GTR speaks to five export credit agencies (ECAs) around the world to find out how the Covid-19 pandemic has affected demand for their support, and what we’re likely to observe in the market in the final months of 2020 and into 2021.
Stephen Renna, chief banking officer, Export-Import Bank of the United States (US Exim)
GTR: What has been the demand for US Exim cover since the outbreak of Covid-19, and can you provide figures to quantify that? Which markets and sectors have seen the greatest impact?
Renna: Under the leadership of our chair Kimberly Reed, US Exim has taken a four-part approach to mitigate the economic impact of Covid-19.
First, we focused on managing our existing portfolio by extending flexibility in the face of the liquidity constraints while continuing to protect the taxpayer. This is working very well and our existing clients appreciate it.
Second, Exim’s board of directors approved several temporary relief measures. We raised our supply chain finance (SCF) guarantee programme and working capital guarantee programme coverage option to 95%, up from the standard 90%. Our goal with this is to prevent a liquidity crisis from becoming an insolvency crisis.
Third, we brought Exim’s message of flexibility to the exporting community to support US businesses and American jobs. We are now seeing our relief measures being utilised. In total, we have supplied in excess of US$1bn of liquidity into the exporter and supply chain community in response to Covid-19, and based on the applications in our pipeline we expect this to come to up to US$2bn.
For instance, in July, Exim’s board of directors utilised our temporarily expanded SCF guarantee programme to authorise a 90% guarantee of a US$510mn one-year purchase facility to support an estimated US$3bn in export sales of aircraft engines, as well as a US$498mn loan guarantee for airframes and aircraft, plus a separate US$97mn working capital guarantee supporting over US$211mn in export sales. These authorisations are estimated to support thousands of US jobs.
Fourth, through a new bridge financing and liquidity offering, we’re positioning ourselves for the possibility that more companies re-engage in the economy while the private lending market might not be able to meet demand yet. This will assist the economic recovery in the US and abroad, and facilitate financing of US exports while private sector liquidity returns. Until that happens, purchasers outside the US may have difficulty obtaining commercial financing as economic conditions remain uncertain and may need several billion dollars in temporary, short-term bridge financing to acquire US goods and services.
GTR: What do you envisage the key themes for the export finance market will be for the rest of 2020 and for 2021?
Renna: For the rest of 2020 and 2021, Exim expects maintaining liquidity to be the priority. ECAs are providing Covid-19 relief products specific to their borrowers’ needs and the need for these products can be expected to increase, especially to address liquidity issues. We also expect more finance to provide support for the shifting of supply chains from China to elsewhere.
From May through July, Exim has conducted a series of webinars on ‘transformational exports’, each of which focused on a specific technology. They included renewable energy, 5G, artificial intelligence, high-performance computing, space technology, biotechnology and biomedical sciences, semiconductors and fintech. The result was more than 1,100 stakeholders taking part in these calls, which featured in-depth discussions from leaders in these fields.
Adam Harris, head of civil, infrastructure and energy, UK Export Finance (UKEF)
GTR: What has been the demand for UKEF cover since the outbreak of Covid-19, and can you provide figures to quantify that? Which markets and sectors have seen the greatest impact?
Harris: Since expanding the scope of our export credit insurance protection to all markets, inquiries have increased four to five-fold. The Covid-19 crisis has prompted a more risk averse approach to credit management for many UK exporters across a number of sectors. Retail, aviation, automotive, engineering and manufacturing have all been hit hard.
UKEF continues to provide its financial support to UK exporters and their customers who have been impacted by Covid-19, ensuring trade can continue to flow and safeguarding thousands of UK jobs in the process.
GTR: What do you envisage the key themes for the export finance market will be for the rest of 2020 and for 2021?
Harris: We expect support for several sectors to be at heightened levels. Support for aerospace exporters and exports will likely increase sharply over the next 18 months. We are already working closely with existing airline customers to support their restructuring plans in light of the difficulties facing the industry.
UKEF also launched its new export development guarantee in July, a flexible facility that allows us to support working capital needs for UK exporters on a non-contract basis. Ford of Britain was an early beneficiary and received a UKEF guarantee on a £625mn loan facility to support its export business in the UK.
We expect to offer more support to exporters on a non-contract basis over the next two years, assisted in addition by the launch of a new facility more focused on SME support later in 2020.
Dario Liguti, chief large corporate underwriting officer, Sace
GTR: What has been the demand for Sace cover since the outbreak of Covid-19, and can you provide figures to quantify that? Which markets and sectors have seen the greatest impact?
Liguti: In the first six months of 2020, following the outbreak of Covid-19, Sace mobilised €11bn in support of Italian firms’ activities in export and internationalisation. This was an increase of 37% compared to H1 2019. In this period we served more than 7,500 companies, of which 90% were mid-caps and SMEs.
Our business has been focused in the usual markets, including the Middle East, Russia and Asia, but we also experienced some development in Sub-Saharan Africa. We supported exports across a wide range of sectors, with a particular focus on oil and gas and infrastructure.
