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Commercial banks in the US have welcomed plans from the country’s export credit agency to create a new domestic financing programme, as the White House works to strengthen America’s role in global supply chains.

In recent weeks, the Export-Import Bank of the United States (US Exim) concluded the feedback gathering stage for its new domestic financing initiative, which would boost its ability to support manufacturing facilities as well as vital infrastructure projects, such as ports, on American soil.

Historically, US Exim’s medium and long-term loans and guarantees have been reserved for helping domestic exporters win contracts with buyers overseas.

But in the request for comments, published in mid-December, the agency details plans for creating a programme that would allow domestic projects to secure US Exim financing so long as they have an “export nexus”.

The move comes a little over six months after the White House directed US Exim to explore such a proposal, one of many recommendations in a sprawling report aimed at revitalising American manufacturing and securing supply chains for critical goods such as semiconductors.

While the programme’s parameters are at this stage hypothetical, US Exim suggests funding would be made available both for new projects and existing ones looking to expand, so long as they have an export nexus of between 25 to 50%.

This nexus would be based on either output or capacity: for instance, at least a quarter of goods produced at a factory, or 25% of traffic at a port, would need to be destined for export in order to qualify for US Exim support.

At the same time, projects that indirectly prop up exports may also be able to secure financing through the programme.

If an American company sells half of its output to another domestic business, which in turn uses 50% of the supplier’s inputs for exports, this transaction would meet the 25% threshold.

Commercial banks that offer export finance have roundly praised US Exim’s mooted new initiative and say it will help the agency compete with rival ECAs, such as UK Export Finance, which has already rolled out more than a billion pounds-worth of support to large corporates – such as Ford and Jaguar Land Rover – through its domestic financing equivalent.

“We view US Exim’s domestic financing programme as a welcome addition to its capabilities,” says Lynee Bradley, North America head, export and agency financing, Citi treasury and trade solutions.

“It is consistent with those offered by other OECD ECAs such as UKEF’s export development guarantee [EDG] programme, and will greatly expand the type of industries and opportunities that US Exim can support,” she tells GTR.

Pat Gang, global head of export and agency finance, global trade and supply chain finance at Bank of America, likewise says it seems like an “excellent initiative”.

“The parameters will need to be refined a bit further to avoid any legislative hurdles, but it’s a solid start,” Gang tells GTR.

Gang says the 25% export nexus would establish a higher bar than domestic financing programmes rolled out by other ECAs, and adds the lender has “certainly requested more flexibility on this across the board”.

Many ECAs require a minimum of 20% content under their domestic financing programmes. UKEF’s EDG is available to companies that have generated 5% of their turnover from UK exports in each of the last three years, plus at least 20% of their turnover in one of those years.

Nevertheless, Gang says under the current proposals many projects in the US would qualify for domestic financing given the country’s large manufacturing and exporter base.

He adds there might be certain sectors where US Exim could potentially consider offering support at a lower threshold, such as those included within the agency’s China and Transformational Exports Programme.

 

No fears of crowding out

With US Exim having intimated pricing under the programme will be linked to market benchmarks, commercial banks say there is little risk US Exim will crowd them out from projects at home.

Support provided through the initiative would not be officially classed as export financing, and so would not be subject to terms and conditions included within the OECD Arrangement.

US Exim says financing would have to comply instead with the ECA’s own budget and World Trade Organization (WTO) rules. In other words, transactions would have to break even and the agency would be required to provide “market” pricing.

US Exim says in its call for comments that it would largely look to use a direct market proxy, whereby it would lend on identical terms and conditions as part of a syndicate, price using issuer specific credit default swaps, or by means of comparable public bond information.

“We do not anticipate a great deal of arbitrage for price vs other commercial sources,” Gang tells GTR.

In a January letter sent to US Exim during its consultation phase, Raj Daryanani, director of export finance at BNP Paribas, suggests the programme will be a boon to the private sector.

“The ongoing movement to onshore productive capabilities in the US, coupled with the paradigmatic shift to lower carbon emissions in all economic activities, will result in a vast amount of capital expenditure. Project sponsors will be required to access an array of capital sources from the private and public sectors,” he writes.

Daryanani adds that US Exim’s participation in large cross-border projects has previously had a multiplier effect, luring in greater levels of private sector capital – both debt and equity.

“It is reasonable to assume that Exim involvement in domestic projects will have a similar multiplier effect, with Exim acting as a partner to the private sector.”