Financing with SERV cover
Depending on the structure of the export transaction, the export finance will be treated as a buyer's credit, an individual transaction under an existing framework credit agreement or as the refinancing of a supplier's credit.
Due to the cost of drawing up and negotiating credit documents, buyer financing facilities are only an option for export credits in excess of CHF 10 million or thereabouts. The main advantage for you is that the bank conducts the credit negotiations while you, the exporter, remain in the background.
Here's how it works:
- Under a buyer credit, UBS grants the buyer a direct credit line, the proceeds of which are paid straight to the exporter in settlement of the purchase price. As the borrower, the buyer is responsible for repayment of the credit.
- UBS submits the application for the SERV buyer credit. As the exporter, you must submit a confidentiality agreement and a statement of authorisation to SERV.
- In order for the insurance to cover the time from when the goods are shipped to the payment of the buyer credit, you must submit an application for supplier credit cover in any case.
- The cover ratio for buyer credit cover is 95% for all risks. The remaining residual risk of 5% will be assumed by UBS, but only for the charge of a risk premium.
- To the extent that the SERV Premiums are not included in the delivery value the premiums may also be financed directly out of the buyers credit.
Under a supplier credit, the exporter sells its goods including financing. As such, the finance arrangements are an integral part of the terms of payment in the delivery contract, thus cutting down on the amount of paperwork. Supplier credits are thus particularly suited to smaller export transactions.
As an exporter, you have greater freedom when it comes to setting finance terms as the applicable costs, profit and financing costs go into the aggregate invoice. You can - if necessary for tactical negotiation purposes - offer an external interest rate different from the internal rate agreed with the bank. This allows you to influence the transaction and your total earnings.
Here's how it works:
- Under a supplier credit, you as the exporter grant the buyer the credit for the delivered goods in your own name. You can sell your claim under the supplier credit to your bank (receivables purchase) so that you are able to receive the purchase price immediately after delivery.
- As the exporter, you must submit the application for the SERV supplier credit cover. If the insurance is to be assigned to UBS for the purpose of refinancing, this must be noted in the insurance application.
- The cover ratio for economic risks (credit risk) for a supplier credit is generally 85%, and 95% for other risks. For government buyers or guarantors and on presentation of acceptable bank guarantees, SERV may also insure the economic risk at a cover ratio of 95%.
- You as the policyholder are responsible for the 5%-15% residual risk not covered by SERV for the supplier credit. UBS is generally prepared to accept the residual risk against payment of an appropriate risk premium.
- You as the policyholder must pay the SERV insurance premiums, but they can be included in the delivery value.
UBS has framework lending agreements with a large number of banks in the key export markets, allowing the financing of individual export transactions at standard, predetermined terms and conditions. Thus negotiations between the exporter and buyer concerning the financing of the delivery transaction are much quicker and easier.
Here's how it works:
- Depending on the nature of the framework credit agreement, UBS grants a standardised buyer credit to either the foreign bank or directly to the buyer (foreign bank acts as guarantor).
- As soon as the exporter and buyer agree on a framework credit to finance the delivery transaction, matters such as the term and interest costs cease to be an issue. In this instance, the delivery contract simply contains a reference under the terms of payment to the framework credit agreement, by which a maximum of 85% of the delivery value is to be financed.
- The application process and the scope of cover are the same as for the buyer credit.
Mixed financing enables the Swiss government to give emerging markets access to long-term investment loans to finance environmental and social infrastructure projects, thus contributing to their continuing development.
Mixed financing comprises two elements: a federal and a bank tranche. The federal component is donated to the borrower. Swiss banks make the buyer credit available to borrowers on behalf of the federal government and with insurance from SERV.
With a global network behind us, we are able to advise and assist suppliers and buyers alike in putting together complex finance packages. Our advisory and financing services cover short, medium and long-term credits, with or without export credit insurance.
UBS boasts a wealth of experience in working with a variety of export credit agencies (ECAs), including those of Switzerland (SERV), Austria (OeKB), Germany (Euler-Hermes), Sweden (EKN) and Italy (SACE).
- Smaller financing packages: Where supplies originate from a single country or just a few and the relevant export finance systems are of a liberal nature, the role of the co-ordinator and financial advisor differs little from that of the head of a consortium of creditor banks.
- Larger financing packages: Where a larger number of finance sources are to be used, requiring tailor-made, legally impeccable solutions, the role of the advisor is a demanding one. In such cases, UBS will bring together a team of specialists responsible for tackling any issues that may arise and getting the job done with the utmost professionalism. The scope of advisory services required in this instance will clearly exceed that which is usually provided in the area of export credit.
The finance package for a medium-sized or larger project will comprise several elements, and may include the following types of credit.
- Export credit agreements with the various supply countries.
- Mixed financing or other subsidised credits.
- One or more finance facilities for supplies and services without SERV cover, i.e. for financing payments and local costs.
Loans from multinational institutions such as the IFC, the World Bank, the European Bank for Reconstruction and Development (EBRD) or the Asian Development Bank (ADB).
Depending on the prevailing conditions on the international capital markets, in some cases a bond issue may also be an option.
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