24 Nov What are export credit guarantees?
State export credit guarantees are an established instrument for promoting foreign trade. They protect exporters and banks from loss of receivables caused by economic and political factors. The range of products available addresses the entire value chain from production and delivery to payment of the final instalment.
Export credit guarantees transfer a large part of the risk of a payment default to the Federal Republic of Germany. In return for this, the policyholder pays a premium calculated on the basis of the risk involved. In the event of a loss, the Federal Government indemnifies the policyholder for the amount of the receivables covered.
In addition to risk management, export credit guarantees play a key role in finance. In many cases, Hermes Cover is a prerequisite for the provision of finance by banks. As a matter of principle, all German export companies are able to apply for Hermes Cover regardless of their size or the type of transaction. The key criteria for the provision of cover include eligibility for support and the justifiability of the risks arising from the transaction.
In addition to conventional cover for the delivery of goods and the provision of services, the Federal Government also offers export credit guarantees for project finance. Project finance structures are generally selected for large-scale transactions which are not carried on the balance sheets of the companies involved. Instead, a legally and economically autonomous project company is established which is responsible for generating the cash flows needed to cover the operating costs and debt servicing for the project. Accordingly, the provision of an export credit guarantee for project finance is contingent upon the completion of comprehensive analyses of the economic viability of the project and its structure as well as the appropriate allocation of the risks to the parties involved in the project. In contrast to conventional export finance, country risks are largely mitigated by the project and collateralisation structures implemented. This means that project finance is frequently also possible in countries for which restrictions on cover are in place, e.g. country ceilings or limits on the size of individual transactions.