Getting Ukraine to become Fluent in EXIM.

How can US Exporters increase their exports to Ukraine and what do the latest developments mean for US EXIM programs there?

Featured Image -- 4182  Since the original Fluent In EXIM post was published on February 11th, several important events took place, which potentially may have an effect on how exports to Ukraine are financed by the Export Import Bank of the United States (US EXIM).

  • New President of Ukraine was inaugurated a few days ago, potentially putting the country on a different political course.
  • New, closer, date has been set for the elections of People’s Deputies into Ukrainian Rada
  • US Congress confirmed three new Board members thus opening the  way for US EXIM to finance  projects over $10 million with a duration of financing  longer than seven years

Although not on the same level of importance as the above events, in March, in partnership with the US Ukraine Business Council (USUBC), our Firm held a financing workshop in Washington DC to help participants learn about available government financing programs, with the US EXIM  representative and its authorized broker prominently prominently featured on the agenda.  We have also received numerous EXIM financing inquiries from Ukraine, particularly in the areas of agriculture, renewable energy, transportation and healthcare. A second workshop for USUBC members and invited guests will take  place in Lviv later this month.

In this post, we will examine what, if any, effect these changes shall have on the US EXIM’s programs currently in place for that country. We will  also look at the ways Ukrainian importers and US exporters can best take advantage of these programs.

Currently, US EXIM is only open in Ukraine for short (financing of trade up to one year) and medium-term (financing of $10 million per project up  to seven years)  programs. Thus reopening the US EXIM for the long-term programs will not have any effect on Ukrainian export transactions.

Election of  the new President and upcoming Rada elections also are  not expected to  affect the US EXIM programs for the foreseeable future.

Yet despite the absence of the long-term programs, US EXIM bank remains an effective tool for US exporters wishing to export goods and services to Ukraine. Under its short-term program, the Bank will insure against buyer non-payment and political risks up to 95 percent of the foreign receivables’ invoice value, thus allowing exporters to safely extend open account terms to foreign buyers (both private and  government) for periods up to one year, with 90-day, 120-day terms being most prevalent.  This is done by putting in place either a Single Buyer, or Multi-Buyer credit insurance by the exporter and then qualifying and insuring individual importers under these policies. Depending on the policy limits sought, EXIM employs different underwriting standards and requires increasingly deeper credit checks and financial documentation.IMG-1cae7e700ec217303b52f13cd14e1c96-V

Most qualified US exports, other than sales to of alcohol, tobacco and adult content, as well as sales to foreign military, may be insured; even equipment and services related to nuclear industry.  In Ukraine, larger private transactions will require a repayment guarantee from one  of the  five or so top banks and on the government side a sovereign guarantee is needed. Since it is almost impossible to obtain a UA government’s guarantee for smaller transaction amounts, the US exporters should focus selling their wares to the private sector.   The credit insurance may be obtained either from the Bank directly, or at no additional cost, through a cadre of US EXIM approved insurance brokers whose list is found on the exim.gov site.

Under its medium term programs, US EXIM can cover up to 85 percent of qualified US exports, including eligible freight and duty costs. As mentioned above, financing limit is $10 million per distinct transaction, and repayment terms of up to seven years apply.  For projects, which require local construction or installation (ex solar farms, grain silos), up to 30 percent of the financed amount maybe used to cover local costs performed by Ukrainian companies.

Depending on the project, repayment of the financing may be structured as interest only for up to two  years, with the balance of principal and interest paid out evenly over the remainder of the loan term.  Services such as engineering, architecture, design, legal and financial, all may be financed under this program.

Although US EXIM can lend funds directly at what is commonly known as a CIRR  rate, more often it  issues a its AAA rated guarantee and the exporters then approach an approved bank to secure financing rates, which are  usually more advantageous, as they are based on LIBOR and can either be variable, or fixed depending on the borrower’s preference.  Underwriting requirements of bank guarantee  for the private transactions, or sovereign guarantee for government purchases also apply. Many borrowers choose to finance the remaining 15% percent through those same  local banks  thus effectively securing 100% financing for their projects.

Since the process of securing financing and insurance coverage  through any government agency, or an international financial institution is quite complex, we always recommend  that clients engage a qualified and experienced financial adviser and a very competent law firm with extensive experience working with the US EXIM Bank.

To get more information on the upcoming Fluent In EXIM workshop in Ukraine, please  contact MorganWilliams at mwilliams@usubc.org

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Political Footballers Are Seeking To Kick Ex-Im Bank To The Sidelines, Yet Again

Although The Wall Street Journal is one of my absolutely favorite dailies, sometimes certain materials it publishes in its Opinion section force me to raise my eyebrows and shake my head.  Such was the case on Friday when I read an opinion letter titled  A Corporate Welfare Test, which called for a political attack on the US Ex-Im Bank and specifically for sabotage of its Chairman’s upcoming nomination.  Of course the author has a right to his/her opinion, but the fact that the piece does not contain accurate facts, is full of material omissions and is unsigned by the author, make it read more like a venomous political smut, rather than a balanced con argument it should have been.

Immediately my thoughts went to May of last year when a bloody, dirty and very public smear campaign was waged in the media to derail the Bank’s congressional reauthorization.

