a CEF of greater than 0, or whenever BRCEs are used in a Market Benchmark transaction that result in pricing below the corresponding TCMB MPR.
11)Provide support in accordance with Article 8 a) of Annex II.
12)Provide support in accordance with Article 10 a) 1) of Annex IV.
13)Provide support in accordance with Article 5 b) of Annex V.
14)Provide support in accordance with Article 4 a) of Annex VI
b)If the initiating Participant moderates or withdraws its intention to provide support for such transaction, it shall immediately inform all other Participants.
ANNEX VIII: INFORMATION TO BE PROVIDED FOR NOTIFICATIONS
The information listed in Section I below shall be provided for all notifications made under the Arrangement (including its Annexes). In addition, the information specified in Section II shall be provided, as appropriate, in relation to the specific type of notification being made.
I.INFORMATION TO BE PROVIDED FOR ALL NOTIFICATIONS
a)Basic Information
1.Notifying country
2.Notification date
3.Name of notifying authority/agency
4.Reference number
5.Original notification or revision to previous notification (revision number as relevant)
6.Tranche number (if relevant)
7.Reference number of credit line (if relevant)
8.Arrangement Article(s) under which the notification is being made
9.Reference number of notification being matched (if relevant)
10.Description of support being matched (if relevant)
11.Destination Country
b)Buyer/Borrower/Guarantor Information
12.Buyer Country
13.Buyer Name
14.Buyer Location
15.Buyer Status
16.Borrower Country (if different from the buyer)
17.Borrower Name (if different from the buyer)
18.Borrower Location (if different from the buyer)
19.Borrower Status (if different from the buyer)
20.Guarantor Country (if relevant)
21.Guarantor Name (if relevant)
22.Guarantor Location (if relevant)
23.Guarantor Status (if relevant)
c)Information on Goods and/or Services Being Exported and the Project
24.Description of the goods and/or services being exported
25.Description of the project (if relevant)
26.Location of the project (if relevant)
27.Tender closing date (if relevant)
28.Expiry date of credit line (if relevant)
29.Value of contract(s) supported, either the actual value (for all lines of credit and project finance transactions or for any individual transaction on a voluntary basis) or according to the following scale in millions of SDRs:
|
Category |
From |
To |
|
I: |
0 |
1 |
|
II: |
1 |
2 |
|
III: |
2 |
3 |
|
IV: |
3 |
5 |
|
V: |
5 |
7 |
|
VI: |
7 |
10 |
|
VII: |
10 |
20 |
|
VIII: |
20 |
40 |
|
IX: |
40 |
80 |
|
X: |
80 |
120 |
|
XI: |
120 |
160 |
|
XII: |
160 |
200 |
|
XIII: |
200 |
240 |
|
XIV: |
240 |
280 |
|
XV: |
280 |
* |
*Indicate the number of SDR 40 million multiples in excess of SDR 280 million, e.g. SDR 410 million would be notified as Category XV+3.
30.Currency of contract(s)
d)Financial Terms and Conditions of the Official Export Credit Support
31.Credit value; the actual value for notifications involving lines of credit and project finance transactions or for any individual transaction on a voluntary basis, or according to the SDR scale
32.Currency of credit
33.Down payment (percentage of the total value of the contracts supported)
34.Local Costs (percentage of the total value of the contracts supported)
35.Starting point of credit and reference to the applicable sub-paragraph of Article 10
36.Length of the repayment period
37.Interest rate base
38.Interest rate or margin
II.ADDITIONAL INFORMATION TO BE PROVIDED, AS APPROPRIATE, FOR NOTIFICATIONS MADE IN RELATION TO SPECIFIC PROVISIONS
a)Arrangement, Article 14 d) 5)
1.Repayment profile
2.Repayment frequency
3.Length of time between the starting point of credit and the first repayment of principal
4.Amount of interest capitalised before the starting point of credit
5.Weighted average life of the repayment period
6.Explanation of the reason for not providing support according to Article 14 paragraphs a) through c)
b)Arrangement, Articles 24, 27, 30 and 31
1.Country risk classification of the obligor’s country
2.Selected buyer risk category of the obligor
3.Length of the disbursement period
4.Percentage of cover for political (country) risk
5.Percentage of cover for commercial (buyer) risk
6.Quality of cover (i.e. below standard, standard, above standard)
7.MPR based on the country risk classification of the obligor’s country absent any third party guarantee, involvement of a multilateral/regional institution, risk mitigation and/or buyer risk enhancements
8.Applicable MPR
9.Actual premium rate charged (expressed in MPR format as a percentage of the principal)
c)Arrangement, Article 24 c)
1.Accredited CRA foreign currency rating(s) of the obligor
2.Accredited CRA foreign currency rating(s) of the sovereign
3.Corresponding TCMB MPR for the transaction based on the best available Accredited CRA foreign currency rating of the obligor
4.In the case of syndicate pricing, a detailed description of the methodology used to derive at the premium based on the all-in pricing
5.In the case of Name Specific bond or CDS pricing, a detailed description of the methodology used to derive the pricing, detailed information on why the pricing is relevant, including whether the pricing relates to the actual obligor or a Related Entity, and if the later, outline how the criteria of a Related Entity have been met.
