How a typical claim proceeds
The buyer fails to pay
The first sign that something is wrong is when the foreign buyer fails to pay an instalment in time. When that happens, you or your bank need to press the buyer for payment. If the buyer still fails to pay, you or your bank can request compensation from EKF.EKF pays compensation
EKF needs documentation that the buyer is failing to pay as agreed. Typically, EKF pays compensation 90 days after the missing payment. The compensation covers the instalment and interest that the buyer has defaulted on. In most cases, your company or bank will have a deductible, i.e. an amount which EKF deducts from the compensation.EKF negotiates with the buyer
EKF initiates negotiations with the buyer abroad regarding a new repayment schedule. This is typically done in collaboration with the bank that has financed the export transaction. EKF is associated with a number of international institutions that can also participate in the negotiations if the buyer has debts to suppliers in several countries, or if it is a bank that has not paid its debt. This increases the chances of reaching an agreement.EKF repays the deductible
If a new agreement with the buyer or bank is successfully reached and the debt is repaid, your company or bank will get all or some of the deductible refunded by EKF.
Claims in practice
EKF sets up repayment agreement with Spanish buyer
In 2004, a Danish export company supplied factory equipment to a medium-sized Spanish company in the food industry. The customer was granted a EUR 1.5 million loan by a bank to purchase the equipment so that the Danish company could be paid on delivery. EKF secured the lending bank with a buyer credit guarantee covering 80% of the loan. The Danish company therefore had to guarantee the remaining 20% of the loan to the bank.
EKF rated the Spanish buyer as creditworthy and assessed the risk as acceptable. Up until 2009, the Spanish buyer serviced the debt as agreed, but suddenly the repayments ceased as a result of lack of liquidity. The bank therefore called on the guarantee and requested EKF and the Danish company to service the remainder of the loan.
The bank received compensation for the outstanding instalments, after which EKF and the bank jointly set about getting the Spanish buyer to resume servicing the loan. A repayment agreement was concluded, and EKF and the bank obtained a guarantee for the payments from the Spanish buyer's parent company.
Under the new agreement, the Spanish buyer has kept up the repayments. In this way, the Danish company receives a regular sum of money from the repayments to cover the compensation the company had to pay to the bank. EKF predicts that the Spanish buyer will have repaid the loan in full by mid-2011.
International cooperation on agreement with crisis-stricken bank
In 2005, a Danish export company supplied a carbon dioxide plant to a buyer in the Republic of Kazakhstan. The export was financed by a confirmed letter of credit worth USD 1.1 million, meaning that the payment was guaranteed by the buyer's bank. The Danish company received its money from the Danish bank that assumed the risk for the bank in Kazakhstan.
The Danish company's bank applied to EKF for a financing guarantee to cover 95% of the loss if the bank in Kazakhstan defaulted on its obligations under the L/C agreement. The L/C was fulfilled up until 2009, but in the wake of the global financial crisis, the Kazakhstani bank was obliged to notify the Danish bank that it would be suspending payments under the L/C. By that stage, three instalments totalling approx. DKK 2 million were outstanding, and EKF paid compensation to the Danish bank for the unpaid instalments.
The Kazakhstani bank embarked on a restructuring process, and EKF, in association with export credit agencies in other countries which also had money at stake, commenced the process of negotiating an agreement to limit the losses.
The export credit agencies were not happy with the terms of the initial draft agreement because it entailed substantial write-offs on the loans along with seven years of zero repayments followed by an 11-year repayment plan. Following numerous talks, in the summer of 2010, the bank and its creditors concluded a final agreement on more favourable terms.
The Kazakhstani bank has so far honoured the agreement as part of the restructuring process.