Following , are excerpts from the last year’s post, which very much apply to today’s situation,  “…  We have extensively covered this issue over the last few months on the pages of this blog, but it again boiled to the surface couple of days ago, as the House passed Ex-Im’s reauthorization, but it once again stalled in the Senate, where it was expected to pass without hinderance.
Yes, Ex-Im Bank, like 99.9% of our Federal Agencies could use improvement in the ways it does business (it is the most difficult Export Credit Agency to deal with out of all OECD countries); yes, it is highly political and it is justly and commonly referred to as “The Bank of Boeing”.
Yet, the Bank is an absolute contributor to the Federal Treasury.  It makes money for the taxpayers and funds over $30 billion of U.S. exports per year, supporting tens of thousands of American jobs and allowing businesses to take risks and sell abroad where they would not ordinarily do so. Losses on the portfolio of loans guaranteed by the bank are around 1.5% – completely in line with sound commercial banking practices.  These are indisputable facts and all those commenting bellow to the contrary are simply ignorant, or are using the issue for their political gain.  What is also indisputable is that until such time as all other nations decide to do away with their respective Export Credit Agencies, doing away with Ex-Im bank in the U.S. will cause great economic harm to our nation and will put our companies into a severe disadvantage as they try to compete on the increasingly competitive global arena.  To my knowledge, only U.S. lawmakers have been trying to advance the idea of elimination of ECAs in other countries and the idea has zero support in the international community.
Thus far we aired dirty laundry, embarrassed our country, spend untold taxpayers money debating the issue, but there is a silver lining that we could hold on to and improve the Ex-Im Bank and our national export policy.  So what positive things do I think should  happen as result of this issue being forced to the forefront of our Nation’s debate
I sincerely hope that some of our airline union leaders (especially Delta Airlines) really rethink their position, stop pointing fingers and instead try to address their problem of bloated inefficiencies from within in order to become more competitive globally
I do believe the Bank would benefit more from having people with business experience decide its fate, not politicians who use it as a football. Congress should appoint a non-partisan oversight board, which would be composed of different industry exporters and would be able to develop meaningful policies based on sound business principles and international experience exporting.  Something like this exists now in an informal corporate influence network, which exists around the bank. Why not formalize it, bring it to the surface and let the business help run the bank.
We also should look at other countries’ ECAs and adopt some of their lending practices.  The bank should become more nimble, its arcane content report policies should be completely reformed to reflect today’s reality.  It also should be given authority to expand its 400 or so staff by at least 50%.
Most importantly, the Senate should quickly and smoothly reauthorize the bank, and get this issue off the front pages of the newspapers. This way, we shall stop embarrassing ourselves to the world with half-baked ill supported arguments and insular protectionists views of some of our less informed political and media players. Our opponents relish when America suffers and debates like this play directly into their hands. Let’s stop the circus of Ex-Im proportions and get back to business of financing exports….” Fluent In Foreign May, 2012

A Corporate Welfare Test

The Ex-Im Bank has resisted reform. Will Republicans roll over?

Is there anyone who hasn’t heard Congressional Republicans promise to protect taxpayers from wasting more money subsidizing Uncle Sam’s various “government sponsored entities”? Well, it’s showtime. Their chance to redeem that promise has arrived with the reconfirmation vote on Fred Hochberg, chairman of the Export-Import Bank. And it looks as if Republicans may let this vote pass without demanding some answers from the Obama Administration about Ex-Im’s future.

A hold on the Hochberg nomination is the least the GOP can do after it dropped the Ex-Im ball last year. The bank provides taxpayer-backed loans, loan guarantees and insurance to clients of some of America’s plumpest corporations. When its reauthorization came up last year, Republicans merely needed to sit still to kill this relic of New Deal-era market intervention.

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Agence France-Presse/Getty Images
US Export-Import Bank Chairman and President Fred Hochberg

Instead, the House leadership cut a deal with Democrats to reauthorize the bank and extend its lending cap by 40%—to $140 billion. In the Senate, South Carolina’s Lindsey Graham argued the U.S. couldn’t “unilaterally disarm” in the handout war, given that the Europeans still subsidize their businesses. What he meant was that BoeingBA -0.69%which has been the beneficiary of nearly half of Ex-Im’s largesse and makes planes in South Carolina, could count on more gravy.

Congress’s critics of Ex-Im (yes, they exist) got steamrolled, though not before inserting a provision telling the Treasury Secretary to start discussions with the Europeans to reduce—and eliminate—export subsidies. Treasury has since done nothing of note.

The bank is also belligerent about accepting oversight of its ballooning risk. Ex-Im’s inspector general issued a tough report in September on the bank’s poor management and its growing portfolio concentration in the airline industry. The IG’s sensible recommendations include that Ex-Im undergo stress testing, create a chief risk officer, impose some soft limits on its loan concentration and give its board more oversight authority.

Ex-Im promised stress testing but has produced no results. Mr. Hochberg resisted a chief risk officer until this month—and only under pressure from a House hearing. He has rejected portfolio limits that are de rigeur at serious financial institutions, as well as calls to empower his board. Ex-Im is also quick-marching toward its new cap, adding $10 billion in new lending in the last year.

Congress’s subsidy crew loves the Hochberg regime, and they are rushing to get him reconfirmed before his term expires July 20. The Senate Banking Committee rubber-stamped him in June; only two Republicans—Tom Coburn (Okla.) and Pat Toomey (Pa.)—had the grit to vote no. Mr. Hochberg’s supporters will resist any delay, since the terms of two other board members also expire in July. That would deny Ex-Im the quorum required to approve transactions.

Such a pause is exactly what’s needed. Before taxpayers are put further on the hook subsidizing the likes of Boeing and General ElectricGE -0.56% Mr. Hochberg needs to agree to more oversight and limits on the bank’s operations. And the Obama Administration needs to follow the law and put forth a credible strategy for ending export subsidies.

READ MORE IN: CIRCUS OF Ex-Im PROPORTIONS

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