Alper Kilic, global head of project and export finance, and Faruq Muhammad, global head of structured export finance at Standard Chartered, give their views on the current state of the market, and what we can expect to see going into 2021.


How much activity has there been in export finance since the beginning of the year, and to what extent have transactions been impacted by Covid-19?

Kilic: The International Monetary Fund’s most recent forecast predicts an approximately 5.2% decline in global GDP for 2020, as the Covid-19 pandemic has had a more negative impact on activity in the first half of this year than anticipated. In terms of the debt financing transaction volumes, we saw a 23% decline from H1 2019 to H1 2020 in syndicated loan volumes in our footprint of Asia, the Middle East and Africa. Similarly, according to TXF data, in H1 2020, there have been 129 export credit agencies (ECA) supported deals covering US$469bn of financing. While this is US$7bn lower than the same period in 2019, I believe this is still a very good performance against much bigger economic worries caused by Covid.

We do expect to see the declining trend to continue in H2 2020, but then hopefully a recovery in 2021.

Muhammad: We also expect a delayed impact on export finance volumes due to long gestation period of deals. The time from origination to closing can be anywhere between six and 12 months, so far this year we have been quite busy in terms of closing transactions originated in 2019. Last year was a fairly good year for the export finance market, but a lot of that was led by the cruise ship industry, aviation and oil and gas, and it is unlikely that some of these sectors will drive demand this year.


In which sectors are you seeing the most activity this year?

Kilic: The most obvious bright spots are in clean technology and renewables, particularly in Asia and Europe. When you look at the volumes and the activity in that sector, it’s almost as if there is no crisis at all. The signs that we are getting from our clients and our deal pipeline are that this trend will definitely continue in H2 and 2021.


Several ECAs have responded to Covid-19 by unveiling new measures aimed at ensuring businesses can continue to export. How would you assess the impact of this support?

Muhammad: ECAs have reacted very quickly and swiftly on a number of different measures throughout the Covid-19 crisis. What is interesting to note is that they have largely done this on an individual basis, and not so much collectively. A lot of support, logically speaking from their perspective, was to ensure that they made liquidity solutions available to the exporters.

Some of the ECAs, such as UK Export Finance (UKEF), have increased their country limits for markets in Sub-Saharan Africa, which has been a very positive move and has enabled them to support exporters.

While ECAs have provided waivers to clients in the aviation and cruise ship sectors, which has given lenders the comfort that the ECAs are still there, they have not yet come up with new products for buyers, particularly in emerging markets.


Has this increased ECA activity changed borrowers’ attitudes towards ECA finance?

Kilic: We weren’t used to seeing large transactions with big ECA loans in the developed markets, but now we are seeing them, and I believe that this trend will continue, particularly as ECAs start to become more flexible and untied.

I have been doing project and export finance for over 25 years. During this time, I have often heard people say that ECA finance has become commoditised, and that it is a product for the most difficult markets. Once again, it has been proven that this is in fact not the case. ECA finance can be solution-oriented, and as a result of the current Covid-19 crisis, developed markets as well as the emerging markets and developing economies are benefiting from ECA finance.


Is there scope for the current landscape to bring about more innovative and creative structures in export finance with a greater number of stakeholders?

Kilic: The current situation certainly calls for creative thinking. Encouragingly, we already know that a collaborative approach is possible. One example of this was a recent transaction we carried out in Tanzania to fund the construction of the country’s Standard Gauge Railway (SGR). In this deal, we brought together the Swedish and Danish ECAs, development finance institutions (DFIs), and re-issuers behind them; and the beauty of that deal was that it demonstrated what can be done if commercial banks come together with DFIs and multiple ECAs, all under one umbrella, serving the interest of the customer.

We would like to see more ECAs replicating this structure whereby the funding and guarantee arms work together with the banks to lower the overall cost of the transactions.


Do you expect to see borrowers or exporters that are new to export financing coming into the market and making use of the product?

Muhammad: Absolutely. In times of volatility, ECA-supported financing is an in-demand asset class by both borrowers and lenders. We have already seen strong interest in ECA-supported financing from sovereigns, government related entities in emerging markets and large corporates in both developed and emerging markets.

ECAs have been making themselves more flexible, and that has allowed some borrowers to come in and start tapping the ECA product in a way that they have not done in the past. We are seeing some ECAs actively promoting untied financing, which makes the product more attractive to more borrowers.

On the exporter side, we are getting a lot of enquiries from exporters who don’t come from the traditional ECA markets. They are looking at the Tanzania-type structure and they want to understand how they can tap into ECA supported financing which may not come from their home ECA in the case that they feel that they can offer a better or more competitive solution to their buyers by tapping the other OECD ECAs.

We believe that these more customised ECA solutions will allow us to cover more transactions and increase eligibility of ECA support in projects, as well as provide value not just to the borrower but also to the exporters and contractors.

Kilic: We’re seeing a large volume of transactions for renewables and clean tech industries from solid blue-chip borrowers who regularly tap the commercial and bond markets. These clients have started looking at ECA-supported financing to try and complement their standard finance, as part of adding to their war chest to build resilience into 2021.


What more needs to be done by the ECA community to address the issues being faced?

Muhammad: We believe that the ECA community can introduce certain measures to address issues being faced particularly in emerging markets.

These could include a temporary or permanent amendments to certain OECD consensus rules such as allowing for higher local content as compared to the current limit of 30% of the export contract value, which would allow exporters to improve their competitiveness and reduce overall costs for buyers while promoting local industry development.

Second, ECA finance is currently limited to 85% of the export contract value, and we believe that this needs to be reviewed. From March this year, there was a liquidity crunch and a flight to quality, and this meant that it was difficult to obtain financing for the 15% down payment. If the ECAs had some flexibility to cover a larger proportion of the contract, that would significantly help borrowers in emerging markets in times of stress where commercial financing may not be available.

Third, although the OECD consensus allows for a differentiated tenor for renewable energy deals, for example, it does not have the same flexibility for sustainable finance. Projects involving hospitals, water and sanitation, which all fall within the sustainable development goals, are not covered by a separate definition. As a result, the maximum repayment term is limited to 10 years for sovereign borrowers. ECAs need to look at how they can support these projects by allowing flexibility in their repayment period.

Finally, we would like to see a differentiated approach in the ECA approval process driven by deal size. Currently, regardless of the size of a transaction, for most ECAs, the approval process is the same. If the ECAs implemented a shorter process for smaller transactions, it would allow banks to be able to look at more of them.

Kilic: If ever there was a time for more flexibility and exceptions, it is now. The whole market needs it. In developed markets, governments have taken very dramatic steps to support their economies by way of liquidity or guarantee programmes, but one very significant tool that is available to those governments is the ECAs. ECAs have done a lot so far, but we would like to see them doing more to help support the growth of trade, capex and infrastructure financing.