IBobserver newspaper #4

An Expert's View about Credit Insurance/Non-Payment Risk in Ukraine

Last updated: 7 Jul 2011

IBobserver is the first specialized newspaper in Ukraine and CIS region, devoted to the international trade development

June-August 2011 / ibcontacts.com.ua / ?4 International Trade Development The realization of the Korean- INTERNATIONAL Ukr The IFRS reporting is a must-have for ainian bargains with the Korean Lack of high-quality resources in FINANCING the companies, entering the world insurance corporation involvement Ukraine causes problems on the Project Financing or Money for the will foster the grow finance marketsth of the sales domestic ice-cream market Idea volumes between two countries 3 5 7 Comment: Euler Hermes 1 Asia is getting closer The prospects of the bilateral trade Project financing or money relations between Republic of Korea and Ukraine Comment: K-sure for the idea 3 News from ECAs: Review of the How to raise finance for a new project and what it takes Country Risks Map and stringent collateral requirements. But the run a company start-up. It depends not only on Euler Hermes, Coface 4 main problem remains the lack of long-term the prospects of the project itself, but also on money in Ukrainian banks. As a rule, about 10 what and who is behind it. FINANCIAL - 200 million euros are needed for the period of us, we come to the most interesting and REPORTING 5 - 15 years. most dicult thing - project structuring. Many ere?s too much risk, thus almost nobody factors matter when forming the structure of the Top-notch Report wants to nance the idea for the sake of a project, the most important thereof is the way to Why national companies are brighter future. Moreover, local companies, arrange nancing. e structure of the project, as in want of the IFRS reporting seeing an attractive objective, do not want to pay well as the sequence of its stages, depends on a today due regard to many obstacles on the way. Since possible way of raising nancial resources. 5 the last ones do not simply disappear, it?s better to be aware of them, and to be well prepared for LEGAL the attainment of the goal. e structure is the PRACTICE Borrowing abroad directly from foreign essence nancing banks is the cherished dream of many Incoterms 2010: Reboot Ukrainian companies, since it?s faster, cheaper Project nancing was the major issue covered Ukrainian companies do need In- and easier. by the representatives of one of the largest coterms new edition Project nance is no exception to this rule. export credit agencies (ECAs) in Germany It?s not an easy task to get a considerable amount Comment: ICC Ukraine 6 and worldwide Euler Hermes, during the for a relatively long period at low interest rates First International Seminar on Trade Finance, for the implementation of a start-up in Ukraine. MARKETS AND TRENDS It is worth recalling that our country is still at the lowest seventh risk level according to the Ice-cream Season is Open! Organization for Economic Cooperation and 10-200 Why national producers of ice-cream Development (OECD) rating, which means that struggle for their sector further develop- investors are still very prudent when establishing Kateryna S. Barabash million euro ment cooperation with the Ukrainian business. Managing Director, But raising foreign nancing for Ukrainian for 5-15 years Comment: LIMO IBcontacts 7 companies projects is still possible, even if you Any business, like any living organism, grows, organized by the IBcontacts company in May develops, has its ups and downs, changes and 2011 in Ukraine. Underwriting Division takes new directions under the strict guidance specialists orsten Nissen, Corneliu Stirbu, and of its creator. Flair, creativity, unconventional Kathrin Meier represented Euler Hermes at the outlook and willingness to take risks, in familiar event. areas as well as in new and prospective ones, help e role of ECA in organizing overseas the company keep oating and outpace other project nancing cannot be overestimated. e participants of the race. answer to the crucial question whether the project Developing a new project and implementing will be implemented, depends on ECA?s decision an idea requires a detailed analysis, planning, and regarding the risk coverage of foreign nancing nancing. And when it comes to the last one, it banks and suppliers. So what is the advantage of oen turns out that there?s not enough facilities. foreign underwriters in the implementation of Is it necessary to have them at all, if it?s possible such transactions, and the most important thing, attract loans?! en, as ever, many questions under what conditions is it possible at all? arise, each one deriving from the most important «e answer is the presence of a foreign element, one - who would subsidize the idea? at least 50% of the total funding, in a project. A foreign element in such instance would be the equipment manufactured abroad, technologies, and the involvement of a foreign contractor. In this case, as well as in trade nance, foreign ECAs will 50 % ? promote their countries? production and exports: they will insure the risks of national suppliers and such share of foreign banks for a project implementation abroad», said element must be in the orsten Nissen at the Seminar. In addition to the above mentioned, the project, financed with the foreign element would also be an overseas parent foreign ECA involvement company involved, and some other important factors that will help attract money to your idea. «However, both the ECA and the nancing bank will carefully examine the project documentation. Competent presentation e main goal hereof is to conrm the protability and prospects of the project. In addition, we will is the key to success consider possible forms of support: existing SPV (Special Purpose Vehicle - a company created for As a rule, it all starts with turning to the ... the purpose of the project implementation) or banks. However, everyone who has done that, purchased property, as well as future revenue from always faces a number of diculties: long-term decision-making procedure, high interest rates 2 www.ibcontacts.com.ua / IBobserver / June-August 2011 / 4 INTERNATIONAL FINANCING 3 2 4 / June-August 2011 / IBobserver / www.ibcontacts.com.uaINTERNATIONAL FINANCING product sales», continued Mr. Nissen. risks among the participants, but not the newly the most important thing as in the absence of a So, if you believe that your idea will