Alexey Tyupanov was appointed CEO of Russia’s export credit agency, Exiar, at the end of December 2014. He talks to Melodie Michel about the ECA’s targets in the midst of economic turmoil.
GTR: You were appointed at a difficult time for Russian trade – what do you hope to achieve in your time at Exiar?
Tyupanov: I have three goals for Exiar. The first one is business, particularly as we have very aggressive KPIs and strategic targets set by the government. Last year we supported projects for a total amount of about US$3.9bn. For this year we need to reach year-on-year growth of close to 50% for a total of US$5.5bn.
The environment is not very favourable at the moment, so it will be quite a challenging task to achieve this goal.
The second goal is to develop and improve our insurance platform. During the past three years we created main procedures like underwriting, risk management and pricing, but there is still a lot to be improved and implemented.
If you compare us to a car, we’ve built one, it can drive, but now we need to learn how to do it on a mass-production basis.
Interestingly, our new strategy completely rewrote our first strategy, which we first drafted and approved within six months of the creation of Exiar. The first time around we were in an open field, based on a lot of assumptions, many of which proved to be wrong. Now that we have more experience, we need to reconsider what we developed and redirect it for a stronger base.
The third goal is our human resources policy. We remain very small, with a total of 98 employees at Exiar. If we want to be a real development institution expertise-wise, in line with other foreign ECAs, the only asset we have is our people. We don’t produce anything so our main capital and asset is people. We’re now developing a new HR strategy on understanding what type of people we need in our team, our retention policy to preserve and keep them in Exiar, and how to improve their level of expertise.
Independent of difficult times in Russian trade, these are our three main goals. But it’s true that the turmoil in Russia will influence our main goal, which is business.
GTR: How has business changed due to the economic conditions?
Tyupanov: First, we’re constantly introducing new products and business lines regardless of the difficult times in the market. Last year we introduced our political risk insurance (PRI) scheme and changed our short-term policies. When we created Exiar we principally assumed it would be more focused on medium and long-term transactions, but it turns out that 50% of our portfolio is now based on short-term transactions.
In a way, we have two hats: ECA where we do medium and long-term (MLT) transactions and PRI alongside banks, and the other hat is when we basically do the same business as commercial credit insurance. In Russia we don’t have the same limitations as EU ECAs, which are only allowed to do non-marketable business. We can do both because there is no developed short-term commercial insurance market in Russia. The structure of Russian exports also affects our business model. Under our mandate we do not support oil and gas, but we support commodity-related exports like fertilisers, metals, coal – sectors that are purely commercial credit insurance business.
We furthermore introduced a special solution for factoring companies because many Russian exporters look to discount their account receivables. Overall I would say, independent of today’s turmoil, we see a shift in our business model towards more short-term operations and this is more affected by the structure of Russian exports.
In terms of MLT transactions, it’s no secret that international banks have withdrawn from the market, and I think it’s a mixture between sanctions and a negative perception of Russia in general. Overall we see that international banks are now adopting more of a wait-and-see approach. Russia was downgraded by S&P, but I wouldn’t say there’s been a severe deterioration of sovereign risk in Russia – that doesn’t happen in half a year or a year. I’d say a lot of banks are now adopting a wait-and-see approach about what will happen vis-à-vis sanctions, the economic environment, etc.
We see the same on the side of Russian banks, but this is caused more by sanctions. The biggest Russian banks are state-owned banks and they’ve all been sanctioned so they don’t have access to long-term US dollar or euro funding, and because of the depreciation of the rouble the central bank has raised the base interest rate quite substantially. Of course it influences the interest rate on loans provided by state-owned banks. We’re trying to counter this situation: we have now become the sole shareholder of the Russian Export-Import Bank, which is similar in terms of solutions to what happened during the crisis of 2008/09, when many ECAs introduced direct lending facilities.
As a result we now not only provide insurance cover but also direct lending facilities. The bank will be injected with additional equity from the budget over the next few months, in addition to having agreed that the bank will be provided with low interest rate US and euro deposits from the government from various sources including the central bank and the national wealth fund.
We also introduced a special scheme together with the central bank to refinance banks’ export credit portfolios. If a commercial bank provides an export loan covered by Exiar, it can then use this loan as a collateral to get refinancing from the Central Bank of Russia. It’s currently done mainly in roubles on a very low interest rate, but we are in discussions with the central bank to expand this scheme so that refinancing can be provided in US dollars and in euros.
We will see the result towards the end of the first half of 2015 because for now the mechanism is only starting. We estimate that by the end of 2015 we will provide around US$1.5-2bn in direct lending.
GTR: Have you seen a lot of appetite for this direct lending solution?
Tyupanov: Of course. We have had to put a lot of projects on pause until we get additional equity and deposits from the government. At the moment the equity base of our subsidiary is very limited, so we do very small projects, but hopefully in the next two or three months we will be able to serve the whole pipeline of projects.
GTR: Which are the main countries Russian exporters are targeting?
Tyupanov: At the moment we mostly see Southeast Asia, such as Vietnam, India, Indonesia, maybe Sri Lanka and the Philippines in the future. Also many enquiries are coming from Latin America; they are mainly for projects in energy, fertilisers, oil and gas, etc.
GTR: What’s the attitude from banks towards Exiar in those target regions?
Tyupanov: We’re only at early stages of launching ourselves in the international market. For the last three years we’ve been more focused on building our platform, developing our procedures and working with the usual suspects (Russian banks, international banks, etc).
Now we see more and more demand coming from Asian markets for capital goods. Russia was always competitive in space, energy and railways: the capital consuming sectors.
One of the competitive advantages of Russian products was the price, and now with the depreciation of the rouble, Russian producers don’t have substantial investment programmes. They managed to renovate their production facilities between 2001 and 2012, so now they have renovated facilities and don’t have to import spare parts or anything. Production is almost 100% Russian, so they can compete and decrease their prices in US dollars on the international export market.
Asia was the first region to comprehend that you can now purchase goods from Russia for even cheaper than it used to be. If we now manage to provide competitive financing, or even if our financing is overall higher than what you can get from European ECAs for loans from European banks, it can be easily offset by the significantly lower price of the goods.
Because Russian exports are more competitive, we are seeing more and more demand for our instruments coming from Russian exporters.
In order to respond to increased demand we have plans to do a few roadshows in Asia to meet clients, government officials and present our instruments. However for the time being we’re not that well positioned and I don’t think that local banks in Asia know us very well yet. This is going to be a long-term process.