African Trade Insurance Agency (ATI) in partnership with Lloyd’s of London syndicates provides US$10 million cover to PTA Bank to support Bottling Plant in Burundi
US$ 10 million insurance policy to support essential modernization of beer and soft drinks bottling plant in Burundi
NAIROBI, Kenya, 23rd April 2004
The African Trade Insurance Agency (ATI), the continent's only pan-African, multilateral export credit and political risk agency ("ECA"), and the official ECA of its member states has announced that it has issued a major Political Risk Insurance Policy to Eastern and Southern African Trade & Development (PTA) Bank to cover a US$ 10 million loan which is being extended to Brasseries et Limonaderies du Burundi S.A.R.L (BRARUDI), Burundi's only beer and soft drinks bottling plant.
The PTA Bank loan will cover the cost of replacement of the first bottling line and related plant, machinery, equipment and services to be supplied by Heineken, a shareholder in the Brarudi. The US$ 10 million funding constitutes a Line of Credit to the PTA Bank from KBC Bank NV of Belgium.
The insurance Policy, placed by specialist political risk broker Berry Palmer & Lyle in London, has been issued in conjunction with Lloyd's of London syndicates Wellington, AFBeazley and Catlin. Under the policy, ATI will share the risk on a 50/50 basis with its insurance partners, taking the "first loss" portion, and will initially only cover 75% of the risk, being US$ 7.5 million, for a period of 6 years. Discussions are continuing with PTA Bank, ATI and other partners to assume the full loan limit.
The risks covered under this policy are Exchange Transfer and Currency Inconvertibility, and Political Force Majeure which entails the cancellation or non-renewal by the Government of any licence, permit or authority required for importation; law, order, decree or regulation of the Government that prevents the import and the transit of the Financed Equipment into and through Burundi, and War, Civil Disturbance or Civil Commotion.
Announcing the insurance cover, Bernie de Haldevang, ATI's Chief Executive said: "This support by ATI and its partners shows exactly how ATI, Burundi's official ECA, can directly support the Burundian economy. By providing the missing link needed to unlock the financing from a financial institution overseas, ATI is creating growth in the Burundian private sector in a sustainable manner." He added that by covering a 6 year third party loan, ATI has demonstrated that foreign banks can indeed increase their financial exposure to viable transactions, by mitigating country risks which prevent the provision of capital by lending institutions for private commercial transactions.
Mr. de Haldevang further stated that this policy contributes towards an important objective in creating an enabling environment for private sector activities and diversification of the economies of ATI member countries towards manufacturing activities. Brarudi is one of the largest manufacturing firms in Burundi, with its share of taxes representing well in excess of one third of all collected tax revenues in Burundi. It is also among the largest employers in Burundi. With on average 50% of employment in Africa being in the agricultural sector, he said, this diversification is essential throughout the continent.
The Lloyd's Syndicates participating in the policy see this as a major breakthrough in mitigating political risks in countries in which the Lloyd's market would have been reluctant to provide cover without ATI's participation, given the high risk perception in these markets.
The PTA Bank President Dr. Michael Gondwe, welcoming the issuance of this policy, said that the collaboration with ATI would open more doors in the provision of credit to businesses in the Bank's member states.
He said that since the Bank was geared to the provision of competitively priced development capital in its member states, it was imperative that it spreads its portfolio as long as the risks of doing so were adequately mitigated.
"We have a huge capacity to undertake projects of this magnitude and even larger ones but our financing partners, in a few cases, would like to see the risks associated with a particular project mitigated. That is why we are happy to be partnering with ATI on this project which will not only provide employment, but will further boost Burundi's economic growth," said Dr Gondwe.
The PTA Bank has made tremendous strides in the provision of development capital in various sectors of member states' economies. Partner institutions have recognised the core role played by the PTA Bank in this effort by availing more funding. At the beginning of this year for instance, the Bank signed a US$30 million Line of Credit with the African Development Bank (ADB) bringing the undrawn amounts from the ADB and other partner institutions to more than US$100 million.
The Bank has a well-established network of partner export credit agencies (ECAs) that have been instrumental in the rapid acceleration of the Bank's funding capacity.
The partners include The Export Import Bank of the US, the Overseas Private Investment Corporation (OPIC), Exim Bank of India, Exim Bank of China, Ducroire of Belgium, Export Credit Insurance Corporation of South Africa and Hermes of Germany.
"We are aggressively targeting key sectors in our member countries to utilize our competitively priced funding as part of a strategy to be the financier of choice in the sub-region," said Dr Gondwe.
ATI has been providing political risk cover in partnership with Lloyd's of London and other commercial political risk and credit insurers on cross border transactions involving its African member states since the commencement of its commercial operations in April 2002.
The governments of ATI's member countries agreed to participate jointly with private sector underwriters as ultimate risk takers, thus creating a strong incentive to prevent and mitigate claims. It is estimated that risks underwritten under ATI's initial mandate could generate as much as $5 billion in additional trade for its member countries over a ten year period.
Beneficiaries include foreign firms exporting goods and/or services to participating African countries; foreign financial institutions financing exports; and African companies from participating countries, that are exporting goods or services.
Note to Editors
ATI was established at the Common Market for Eastern and Southern Africa (COMESA) Summit of Heads of State in May 2000 and launched by President Museveni of Uganda in Kampala in August 2001 in the presence of ten Heads of State and Government. Start-up funds of $105 million were provided by the International Development Association (IDA), the concessional lending arm of the World Bank.
World Bank funds are placed in off-shore trust accounts and are leveraged by private insurers to providing additional insurance capacity. The leverage ratio can be as high as 1:5. ATI became operational in April 2002 when the first 25% tranches of the IDA funds were disbursed.
Risks eligible for cover include financial losses due to Non payment by State-owned Enterprises; Embargos; Expropriation; Government interference with entities owing insured obligations; Inability to convert or transfer currency; Imposition or increase of import or export taxes of a discriminatory nature; Interference with the transportation of goods; Seizure of Goods; Prevention of Sale; Prevention of Export; and War or Civil Disturbance as well as physical damage losses due to events of War and Terrorism.
Eligible transactions to be insured include: Sale of goods, usually on credit terms; Letter of credit confirmation; Financial lease; Operational lease; Import/export of capital equipment for use by an insured in carrying on its business; Loans by foreign lenders; Loans by local lenders; Foreign Direct Investments; Contract/performance bonds; Import/export of goods to stock for sale; Import/export of goods for processing; and Services.