lay established company. guarantor, we will conduct a detailed examination ?We will consider possible Asia is getting closer golden eggs, generating the necessary nancial us, in casu, creditworthiness of the of the feasibility of the project, including analysis forms of support: existing ows, it is half the battle. is fact is, perhaps, guarantor, the possibility of its participation in of future cash ows, political and economic risks, The cooperation between the insurance corporation of Korea and domestic importers, in the scope of trade finance transactions, the main condition for the successful raising of the project by its own means, the availability the impact on the environment, the availability SPV (Special Purpose Ve- foreign project nance, which is displayed and of nancial statements prepared in line with of additional guarantees from the owners or the enabled trade volume growth between Korean and Ukrainian commercial and industrial companies. hicle - a company created properly proved in our project documentation international standards (IFRS), as well as the state, and other related aspects. and nancial model. transparency of business, and many other us, the main factor for successful raising for the purpose of the coverage volumes for Ukrainian customers as imports into Ukraine has increased to 126% It is important to note that in case of SPV factors shall be critical. of project nance is duly prepared project Insurance coverage of the well as buyers from the CIS region. compared to the same period last year. project implementation) insolvency, the presence of the parent company, If the parent company does not generate documents that present your idea properly in «e total amount of our liabilities for Base metals and products, machinery and Korean K-sure becomes generating cash ows, as well as its ability to act adequate cash ows for the implementation of accordance with the requirements of foreign commercial contracts with Ukrainian companies or purchased property, as equipment, vehicles, plastics and rubber, as well as a guarantor of the project (the guarantor of the planned project, and has been for a certain nancing and insurance companies, individual available to Ukrainian im- by the end of 2010 totaled 125 million dollars, while as paper and chemical industry goods dominate well as future revenue from the obligations to repay loans) has a huge impact reason even unprotable, the start-up can be the project structuring, and coordination of the the lion?s share thereof is covering risks for short- in import volumes from Korea. Moreover, porters only provided that on the nance raising model. Such nancing is instrument that might raise your business to a process step by step, with the participation of term transactions. Our very positive experience in Korean cars and household appliances (TVs and product sales? oen called ?structure nancing?, as the main new level of protability. all the parties to the transaction. So then, as it is Uk there is properly prepared raine involved exactly this type of nancing,»- accessories, washing machines, refrigerators, factor of loans attraction will be the structure In this case, we will investigate the causes of said, impossible is nothing. Thorsten Nissen, Euler Hermes micr commented the representative of K-sure to owave ovens, storage units, etc.) occupy Anna Pob reporting instruments, edimskaya of the project as a whole, and the distribution of the decline of the parent company business, but IBobserver. - In Russia, our liabilities in the same the lion?s share of Korean imports. Such Korean Project Coordinator, 2010 year amounted to 1.676 billion dollars, 75% clear ownership and ap- giants as Samsung, LG Electronics, Hyundai, IBcontacts of which were for short-term transactions, and the Kia Motors and SSangYong have remained the propriate business plan rest - for the medium and long-term projects. At leaders on the Ukrainian market for a long time. Today, the Republic of Korea is literally U the same time, we pay an average of 50 million kraine, in its turn, exports ferrous metal project the most important strategic trade partner of dollars annually due to the insured risk from the products, rolled metal and semi-nished iron Ukraine. e fact was proved by signing the Ru is product was introduced due to the need to ssian importers». products, plain steel, Ukrainian ferroalloys, contract for the supply of ten-speed trains with H provide comprehensive support to international owever, trade nance market is much more viscose bers articles, pigments, dyes, anhydrous total value of 307 million dollars, between the de operations, in accordance with the growing veloped in Russia than in Ukraine. While in ammonia and grain products to South Korea. It state company «Ukrzaliznytsia» and the Korean U interdependence between trade and foreign kraine the trade nance transactions volume is should be noted that the share of domestic goods giant Hyundai Corporation, at the end of last year. As a result, yet on January 7, 2011 Korean Eximbank (Kexim) signed an agreement on credit granting to Hyundai for the amount of 296 million dollars (85% of the sum of money required to export trains in Ukraine) for a period of ten years against state security and 4.8% per annum. Project financing has become a key topic of the First International Seminar on Trade Finance in Ukraine, organized by IBcontacts company Such national railway modernization in conjunction with Euler Hermes (Kyiv, May 19, 2011) involving Hyundai, is going to be a part of the preparation process for Euro-2012, in compliance with the Framework of the Program of High- speed Railway Service between the Hosting Cities of the European Football Championship 2012 (dated December 3, 2010). e Framework of the Program provides for the high-speed passenger trac implementation throughout the country. Double-system inter-regional trains, carrying passengers in superior comfort coaches with the speed of 160 km per hour, will be introduced due to this investment project. According to the representatives of «Ukrzaliznytsia» and Hyundai, the next step in cooperation between two countries will be launching trains production in Ukraine by the Korean corporation: Semi Knock-Down assembly is planned rst, small- unit assembly and production of spare parts - subsequently. hanging pipes for machinery Trade agreement, under which most favored nation treatment applies to the bilateral trade between two