ANNEX X: MARKET BENCHMARKS FOR TRANSACTIONS IN CATEGORY ZERO COUNTRIES
Un-covered Portion of Export Credits or the non-ECA Covered Part of a Syndicated Loan
The price indicated by private banks/institutions with respect to the uncovered portion of the export credit in question (or sometimes as the non-ECA covered part of a syndicated loan) may represent the best match to ECA cover. Pricing on such un-covered portions or non-covered parts should only be used if provided on commercial terms (e.g. this would exclude IFI funded portions).
Name-Specific Corporate Bonds
Corporate bonds reflect name specific credit risk. Care should be used in matching in terms of the ECA contract characteristics, such as term of maturity, and currency denomination, and any credit enhancements. If primary corporate bonds (i.e. all-in yield upon issuance) or secondary corporate bonds (i.e. the option adjusted spread over the appropriate curve, which is usually the relevant currency swap curve) are used, those for the obligor should be used in the first instance; if not available, primary or secondary corporate bonds from Related Entities may be used.
Name-Specific Credit Default Swaps
Credit Default Swaps (CDS) are a form of protection against default. The CDS spread is the amount paid per period by the buyer of the CDS as a percentage of notional principal, and is usually expressed in basis points. The CDS buyer effectively buys insurance against default by making payments to the seller of the CDS for the life of the swap, or until the credit event occurs. A CDS curve for the obligor should be used in the first instance; if not available, CDs curves from Related Entities may be used.
Loan Benchmarks
Primary loan benchmarks (i.e. pricing upon issuance) or secondary loan benchmarks (i.e. the current yield on the loan expected by the financial institution purchasing the loan from another financial institution). All fees must be known for primary loan benchmarks so that the all-in yield can be calculated. If loan benchmarks are used, those for the obligor should be used in the first instance; if not available, those from Related Entities may be used.
Benchmark Market Curves
Benchmark market curves reflect the credit risk of a whole sector or class of buyers. This market information may be relevant when name specific information is not available. In general, the quality of the information inherent to these markets depends upon their liquidity. In any case, one should look for market instruments that provide the closest match in terms of the ECA contract characteristics, such as date, credit rating, term of maturity, and currency denomination.
ANNEX XV: LIST OF DEFINITIONS
For the purpose of the Arrangement:
a)Commitment: any statement, in whatever form, whereby the willingness or intention to provide official support is communicated to the recipient country, the buyer, the borrower, the exporter or the financial institution.
b)Common Line: an understanding between the Participants to agree, for a given transaction or in special circumstances, on specific financial terms and conditions for official support. The rules of an agreed Common Line supersede the rules of the Arrangement only for the transaction or in the circumstances specified in the Common Line.
c)Concessionality Level of Tied Aid: in the case of grants the concessionality level is 100%. In the case of loans, the concessionality level is the difference between the nominal value of the loan and the discounted present value of the future debt service payments to be made by the borrower. This difference is expressed as a percentage of the nominal value of the loan.
d)Decommissioning: closing down or dismantling of a nuclear power plant.
e)Export Contract Value: the total amount to be paid by or on behalf of the purchaser for goods and/or services exported, i.e. excluding local costs as defined hereafter; in the case of a lease, it excludes the portion of the lease payment that is equivalent to interest.
f)Final Commitment: for an export credit transaction (either in the form of a single transaction or a line of credit), a final commitment exists when the Participant commits to precise and complete financial terms and conditions, either through a reciprocal agreement or by a unilateral act.
g)Initial Fuel Load: the initial fuel load shall consist of no more than the initially installed nuclear core plus two subsequent reloads, together consisting of up to two-thirds of a nuclear core.
h)Interest Rate Support: an arrangement between a government and banks or other financial institutions which allows the provision of fixed rate export finance at or above the CIRR.
i)Line of Credit: a framework, in whatever form, for export credits that covers a series of transactions which may or may not be linked to a specific project.
j)Local Costs: expenditure for goods and services in the buyer's country that are necessary either for executing the exporter's contract or for completing the project of which the exporter's contract forms a part. These exclude commission payable to the exporter's agent in the buying country.
k)Name Specific Bond or CDS: A Name Specific Bond or CDS is limited to those market benchmark instruments that belong to the exact identical obligor as in the transaction being supported.
l)Pure Cover: official support provided by or on behalf of a government by way of export credit guarantee or insurance only, i.e. which does not benefit from official financing support.
m)Related Entity: Related Entity references are benchmark instruments of a related borrower rather than the exact identical borrower in the supported transaction. In the case where the obligor has no quoted bonds or CDSs, and there exists within the obligor’s organisational structure a parent, subsidiary or sister company with Name Specific Bonds or CDSs outstanding in the market, then with regard to Article 24 c), those Name Specific Bonds or CDSs may be used as if they had been issued by the obligor itself if:
1)The parent, subsidiary, or sister company has the same issuer CRA rating as the obligor; or
2)All of the following criteria are met:
a.The Participant's internal rating of the obligor/guarantor corresponds with the CRA rating of the related entity.
