Tuesday, 28 January 2014

Insurers reluctant to take up Essar Steel export cover

The Indian Express reported that at a time when the country is leaving no stones unturned to boost exports and bring down current account deficit, Essar Steel is unable to execute a USD 6 billion steel products export deal as the domestic general insurers are reluctant to provide cover to the deal.

Such a cover is necessary for the deal to ensure that if overseas buyers fail to pay the export proceeds, the banks which will be funding the deal can recover the amount from insurance companies. Without such a cover, banks and financial institutions will be hesitant to take up financing big export deals.

According to industry sources, Essar had approached state-owned Export Credit Guarantee Corporation which has a monopoly in providing such covers but the latter responded with reluctance.

A senior ECGC official said that “We were not comfortable with the idea taking up such a big export deal. If we take such a huge cover, it will exceed our exposure norms.” For export credit insurance for banks, the exposure norms for a single exporter and an exporter group having business in the same sector are fixed at 50% of the company’s net worth. Apart from the size of the deal, ECGC also considers the financial profile of the party or client involved.

Essar said that the group doesn’t envisage any problem in getting the necessary cover. A spokesperson of Essar said in a statement that “Essar Steel does not foresee any hurdle in its export plans. Its plan to export of approximately USD 6 billion is over a ten year period. ECGC insurance, if required, will be arranged by the banks supporting the transaction.”

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