states, was signed between Ukraine and the Republic of Korea in 1995. Two years later, an agreement on facilitation and mutual protection of investments between two countries was also signed. is opened up the very real possibilities to attract Korean capital in the Ukrainian economy. Strategic segments for Korean investors are herein mining and processing industries, trade, real estate, m investment. us, today, K-sure is one of the aximum 2-2.5 billion dollars a year, in Russia with high added value is growing every year in few credit agencies insuring the risks of national this gure was 20 billion dollars a year before the trade between the countries due to selling importers, in addition to its regular duty ? the crisis. In times of crisis, the segment fell industrial machinery and equipment (explosion K-sure is a large state export risk coverage. K-sure grants coverage and by 30-40%, but in the last year the volume of turbines, transmission and crank-shas) to promotes exports of information technologies, trade insurance corporati- transactions amounted to more than 17 billion Korea. do consumer goods, industrial equipment from llars. on in Korea, covering risks South Korea, as well as investment projects Foreign safety net Innovations: the Korean nancing abroad. of Korean suppliers with a way Given the growing volume of trade between e reason for the huge volume of imported view to expanding coope- Ukraine and the Republic of Korea, K-sure and products from Korea may partly be the well- In 2010, «e Korean Export Insurance IBcontacts companies have signed an agreement ration with foreign buyers, established system of commercial projects Corporation» (KEIC) altered its name to on extended cooperation in the eld of credit implementation by Korean companies thanks «Korean Trade Insurance Corporation» (K-sure). the ones from Ukraine rating of Ukrainian enterprises in carrying out to government support, which is due to Korean Altering the name has become the rst one in a trade with the Korean suppliers. including exporters risks coverage by the State Insurance series of innovations recently implemented by «is agreement, primarily, gives us the Corporation K-sure. Working with the K-sure, namely, a new corporate identity, vision, opportunity to unveil trade nance, carried out involvement of this export credit agency (ECA) managerial procedures, internal policies and between the Korean and Ukrainian companies, facilitates as well, to a great extent, the work of engineering, transport and communications. management philosophy. thus, making this segment clearer and more Ukrainian companies, which, being the buyers of According to the State Statistics Committee e alterations introduced caused the fact transparent to both sides. Favorable nancing Korean products, can obtain insurance coverage of Ukraine, the volume of trade between Korea that K-sure was more focused on the provision terms of Ukrainian importers in Korea on a from the Korean ECA. But, as we have repeatedly and our country over the past year totaled nearly of comprehensive trade and investment support security of K-sure, provided by the trade nancing written in our newspaper, coverage of foreign 1.3 billion dollars: exports in 2010 reached the to the sector on behalf of the Korean state as scheme involving the Korean ECA, contribute to the ECA (Korean K-sure in this instance) is available amount of 498 million dollars and imports - 786 well as on raising Korea to the leading position purchasing power of Ukrainian importers and thus to a Ukrainian importer only provided that there million dollars. While imports from Korea is in the global market of trade nancing. In view increase turnover between trading and industrial is properly prepared reporting instruments, clear growing much faster than export: for example, of the new strategy, the company has introduced companies of the two countries», - consider the ownership and appropriate business plan project. last year the gure was 40%, and during the rst a new service - coverage of Korean companies analysts of the IBcontacts Project Department. e Korean Export Credit Insurance Corporation three months of this year the volume of Korean import transactions with foreign contractors. itself frankly states its plans to increase insurance www.ibcontacts.com.ua / IBobserver / June-August 2011 / 4 FINANCIAL REPORTING 5 4 4 / June-August 2011 / IBobserver / www.ibcontacts.com.ua INTERNATIONAL FINANCING Top-notch Report The New Risks of Globalization In post-crisis time, when companies lose old sources of financing and acquire new ones, well-prepared reporting became a vital A New Approach to Country Risk necessity. quality should meet certain requirements and provide complete, detailed, and true information. Following a return to growth in 2010 driven by the emerging economies, 2011 will see a lower rate of growth for the global economy e main problems that the majority of and, in particular, for the developed nations. In an economy that is highly globalised, financially unstable and exposed to major social companies face are: ? not all transactions are recorded and political risks at a local level, the interdependency of countries changes the nature of country risk and poses new problems for (especially sales transactions); businesses. ? not all assets are represented in the balance sheet; ?e global economy has undergone three and political risks associated with transfers and (weak, average, signicant, and high)?, explains in emerging nations are increasingly becoming ? the transaction form is substantially Antonina Mavrodiy major changes that profoundly alter the nature of convertibility. e process of globalization has in Karine Berger, Euler Hermes? Head of Market engines of growth and of world trade, dierent from the content; Head of Analytical Department, country risk. Firstly, increasing interdependency fact seen both a frequent shiing of the borderlines Management and Strategic Marketing and Chief exposed to exogenous risks that are dicult to ? presence of old ?problem? assets; IBontacts generates a greater cyclical risk. Secondly, unequal between emerging and developed economies and a Economist. predict, as shown by the triple shock experienced ? tax risks; Today, when companies can not count on distribution of the fruits of growth creates new rise in economic and nancial exchanges between by Japan. ? unknown ownership structure; Ever-closer interdependencies that heighten easy