b.The obligor/guarantor is the main operating company of the parent/holding, being a key and integral part of the group’s business.
c.The CRA rating is based on the core business of the group.
d.The obligor/guarantor provides a significant part of the group’s earnings by providing either some of the group’s core products/services to core clients or it owns and operates a major portion of the parent’s assets.
e.The sale of the obligor/guarantor from the group is very hard to conceive, and the disposal would significantly alter the overall shape of the group.
f.A default of the obligor/guarantor would constitute a huge reputational risk to the group, damage its franchise and could threaten its viability.
g.A high level of management and operational integration exists where capital and funding is typically provided by the parent company or a finance subsidiary via intercompany loans and where parent support is unquestioned.
n)Repayment Term: the period beginning at the starting point of credit, as defined in this Annex, and ending on the contractual date of the final repayment of principal.
o)Starting Point of Credit:
1)Parts or components (intermediate goods) including related services: in the case of parts or components, the starting point of credit is not later than the actual date of acceptance of the goods or the weighted mean date of acceptance of the goods (including services, if applicable) by the buyer or, for services, the date of the submission of the invoices to the client or acceptance of services by the client.
2)Quasi-capital goods, including related services - machinery or equipment, generally of relatively low unit value, intended to be used in an industrial process or for productive or commercial use: in the case of quasi-capital goods, the starting point of credit is not later than the actual date of acceptance of the goods or the weighted mean date of acceptance of the goods by the buyer or, if the exporter has responsibilities for commissioning, then the latest starting point is at commissioning, or for services, the date of the submission of the invoices to the client or acceptance of the service by the client. In the case of a contract for the supply of services where the supplier has responsibility for commissioning, the latest starting point is commissioning.
3)Capital goods and project services - machinery or equipment of high value intended to be used in an industrial process or for productive or commercial use:
–In the case of a contract for the sale of capital goods consisting of individual items usable in themselves, the latest starting point is the actual date when the buyer takes physical possession of the goods, or the weighted mean date when the buyer takes physical possession of the goods.
–In the case of a contract for the sale of capital equipment for complete plant or factories where the supplier has no responsibility for commissioning, the latest starting point is the date at which the buyer is to take physical possession of the entire equipment (excluding spare parts) supplied under the contract.
–If the exporter has responsibility for commissioning, the latest starting point is at commissioning.
–For services, the latest starting point of credit is the date of the submission of the invoices to the client or acceptance of service by the client. In the case of a contract for the supply of services where the supplier has responsibility for commissioning, the latest starting point is commissioning.
4)Complete plants or factories – complete productive units of high value requiring the use of capital goods:
–In the case of a contract for the sale of capital equipment for complete plant or factories where the supplier has no responsibility for commissioning, the latest starting point of credit is the date when the buyer takes physical possession of the entire equipment (excluding spare parts) supplied under the contract.
–In case of construction contracts where the contractor has no responsibility for commissioning, the latest starting point is the date when construction has been completed.
–In the case of any contract where the supplier or contractor has a contractual responsibility for commissioning, the latest starting point is the date when he has completed installation or construction and preliminary tests to ensure it is ready for operation. This applies whether or not it is handed over to the buyer at that time in accordance with the terms of the contract and irrespective of any continuing commitment which the supplier or contractor may have, e.g. for guaranteeing its effective functioning or training local personnel.
–Where the contract involves the separate execution of individual parts of a project, the date of the latest starting point is the date of the starting point for each separate part, or the mean date of those starting points, or, where the supplier has a contract, not for the whole project but for an essential part of it, the starting point may be that appropriate to the project as a whole.
–For services, the latest starting point of credit is the date of the submission of the invoices to the client or the acceptance of service by the client. In the case of a contract for the supply of services where the supplier has responsibility for commissioning, the latest starting point is commissioning.
p)Tied Aid: aid which is in effect (in law or in fact) tied to the procurement of goods and/or services from the donor country and/or a restricted number of countries; it includes loans, grants or associated financing packages with a concessionality level greater than zero percent.
This definition applies whether the “tying” is by formal agreement or by any form of informal understanding between the recipient and the donor country, or whether a package includes components from the forms set out in Article 34 of the Arrangement that are not freely and fully available to finance procurement from the recipient country, substantially all other developing countries and from the Participants, or if it involves practices that the DAC or the Participants consider equivalent to such tying.
q)Untied Aid: aid which includes loans or grants whose proceeds are fully and freely available to finance procurement from any country.
r)Weighted Average Life of the Repayment Period: the time that it takes to retire one-half of the principal of a credit. This is calculated as the sum of time (in years) between the starting point of credit and each principal repayment weighted by the portion of principal repaid at each repayment date.