IT bigwigs run for credit-risk cover

MUMBAI: IT majors, including Wipro, Infosys, Tata Consultancy Services, L&T Infotech, among others, are close to finalising a credit-risk cover (CRI) with Export Credit Guarantee Corporation of India. IT and IT-enabled companies have taken a fast move to insulate themselves from payment risks as bank failures in the US are still on the rise.

ECGC officials confirmed the development while the companies declined to comment as their quarterly results are scheduled this month.

ECGC’s executive director CA S Prabhakaran said: “Six-seven companies are in talks with us for export credit cover and we are receiving enquiries from many others.” However, he declined to name the companies. ECGC, the world’s fifth-largest export credit risk insurer in terms of coverage of national exports, already provides such cover to some small IT service providers such as Tata Elexi, Sasken Communication and Prithvi Information Solutions.

This is the first time that large IT firms are seeking credit insurance in such large numbers. According to the ECGC officials, these companies could be offered some specialised products that will cover their export receivables. “The product could be customised in line with the customers requirement, depending on their terms of payment with buyers, the importing country and letter of credits,” said an ECGC official. ECGC, which is an specialised credit risk insurance institution that guarantees export credits against buyers payment risks, currently have 3-4 products that could serve to the needs of IT companies, he added.

The chase for export credit cover assumes significance as none of the IT companies’ buyers in west are backed by letters of credit or bank guarantees. Many of the US buyers were highly rated and were also having extremely low credit risks earlier. But, the payment default and rise in bankruptcies in the last one year has increased the necessity of credit risk cover. Apart from this, the US has bankruptcy protection law, which is also one of the major reasons for the service providers to begin looking for export credit cover. Under US Chapter 11 bankruptcy code, there is an automatic stay on creditors.

Earlier, export credit cover products were popular among the exporters of engineering goods, clothing, pharmaceuticals and gems & jewellery. But, now it seems these covers are also required to the most rich service sector companies in the country after the recession impact. ECGC enjoys 90% market share in this segment. However, some private players like New India Assurance, Bajaj Allianz, ICICI Lombard, Tata AIG and Iffco Tokyo provide credit cover in collaboration with foreign associates.