credit money, the question of well prepared socio-political risks in certain countries, and lastly, these two categories of countries. is structural ? non-corporate legal structure; Greater cyclical risk cyclical risk reporting became quite important. Earlier it the persistent global nancial instability creates factor is itself accentuated by two additional ? lack of the company?s history The rise in interdependency has resulted in e scarcity of basic resources (commodities, was possible to solve any problems with a bank further volatility in the mature economies. e factors: the economic and nancial crisis and information. greater cyclical risk, as measured by the Cyclical oi loan. Nowadays, not all companies can aord a l, etc.) and the rise in cross-border trade diculties faced by one country have now become the heterogeneous nature of the recovery around In order to deal with these problems, Risk Indicator (CRI). increases the interdependency of countries. credit considering that the annual interest rates a problem for all, particularly in a global economy the world, meaning that imbalances between substantial amounts of time and eort should Cross-border trade is increasing as a resu usually uctuate from 15% to 25%. In addition lt New social risk, with global consequences that is experiencing a slow down in growth?, economies are not being absorbed rapidly and are be contributed. However, management decision of three factors operating in para to money matters, companies have to deal with a llel: rising summarized Wilfried Verstraete, Chairman of resulting in increasingly volatile risks. As shown by the current socio-political events about the reporting quality enhancement and demand (driven by economic factors linked to long and exhausting process of business solvency the Euler Hermes Group Management Board. ?To be relevant, country risk analysis must in the Middle East, many countries are exposed conducting the appropriate policy is the rst the recovery check. Such precise and accurate attitude in credit , and by structural factors such as now associate the traditional structural approach to higher risks as their populations increasingly step in solving the existing problems. If such A new country-risk map demographic changes and the catch-up eect inspection can be observed not only in banks, (assessment of the economic and political risk) with become frustrated and more demanding. Economic globalization marks the end of a of deve but also in any other nancing institutions, loping economies), the liberalization indicators of short-term vulnerability (nancial and In fact, although income per capita is rising traditional approach to country risk, which is based of borders, and the extension of g such as IMF, EBRD, foreign credit insurance lobal supply cyclical). is combination ultimately leads to the around the world, there are variations between on a purely structural analysis of the economic chains. In these conditions, economic conditions agencies (export credit agencies - ECAs), western denition of four categories of country risk policy one country and another, and strong growth is not A coherent management nancing banks ? basically, any intermediary synonymous with high levels of job creation. e institution between a foreign exporter and a un decision and equal distribution of growth associated with Ukrainian buyer. demographic and technical changes in countries The ECAs country ratings do not pertain to the sovereign debt since they indicate the implementation of the Nevertheless, high credit price is not the only with strong political regimes further increases legacy of the crisis. In such conditions, trade the risk of social unrest, the consequences of relevant inner policy will average level of risk displayed by the companies in a country within the framework nancing appears to be the most eective and which are not generally restricted to the local allow companies to appropriate tool for raising nance. If a company of their commercial transaction. This average change does not prejudge that of economy. wants to increase its attractiveness for potential improve their drawing Financial instability that is now aecting the creditors, it should consider increasing internal the score for each company, which remains determined by its own characteristics. developed economies reports quality reporting quality. It is important to remember Financial equilibriums remain precarious It is therefore necessary for the partners of a company in one of the countries that any creditor, nancial institution or private on a global scale. e volatility of capital is investor, is interested at getting the most detailed mentioned to have its specific evaluation by the relevant ECA. widespread but has a greater impact on the and complete information about the past and developed economies than on emerging nations, present business situation. decision is made, the best option is to address this creating a further risk for monetary policies. e task to professional consultants with adequate Study hard, get a credit easil weight of sovereign debt is generating increasing experience in this area. It will enable a company requirements for external nancing and the risk It is a proven fact that eective marketing to make the process quick and eective. of a domino eect given the complex web of drives the sales. e brighter the package is, the warns against increased country banking ows. Systemic nancial risk is therefore Entering the world with IFRS bigger the sales volume will be. When choosing Ukraine-Hungary: a a new factor to be taken into account in analysing between two identical products, an average When dealing with long-term projects on country risk. consumer will make the decision in favor of raising nance, especially international one, e continuing nancial instability on a the product with a brighter and more catching IFRS reporting is a must-have for a company. risk by announcing a wave of ratings downgrades global scale is a source of greater volatility in new Step towards Trade package. In this situation raising nance can be IFRS reporting gives a range of advantages to a risk aversion, which can be measured using a compared to sales while business - to a product. company, such as: ability to present consolidated Financial Flows Indicator (FFI) that reects the What would be a package then? Business nancial information for both Ukrainian and vulnerability of a given country to an external