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ONDD-group from public to private from Belgian to global from monopolistic position to full competition Yves Windelincx CEO Conference on the future of credit insurance firstname.lastname@example.org Prague, 13 September 2007 Content • Historical role of ONDD as export promotion instrument • Changing role of ONDD • ONDD as market player Yves Windelincx - 2- Historical role of ONDD as export promotion instrument ONDD as export promotion instrument Changing role of ONDD ONDD as market player • What? Federal instrument of foreign trade with strong - strategic partnerships autonomy. - private corporation - widening access to credit • Mission : supporting national companies in their insurance international trade business (mostly export Conclusion transactions). • How to support : ONDD takes over some risks related to trade transactions. • Most important risks : – non payment risk on customer (= credit risk) → name credit insurance – non-transfer risk of payment made by customer Yves Windelincx - 3- Historical role of ONDD as export promotion instrument Changing role of ONDD • Where? ONDD as market player - strategic partnerships – mostly in developing countries (with lack of developed financial market). - private corporation - widening access to credit – covering those trade transactions which are not insurance desired by the private credit insurance market Conclusion (e.g. too long credit tenor, dimension of the transaction, quality of the import country). – consequently, the traditional role of ONDD was one of a credit insurer of last resort (when no one else is still prepared to take the risk). Yves Windelincx - 4- Historical role of ONDD as export promotion instrument Changing role of ONDD Changing role of ONDD ONDD as market player Traditional market of public export credit agencies is - strategic partnerships shrinking. - private corporation Reasons for changes in the historical role and strategy - widening access to credit insurance of ONDD : Conclusion • Structural change in the emerging markets leads to a decline role of ONDD and other public export credit agencies. Countries tend to graduate and perform better due to the efforts of the International Monetory Fund (IMF) to promote financial stability and broad-based economic growth. Yves Windelincx - 5- Historical role of ONDD as export promotion instrument • Restrictions imposed by European Commission and Changing role of ONDD OECD to public export credit agencies with a view to ONDD as market player avoid unfair competition with state aid to private - strategic partnerships sector. - private corporation - widening access to credit As such, banning by European Commission of cover insurance provided by public credit insurers for marketable Conclusion risks. Marketable risks : cover for ST standard trade transactions on EU/OECD countries forbidden for public export credit agencies. Restraining distortion of competition via subsidiation through export credit insurance (e.a. lower premiums, offering lower interest rates than market rates for export credits guaranteed by ONDD). Free market competition must prevail. Yves Windelincx - 6- Historical role of ONDD as export promotion instrument Changing role of ONDD • Delocalization of manufacturing industry reducing the ONDD as market player volume of export transactions from Belgium. - strategic partnerships - private corporation Less transactions to cover by ONDD. - widening access to credit insurance • Sourcing of projects Conclusion Headquarters of multinationals decide on what transactions to be implemented by (Belgian) subsidiaries (decision making power out of hands of national corporations). • Increasing role of the private credit insurance sector Upgrading of emerging countries increases the area in which private insurers are now willing to take on risks in these markets – not only in EU and OECD countries, but in growing emerging markets as well. Yves Windelincx - 7- Historical role of ONDD as export promotion instrument Changing role of ONDD Conclusion ONDD as market player - strategic partnerships • choice for public export credit agency is to remain - private corporation insurer of last resort or to become a more global - widening access to credit market player(1). insurance Conclusion • insurer of last resort will have a marginal though well protected role to play or • insurer as global market player will continue to play its public role (export promotion), but conducting its business on the basis of commercial practices (free market principles) within the guidelines imposed by European Commission. • ONDD is evolving to the latter type. (1) See also paper R. Ascari, Is Export Credit Agency a misnomer?, Febr. 2007 Yves Windelincx - 8- Historical role of ONDD as export promotion instrument ONDD as market player Changing role of ONDD ONDD as market player How to realize this private player approach? - strategic partnerships 1. by seeking for international expansion via strategic - private corporation partnerships (= between ONDD and SACE) - widening access to credit insurance Conclusion Pooling of : • data system / data transmission / technology • underwriting capacity Different forms of partnerships : • equity participations • cooperation agreements • representation agreements Yves Windelincx - 9- Historical role of ONDD as export promotion instrument Equity participations Changing role of ONDD ONDD as market player • Garant (50 %) Swiss/Austrian credit insurer - strategic partnerships – reinsurance capacity - private corporation – representation - widening access to credit insurance – access to Russian market Conclusion • TCRe (25 %) Belgian credit insurer – enlargement of product (XOL policies) • KUP (66 % together with Sace BT) – take-over – public bidding → access to Central and Eastern Europe → this in the context of a global strategy of international expansion Yves Windelincx - 10 - Historical role of ONDD as International expansion export promotion instrument Changing role of ONDD • KUP is the first common acquisition of ONDD as market player Ducroire | Delcredere plc and Sace BT. - strategic partnerships - private corporation • KUP is the first step on a new path that Ducroire | Delcredere plc and Sace BT have decided - widening access to credit insurance to explore together. Conclusion • Aim : be present in major economic zones worldwide and where growth potential is possibly higher than in Europe. • Means : First steps together with Sace to share costs, increase databases, develop IT systems, enjoy synergies. • Philosophy : Attract other partners through a decentralized federative structure where each partner enjoys a certain autonomy and can be used as a platform for the larger region. Yves Windelincx - 11 - Historical role of ONDD as export promotion instrument Changing role of ONDD Cooperation agreements ONDD as market player - strategic partnerships • Ingosstrakh Russia Reinsurance - private corporation • Sinosure China Reinsurance - widening access to credit insurance • ECGC India Reinsurance Conclusion • Aurea Brazil Reinsurance • seeking for cooperation with other private and public credit insurers, e.g. in Turkey Representation agreement • UK (branch) – Andrew Strong Yves Windelincx - 12 - Historical role of ONDD as export promotion instrument Changing role of ONDD ONDD as market player 2. by setting up a private corporation - strategic partnerships • Ducroire | Delcredere plc (end 2004), disposing of free - private corporation provision of services all over the European Union - widening access to credit insurance • cover of short term standard trade transactions in Conclusion industrialized countries (EU + OECD) and emerging countries – consumption goods – commodities – semi-manufactured goods – equipment Yves Windelincx - 13 - Historical role of ONDD as export promotion instrument Changing role of ONDD • Splitting-up of activities between ONDD & ONDD as market player Ducroire | Delcredere plc - strategic partnerships – Ducroire | Delcredere plc : - private corporation - widening access to credit • ST standard trade transactions insurance – ONDD (public) : Conclusion • Medium & long term trade transactions • ST special trade transactions (dredging works, infrastructure, …) • Evolution of insured amounts ONDD-group after creation private company (see next table) Yves Windelincx - 14 - Evolution of insured amounts ONDD-group (in millions EUR) End 2003 End 2006 Growth Share (before setting up (3 years after setting (over 3 (% of 2006 private corporation) up private corporation) years) insured amounts) ST business 5.510 (ONDD) 7.685 (Ducroire plc) + 39 % 52 % Traditional business (MLT + special trade 1.223 (ONDD) 3.953 (ONDD) + 223 % 27 % transactions) Market window 639 (ONDD) 3.026 (ONDD) + 373 % 21 % TOTAL 7.372 (ONDD) 14.664 (ONDD + + 99 % 100 % Ducroire plc) After setting up Ducroire | Delcredere plc, ONDD-group can present higher insured amounts for the different types of activities, including the traditional ONDD-activity rising to 27 % of insured amounts at end 2006 against 16 % only at end 2003. Yves Windelincx - 15 - Historical role of ONDD as export promotion instrument Changing role of ONDD 3. by widening the access to credit insurance for more ONDD as market player corporations - strategic partnerships - private corporation How? - widening access to credit insurance • lowering the national content requirement by Conclusion accepting a higher degree of foreign deliveries / services in the transactions to be covered. • supporting the expansion of Belgian mother corporations by accepting cover for the export transactions of their subsidiaries abroad. • granting insurance capacity to multinationals of Belgian corporations in exchange for creating added value in Belgium by holding company (e.a. R&D, production, commercial activities, center of competence, …). Yves Windelincx - 16 - Historical role of ONDD as export promotion instrument Changing role of ONDD • supporting deals of international project sponsors, in ONDD as market player return for creation of added value in Belgium (for - strategic partnerships exemple the setting up of a Belgian subsidiary) or by - private corporation insisting on a Belgian participation in the - widening access to credit transactions to be covered. insurance Conclusion • supporting market window activity – activity without Belgian interest, but at market conditions and reinsured by private reinsurers – especially unfunded risk participations in syndicated bank loans and participations in insurance syndicates for international trade- related transactions Now ONDD is showing more flexibility in taking transactions. Yves Windelincx - 17 - Historical role of ONDD as Conclusion export promotion instrument Changing role of ONDD • Non-marketable trade transactions will always exist, ONDD as market player e.g. geo-political situation in the Middle East and Iran - strategic partnerships is important risk factor, refraining private credit - private corporation insurers from acting. - widening access to credit • Hence, public ECA’s, like ONDD, have vital role to insurance play : supporting the Belgian companies in their Conclusion international development. • Condition to this vital public role : maintaining a critical mass of business (no marginal activity). • Therefore, broadening the scope of activities by : – commercial approach, introduce market principles – concluding partnerships – greater flexibility on national content issues – developing the right set of new products – strengthening capital structure (see next chart) Yves Windelincx - 18 - Historical role of ONDD as ONDD is an autonomous public corporation not relying export promotion instrument on the state budget Changing role of ONDD ONDD as market player - strategic partnerships - private corporation - widening access to credit insurance 125 200 Conclusion 155 150 To finance the further expansion of its activities and the strategic investment needs, ONDD has strenghtened its capital base via multiple capital increases, based on own financial means Yves Windelincx - 19 - Thank you for your attention
"Seminar for the economic and commercial attachés of RBC 29.03.2007"