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Credit Facility to Boost Exporters in Progressing Mining Projects

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Published on Jan 27, 2016

In addition to facilitating export trade and enabling exporters to access mining project opportunities across Africa, the Export Credit Insurance Corporation (ECIC) of South Africa will this year focus on increasing awareness of its latest offering – a multicurrency guarantee facility to assist exporters in securing credit solutions. This service offering will be highlighted at this year’s Investing in African Mining Indaba, which will take place from February 8 to 11 at the Cape Town International Convention Centre. “The ECIC has entered into a partnership with financial institution FirstRand Bank, the parent company of Rand Merchant Bank, to create a 50:50 risk-sharing arrangement and multicurrency guarantee facility for exporters,” says ECIC COO Mandisi Nkuhlu, who will also be the corporation’s official speaker at the Indaba’s thought leadership programme. “While the banking sector has stronger client relations with exporters, key challenges lie in most active exporters exceeding their credit limits.” Therefore, the multicurrency guarantee facility, which was launched in November 2015 to provide additional financing solutions, will include the credit facility for performance and retention bonds. The ECIC and FirstRand Bank partnership will also be facilitated through an umbrella risk participation agreement. The two entities have agreed to a three-year facility of about $200-million, which could be extended. This facility aims to support credit exporters, such as mining companies or contractors, that participate in the agreement. These participants will be able to increase their limits, thereby increasing their capacity to raise bonds, while creating additional opportunity to simultaneously compete for more projects. “This is in line with the ECIC’s mandate to facilitate export trade,” Nkuhlu stresses, suggesting that the availability of an additional debt facility will provide more direct benefit for exporters. “Moreover, by increasing the competitiveness of South African exporters, they are expected to compete more effectively on an international stage. He notes that several international financial institutions have retracted from the project finance market, with projects currently relying on future cash flows. These types of institutions are more comfortable to lend with support from a corporate finance basis or from a sovereign basis, that is, when a country’s finance minister supports a project, he says. Nkuhlu adds, however, that South African financial institutions have a strong record in supporting project finance in the mining sector in Africa, having experienced the downturn and upswing of the commodities cycles. “The South African financial services sector, therefore, comprises sufficient intellectual capital to contend with any industry challenges and to improve credit facility agreements when required,” he posits. While this insurance service offering can be regarded as a prototype, the ECIC aims to roll out a more significant offering to accommodate and benefit more exporters and key industry players in future. This service offering is not restricted to the mining sector and will also be available to the construction, energy, agribusiness and manufacturing sectors, says Nkuhlu.

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