packaging would be its nancial information and Project Financing After upgrading many of its country ratings in 2010, Coface is now downgrading 10 country foreign market players, ability to improve shock and its ability to withstand or avoid a that includes reporting and calculated ratios internal administrative system by using unied ratings, including those for Japan and several countries in the Middle East/North Africa systemic shock, particularly in respect of its characterizing this business. reporting methods, ability to increase company?s region. Coface has revised downwards its world growth forecast for 2011 from 3.4% to 3.2%, notably sensitivity to capital ows. Transparent nancial reporting provides competitive edge and capitalization by providing Development What are the threats to and challenges for the high-quality and more complete information as a result of recent events in Japan, North Africa and the Middle East. Despite this transparent and reliable information for world economy? which will convey the message to a potential interested parties. Such information is easier downturn, the economic environment remains buoyant. creditor that the business is transparent, stable In this context, global growth will be more to comprehend by international users and and predictable; therefore, the creditor knows Economic shockwaves in Japan Portugal (downgraded to A4) and Cyprus Coface expects oil prices to are up moderate in 2011. Following growth of 4.1% in increases the condence in the company and its what he is buying and can make a well-informed heavily exposed to Greek debt (downgraded to signicantly, driven by socio-political tensions in D 2010, the world economy is expected to grow by ue to th management.e recent spate of disasters in decision about business solvency and reliability. A3). Portugal, which is caught up in a political oil-exportingcountries and reconstruction eorts 3.1% in 2011 and by 3.4% in 2012. A number of In Ukraine, there is an initiative to implement Japan, Coface has put the country?s A1 rating Unfortunately, situation in Ukraine does not crisis and has just asked the EU for nancial in Japan, the world?s third-largest oil importer. In May 2011, Kyiv: IBcontacts company, of export-import relations between Ukraine factors underlying the slowdown have already on n IFRS at the nation-wide level. On 31 March 2011 egative watch. Japan?s 2011 growth forecast allow to establish transparent nancial reporting aid, will remain in recession this year (-1.3%). 2011, Coface expects Brent oil prices to rise by specialized in international trade development and Hungary. been identied for OECD countries (the ending ha the State Securities and Stock Market Commission s been revised downwards from 1.5% to 0.3%, system. e main problem is the poor nancial Portuguese companies, with a low cash ow rate, 25% compared with 2010 at $100 per barrel. is by organizing export and project nancing Today relations between Ukraine and of stimulus programmes, tax consolidation a issued an information letter stating that nancial er a 3.9% rebound in 2010. information quality. While big businesses will still nd it hard to obtain credit. will knock 0.1 to 0.2 points o GDP growth in for Ukrainian companies, and Hungarian Hungary can be described as an intensive  measures, and weak demand) and for the information of public companies should be e economic shockwaves will initially usually pay attention to the reporting system Outside the euro zone, in the UK (A3 positive the major oil-importing countries: USA (2.5% export credit agency (ECA) «Mehib» signed political dialogue and active cooperation in the emerging economies (rebalancing measures, the hi disclosed in accordance with IFRS. Besides, on 21 t exports - traditionally the driving force of conformation, medium and small companies watch removed), drastic austerity measures and growth in 2011), Germany (2.3%), UK (1%) and an agreement about extending the cooperation elds of energy, metal, machinery, pharmacy, normalization of monetary policy, etc.). April 2011 Verkhovna Rada passed the dra law Japanese growth. Disruptions to power supplies usually allot information that is neither high ination will dampen consumer condence. South Korea (3.5%). in credit-information sphere. is will lead timber production and construction. In 2010, w that stipulates IFRS implementation in Ukraine. ill have a long-lasting impact on output in the Euler Hermes draws three conclusions for M consolidated, nor pressing. Also, it is dicult to anufacturing rms will face shrinking margins to more qualied and detailed revision of trade turnover between Ukraine and Hungary p It means that international practice sooner or refectures directly aected, as well as in more In this view, Coface has revised down its world business transactions perform an analysis without company?s history due to rising input costs. Ukrainian companies-borrowers that attract rose by 48.4%. According to the State Statistics later will become a reality in Ukraine as well, industrialised areas. Small subcontracting rms growth forecast from 3.4% to 3.2% (1.7% 1. Country risk is changing. It is information. trade and project nancing from Hungary. Bureau data, Ukrainian goods export increased w and Ukrainian companies should start getting ith minimal cash ow will be particularly Countries in North Africa and the Middle East for the advanced countries and 5.6% for the simultaneously more complex, more volatile and Considering the Ukrainian reality, it is Mehib insures Hungarian exporters? risks by 17.8% and amounted to $860.1 million (1.5% ae ready today. So far the majority of companies cted. placed under negative watch emerging countries), compared with 4.2% in more global, but remains strong. Both emerging unreasonable to expect a signicant improvement in trade operations with Ukrainian buyers, of the total Ukrainian export), while import A do not welcome such innovations. In order to lthough, at this stage, it is dicult to 2010. ese forecasts also factor in the impact Political uncertainty in the Middle East/ and developed economies need to be monitored. in ocial reporting quality. However, there is which results in increasing purchase volumes increased by 79.1% and equaled to $1214.3 a complete the transformation to the new reporting ssess the impact of these events on the global of the euro zone?s sovereign debt protracted North Africa region could impact the activity 2. Faced with