I would also like to highlight that Covid-19 severely affected all the sectors in which ECAs usually intervene, especially shipping and aviation. That’s the reason why Sace, and other ECAs, put in place debt holiday agreements in order to support the economic operators of those sectors during this phase of lack of liquidity. Other sectors, such as oil and gas, infrastructure and engineering, have instead been experiencing a slowdown in investments.
GTR: What do you envisage the key themes for the export finance market will be for the rest of 2020 and for 2021?
Liguti: Sace will continue strengthening its commitment to Italian exporters and their buyers, in order to help them face this delicate economic phase, with special attention to liquidity support.
We will focus our efforts to finalise some large deals in the oil and gas and infrastructure sectors, which are in the final phases of structuring. Due to their nature of long-term investments and as forerunners of economic development, these two sectors remain fundamental for importing countries.
Moreover, we are going to increase our efforts, working in close co-ordination with other ECAs and the European Commission, to launch new measures and new products and services. In fact, we believe that it is necessary to offer our customers solutions that fit their needs, which change very quickly in such an unpredictable context.
Marie Aglert, director, head of business area, large corporates, EKN
GTR: What has been the demand for EKN cover since the outbreak of Covid-19, and can you provide figures to quantify that? Which markets and sectors have seen the greatest impact?
Aglert: During crises, access to EKN’s guarantees is particularly crucial. I personally contacted CFOs at the largest corporates to find out what their needs were, and the most immediate requirement was access to liquidity.
To meet the needs of the large corporates, we modernised the temporary working capital guarantee we offered during the financial crisis 10 years ago, with a 75% cover. The interest in this was enormous. In a short period of time we had received applications from almost
70 companies, totalling close to SKr200bn (about US$22bn). Other measures included opening up our short-term guarantee product for EU and high-income countries as soon as it was allowed, and extending payment terms.
Demand came from all sectors. It was dominated by the traditional Swedish industries, for example transport, but we also saw great interest from companies that previously did not use EKN’s services, in industries such as fashion, hospitality and retail.
We were also contacted by many SMEs looking for financing solutions and EKN quickly expanded the already existing working capital credit guarantee for SMEs, increasing cover from 50 to 80% to encourage banks to continue lending.
GTR: What do you envisage the key themes for the export finance market will be for the rest of 2020 and for 2021?
Aglert: Contrary to what one might believe, demand for EKN guarantees, not counting Covid-19-related products, has remained on the same level as last year, or even higher. And demand is increasing.
We see that many of our customers have started to offer financing in more of their business and are keen to get a guarantee offer at a very early stage, just in case they don’t land a cash payment agreement. Every transaction is important and adding a financing offer has become even more important in a more competitive environment. We expect to see a lot of telecom business in the coming year when countries in Latin America, Asia, Middle East and Europe start developing 5G.
When the economy turns, I hope that the green transition can really take off. Financing climate-smart technology and sustainable solutions is an important part of EKN’s mission. Swedish industry has an impressive ability to transform when the world’s needs and markets change. Centuries-old companies are developing new technologies, collaborating, and coming up with new business models. Companies in the forefront of this transition will have a competitive edge.
EKN has the benefit of being part of the Swedish state, a triple-A rated country, but is fully self-financed with a strong financial position. Funding is available from our ‘sister organisation, the Swedish Export Credit Corporation (SEK). Every year we guarantee transactions to 130 countries and our mandate is quite flexible.
Massimo Falcioni, CEO, Etihad Credit Insurance (ECI)
GTR: What has been the demand for ECI cover since the outbreak of Covid-19, and can you provide figures to quantify that? Which markets and sectors have seen the greatest impact?
Falcioni: The demand for ECA support worldwide increased massively in the first half of 2020. The UAE government put in place several additional policies during this challenging economic cycle to stabilise supply chains: it ensured proper market liquidity through a central bank injection in excess of Dh100bn (about US$27bn), and reduced the cost of doing business by eliminating more than 97 federal government service fees.
ECI registered a triple digit demand growth of trade credit insurance solutions in the first half of 2020, issuing more than 1,500 revolving credit guarantees, equivalent to Dh4bn. We insured non-oil export from several sectors, including manufacturing of cables, steel, petrochemicals, pharmaceutical, automotive, building materials and food sectors, exporting to Saudi Arabia, Oman, India, Egypt, UK, South Africa, Kuwait and South Korea. 55% of the companies that requested such support were SMEs, while 35% were private large exporters and 10% government-owned companies.
GTR: What do you envisage the key themes for the export finance market will be for the rest of 2020 and for 2021?
Falcioni: Governments will continue to provide additional financial resources for their ECAs, growing their mandates to support private banks’ export financing and private credit insurers. ECAs will also boost their support for project financing, specifically into the renewable energy sector, infrastructure development, and investments in digitalisation processes. The export finance market will be the main enabler for the global trade volume recovery post-Covid-19, and will be led by government agencies.
