Government-backed trade credit insurer Nippon Export and Investment Insurance (NEXI) has expanded its coverage of the exposures Japanese lenders face when funding projects in emerging economies. This measure is aimed at helping Japan boost its infrastructure exports.
In these overseas infrastructure undertakings, companies from emerging economies usually borrow money from Japanese banks, and, for more expensive projects, equipment and financing are usually bundled together.
Financial institutions take out trade insurance to protect themselves from massive losses in case the loans become irrecoverable. Usually, it’s the borrowing company that pays the premium and in the current setup, trade insurance does not cover the financing for premiums. However, NEXI has introduced a new framework that does include trade insurance premiums.
According to Nikkei, a fertiliser factory in Uzbekistan, which will be constructed by Mitsubishi Corp. and Mitsubishi Heavy Industries, is the first project that will benefit from the new framework. The insurance will cover several billion yen in premiums that will be paid by several Uzbek firms.
Mitsubishi is planning to finalise the contract this month, with the project slated to be completed by 2020.
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