this broad range of risks, a good alternative to ocial reporting which is of domestic importers. is process takes place million (2.1% of total Ukrainian import). Total standards, certain eort, time, and money should economy, Coface already predicts repercussions crisis and the expected slowdown in emerging and exacerbatethe imbalances in public nances businesses are now more vulnerable and must management reporting. Double accounting is within the trade nancing projects of attracting trade turnover between Ukraine and Hungary be contributed. Companies? management and for the global production chain, in which Japan economies, especially Asian countries, which and depress currency earnings. Coface has therefore exercise greater vigilance. practiced all around the world. It usually includes resources from foreign banks with the export amounted to $2074.7 million in 2010. owners should realize that changes are inevitable is a key player, especially in the automotive and have introduced measures to curb economic decided to put Tunisia (A4?) and Egypt (B?) Managing and monitoring these risks calls more detailed and complete information that is credit agency assurance, Hungarian ECA Export credit agency Mehib (Magyar and it is better to be prepared for them. electronics industries. overheating. under negative watch, as the political transition for greater attention, more resources and more used by management in the decision-making including. Nowadays, trade nancing is one of Exporthitel Biztositó) is the biggest Hungarian A In addition, companies? focusing in towards ccording to Coface?s main scenario, the that these countries are going through makes «Aer a year of marked recovery, we are now time. process. Besides, management reporting does the most eective and aordable instruments of insurance corporation that was founded by IFRS reporting will become a positive signal for rebound should occur in the third quarter, at the them fragile in the short term. Syria?s rating seeing an increase in global risk due to political e amplitude and consequences of risks not represent operations which are used for tax attracting resources by domestic companies. Hungarian government in order to support v business world community. IFRS will not only ery earliest, and will be driven by reconstruction (C?) has also been put on negative watch due upheavals and the natural disasters occurring are increasingly dicult to plan for and optimization or distort cash ows. In Ukraine e agreements between IBcontacts and Hungarian exporters and banks as well as increase reputation of Ukrainian businesses at the eorts and renewed consumer condence. to the growing wave of political protest in an in the rst quarter. e economic downturn is anticipate (such as the events in Japan), whether management reporting is usually used for the Hungarian ECA open new opportunities ensure the eective nancial risk distribution international arena, but also will open the door Euro zone growth overshadowed by the inadequate business environment. aecting also emerging countries. e recovery domestically or for a business sector or a supply company?s solvency analysis. It is even used by of import operations nancing for Ukrainian of Hungarian export and further development to the new markets, including nancial resources sovereign crisis Libya, which is expected to see a very sharp continues but at a slower pace,» commented Yves chain. some banks, since ocial reporting gives the importers. is will allow to renew production of the export nancing and insurance system markets. decline in activity of at least 15%, has been Zlotowski, Chief Economist at Coface.  3. In this context, Euler Hermes therefore e euro zone has been severely hit by the wrong perception about the company?s current capacities, purchase bigger volumes of nished according to the international standards. downgraded to D. advises businesses to strengthen the role of their sovereign crisis and is expected to grow by 1.3% situation. goods and nance investment projects. (www.mehib.hu) Read more at www.coface.com Risk Managers. in 2011 compared with 1.8% in 2010. However, e rise of oil prices will impact the activity Management reporting can also be used Moreover, signing the agreement between the the ratings for most European countries have worldwide R in minor short-term trade nancing projects. ead more www.eulerhermes.com two companies will facilitate the development been le unchanged, with the exception of However, in such case, management reporting www.ibcontacts.com.ua / IBobserver / June-August 2011 / 4 MARKETS AND TRENDS 7 6 4 / June-August 2011 / IBobserver / www.ibcontacts.com.ua LEGAL PRACTICE Incoterms 2010: Reboot Ice-cream Season is open Subsequent to the release in late May Presidential Decree # 589/2011, Ukrainian companies are free to use the new Incoterms rules called Even though the technological development of the Ukrainian ice-cream market meets the European standards, the lack of the high- to facilitate trade between foreign partners and make transportation safe as much as possible. quality raw materials does hurt the industry. introduced. is innovation has largely simplied COMMENT of the products which are mainly purchased was a noticeable growth of medium and high : the evaluation of imported goods customs value. from transnational companies such as Nestle price segments and consumer preferences shied Incoterms 2000 did not oblige the contracting and Mars. e technological development in to more expensive natural products. Meanwhile, parties to this kind of cooperation. v Export was 5.6 times isual diagrams and classications enabling to Ukraine is not lower than in Europe. Nowadays, producers are focused upon developing new As regards the existing FOB (Free On select the most appropriate rules for each type higher than import Ukrainian industry produces all possible kinds products and are not afraid to experiment with Board), CFR (Cost And Freight) and CIF (Cost, of transport, recommendations on the use of of ice-cream. production technologies. In 2010-2011 the Insurance and Freight) terms, supply costs electronic contracts, and updates related to the volumes of the pro- Taking into account the population income producers expanded their production lines and and risks are distributed dierently than in the new requirements for information security. decline during the crisis, the cost of goods sold added new types of avor, such as pistachio, ducts which