TNAG-1053-FCO40-1303-China-and-Hong-Kong-Working-Group-1981 — Page 7

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ECGD'S COVER FOR LEASING

ANNEX A

1 ECGD can provide credit insurance cover and financial support for both Financial and Operational Leases entered into by UK lessors with lessees abroad, including China and Hong Kong.

2

FINANCIAL LEASES

Α

B

COVER

i

ii

iii

Financial leases are basically a substitute for sale contracts. The lessor undertakes to pay rentals to the lessee for a minimum period and the aggregate value of those rentals is sufficient for the lessor to recover his costs (eg purchase price of goods and associated services; overheads; cost of financing the transaction) net of any associated tax benefits. After this minimum period the lessee may continue to lease indefinitely for a nominal rent or buy the goods for a nominal sum.

Cover for payment of sums due from the lessee under a financial lease is given by way of a Specific Shipment Hiring Policy which covers the normal causes of loss that apply to sales of goods contracts and is effective from the date of exportation of the goods. To qualify for cover the sums due should comply with normal rules governing export credit policy generally, except that rentals are paid on an annuity basis. Thus the rentals should be equivalent to payment on delivery of at least 10%/15% for beyond 2 years) of the value of the goods leased with the balance paid at not longer than 6 monthly intervals over a period commensurate with those applicable to a sale of goods on credit terms.

Cover is against non receipt of rent due under the leasing contract but is subject to a limitation that in the event of default it applies only to rent due up to the date on which the contract can be terminated or up to 90 days after default, whichever is the earlier. Termination payments due under the contract are covered.

FINANCIAL SUPPORT

i

Under such

Lessors are eligible for ECCD's bank guarantee facilities. facilities ECGD guarantees to a bank that bills of exchange (or promissory notes) drawn by the lessee to cover rent due will be met on due date and on the basis of this guarantee the bank will advance to the lessor funds at a preferential rate of interest. In the case of leases of over 2 years duration, ECGD would normally be prepared to pay the bank the difference between the appropriate internationally agreed fixed rate of export finance and the floating agreed rate of return to the financing bank.

OPERATIONAL LEASES

3

A.

COVER

i Under such leases rental payments reflect income to the lessor from his investment in the goods leased. The total earnings from a single lease may not be sufficient to cover the cost of the goods and the lessor would aim to lease the goods more than once, possibly to differing lessees.

ii

Cover is available under ECCD's Specific Services Guarantee or in the case of leases in the short term field under the Comprehensive Services Guarantee. Both provide normal credit insurance cover for sums due under hiring contracts.

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