are mainly previous edition of Incoterms. In accordance with To date, the rules of International Chamber Valeriy Lubarskiy, increase, raw materials decit, and customer mojito, and coee. Incoterms 2000, the risks from the vendor cease Violetta Zayats, of Commerce are widely used in the respective purchased from transna- Senior Lawyer of IBontacts, Attorney reorientation to the low-price market segment, In medium-price segment, we can see a at the time of the cargo delivery on board of the Marketing Research Specialist sale-and-purchase of goods contracts in almost the producers could not increase the price, come-back of old favorite ice-cream types, such tional companies such as ship, being transferred to the buyer subsequently. IBcontacts every country of the world. e rules pretty therefore, they switched from using milk fat as plain cream, fruit, and berry. is tendency Meanwhile, pursuant to Incoterms 2010, risk is much enable to simplify and harmonize trade Nestle and Mars to cheaper vegetable oil instead. However, the can be easily explained, since the average age transferred since the full load of cargo on board. International commercial terms (Incoterms), President of the Chamber Volodymyr operations, which makes it possible to use is summer promises to be hot. While some consumers did taste the dierence. In 2010 there of the target market population is 35 and older Moreover, in the «C» category, according adopted by the International Chamber of Shchelkunov, commented to IBobserver on the Incoterms in every country, regardless of its suer from the heat, others use it as a chance to who still remember the taste of Soviet plain ice- C to the CIF (Cost, Insurance and Freight) and ommerce and revised, as a rule, decennially introduction of the latest version of Incoterms legislation features. Over time, we have worked earn money and increase their prot. Ice-cream cream. CIP (Freight/Carriage and Insurance paid to (1967, 1976, 1980, 1990, 2000 etc.) is one of the in the implementation of trade transactions of on the translation of the ocial text of the rules. COMMENT: producers are already fully equipped and ready e situation with younger age groups m ...) terms, the supplier (seller) shall additionally ost used and ecient tools in international Ukrainian companies with foreign partners: We got State Customs Service, State Committee for a ght, since ice-cream is only a seasonal is much more dicult, since children and insure goods, and in the «D» category pursuant trade. «Revision of Incoterms 2010 reects the main of Statistics, forwarders, banks and other experts product of non-prime necessity. In summer teenagers prefer snacks to ice-cream. to the DDP (Delivery Duty Paid) term, the It should be noted that in Ukraine, trends of the last decade, in particular, the cream production volume will stay at the level involved. As a result, early in the year, Ukrainian players of this market should be on the guard, It is worth mentioning that the domestic supplier has to pay import duties as well. presentation of the terms of any supply contract requirements to improve transport safety, and of 2010. edition of the rules was presented. us, in especially if the weather forecasts will turn out ice-cream market structure is quite complicated. In our book, the necessity of such innovations shall be pursuant to the Incoterms. is provision the new supply conditions. Moreover, Incoterms It is important to mention that there was a order to avoid misunderstandings with foreign to be true and the season will be as hot as last Depending on the season, consumers prefer can be assessed depending on the positions has existed since the Commercial Code of Ukraine 2010 are designed in such a manner that they change in the sales channels. e share of ice- partners, we recommend to use new version of year when the heat destroyed the pessimistic dierent packaging, and the sales volumes occupied. e supplier is willing to limit its (Part 4 of Article 265 of the Code) entered into can be applied not only to international trade, cream stands sales noticeably increased. Incoterms, inasmuch as starting from January forecasts for this segment and helped to increase uctuate signicantly during a year. In the liability, the buyer, meanwhile, is eager to shi force in 2004. Regarding the provisions of the but also within the framework of an integration Also renewing of product lines remains 1, 2011, any reference to Incoterms in a contract sales by 6.3% comparing to 2009. However, the summer season the majority chooses ice-cream some responsibility onto the supplier. union, or a single state. highly important for our segment. Interest and signed on January 1 or thereaer, shall be sales volume did fail to reach 2008 level. in a cup, and some prefer ice-cream on a stick. As it?s seen, the changes made to Incoterms Compared with the previous version, loyalty of the customers should be constantly construed as Incoterms 2010, unless otherwise Oksana Yaremko, Head of the Marketing In winter, family packs of ice-cream are the most 2010, are more evolutionary. It?s just a natural Incoterms 2010 are supplemented by extensive To each his own ice-cream supported and encouraged by presenting new Revision of the previous agreed upon by the parties». Department of the TM LIMO put into popular, however, the overall consumption level reaction to the rapid development of international guide notes for each transaction, as well as ice-cream sorts and avors. Especially it is perspective the current situation on the ice- Ice-cream is one of the most highly edition of Incoterms was drops. Ice-cream cakes demand is higher in the important in the current highly competitive cream market: ?e ice-cream market growth developed food branches in Ukraine. Domestic holiday season however this segment share is environment where aggressive advertising indispensable since a will amount to 6-7% by the end of 2011 due producers hold a 99% stake at the market. decreasing with each year. strategies are aimed at keeping loyal customers to favorable weather conditions. e price Imported ice-cream and fruit ice has only Today, the Ukrainian market is close to number of terms has not and pleasing clients of all categories. So, we has already risen by 15% as a response to raw 0.5% of general consumption. Such situation saturation, which is proved by the market constantly have to keep abreast. gained materials cost increase (such as milk, sugar, was caused by protectionist government policy consolidation. e market share of top ve rose Reckoning with this, I would like to note butter). Still the main problem of all ice-cream that established import fee of 1 euro per kilo. from 53% in 2008 to 59% in 2010. Also the broad employment in inter- that for the season of 2011 our company producers is lack of high-quality raw materials, It caused a signicant decrease in imported top-ve list remains more or less stable. ree produced more than 15 new sorts of ice-cream national practice such as milk, butter, sugar, and fruit llings. goods ability to compete on the Ukrainian leading producers kept their positions in the top that have not only unique avors, but new form Unfortunately, this situation is unlikely to market. Today, there are more than 1000 types ve, while other two were replaced. By the end of and packaging design as well». change this year. Considering this, total ice- of ice-cream produced in Ukraine. Export 2010, the top ve producers were: Zhytomyrskyy was 5.6 times higher than import volumes Maslozavod, Lasunka, Laska, Elit and Lvovskyy law, and according to the global trading practices Khladokombinat. in particular, it?s hard to overestimate the importance of Incoterms. Firstly, Incoterms are Package makes the ice-cream inherently designed to standardize and simplify e main challenge for top-managers is the contractual relationship between parties to keep the market share. In order to maintain from dierent countries with dierent business the market positions, ice-cream companies use practices, systems of law and regulation. is is dierent instruments: developing of new ice- a denite advantage for business people, since cream sorts, representing new trade marks, it saves them from having to come up with the packaging and advertising. It is well-known desired formula of the delivery for each contract, as well as to delve into legal details. Secondly, the use of Incoterms in Ukraine is almost a must for domestic and international deliveries with the In order to preserve their participation of Ukrainian side. market shares the Let?s recall that until recently the previous edition of Incoterms was the one of 2000. producers of the ice-cream Incoterms were revised another time in 2010. use all possible is edition came into force on January 1, 2011 subsequent to the relevant decision of the instruments: introduction International Chamber of Commerce. of new trademarks, One can trade easier So developing new sorts, , were the changes made to Incoterms a «cosmetic» editing, or was there a deeper packages and advertising revision of the rules and regulations, and why so? Everything changes. As it was shown, a number of terms is not widely used in that consumers prefer products that have international trade. Compared to the edition of better packaging. Many companies can make «Incoterms 2000» with its thirteen terms, there ice-cream, but only few can make a customer are only eleven of them in «Incoterms 2010». e actually buy it. four least used terms have been eliminated (DAF, Despite the production capabilities, DES, DEQ, and DDU), two new were introduced Ukrainian ice-cream companies face a problem instead (DAP and DAT). which is the lack of high-quality raw materials. It e term DAP (Delivery At Place) replaced surely reects in the price and quality shi. DAF, DES and DDU. DAT (Delivery At e only thing that helps companies to keep Terminal), in its turn, replaced the DEQ. e the equipment loaded and to maintain number newly introduced terms can be used in respect of workplaces is production diversication. trade. Nevertheless, the new edition of Incoterms May 19, 2011, canceling the aforesaid constraints, of freightage by any kind of transport. e new Main producers enter new spheres such as is relevant today, and is absolutely ready to has already entered into force. Starting from term DAP provides that the goods are handed The alterations made to In- semi-nished goods, milk products, and be employed by business partners in various May 26, 2011, the parties to sale-and-purchase over to the buyer prepared for unloading. Under coterms 2010 is a natural confectionary production. Nowadays, the countries. (supply) contracts with the Ukrainian «residence the DAT term, goods are transferred to the buyer reaction to the rapid develop- market of frozen fruits and vegetables remains As regards Ukrainian businessmen, in permit» are actually given the green light to not unloaded from the transporting vehicle. underdeveloped and is mainly represented by compliance with Presidential Decree # 567/94 as use the new edition of Incoterms 2010, being  ment of international trade. us, the drawers of Incoterms preferred imported products. Making allowance for this of October 4, 1994, until recently, it was allowed extensively used throughout the world. further simplication, eliminating and Today, the new edition of In- market peculiarities (the highest demand for to use the Incoterms edition published in the Anyhow, regardless of which edition of generalizing statistically unclaimed terms. is coterms is relevant, and is rea- frozen vegetables is observed in winter and ocial press, namely in the ?Uriadovyi Kuryer? the rules you give preference to, it is worth step seems logical to the immediate performers spring season) and the growth of overall frozen dy to be employed by business newspaper. For the time being, such edition was remembering that the reference to the specic - managers, contractors, logistics companies, etc. vegetables consumption, this business area Incoterms 2000, which is losing its relevance Incoterms edition in the text of a treaty is a sine In addition, a binding provision of necessary partners in various countries presents quite good opportunities . rapidly. qua non. information by the parties during customs However, Presidential Decree # 589/2011 of clearance in export-import operations was also 8Newspaper Publisher is «IBcontacts LLC» (IBcontacts). Address: Saksaganskogo 119, oce 4-6, Kyiv, 01032, tel. +380 44 359 02 00, fax. +380 44 359 02 19. Representative of articles? authors is a publisher - «IBobserver». No part of this publication may be reprinted without the prior permission of the publisher. Published in: «Novyj Druk LLC», Magnitogorska street 1, Kyiv, 02660. Order  11-4829. 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Posted: 07 July 2011, last updated 7 July 2011

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