A guarantee provided by UK Export Finance (UKEF) last month to Jaguar Land Rover went beyond the export credit agency’s risk limits and underwriting criteria, requiring it to obtain explicit government approval for the deal.
The UK government announced the Export Development Guarantee of up to £1.5bn in late September to help the carmaker secure working finance as it grappled with a massive cyber-attack that temporarily shut down production at its UK facilities.
Correspondence published by UKEF on October 27 shows that, in the days leading up the announcement, UKEF’s chief executive Tim Reid told UK Secretary of State for Business and Trade Peter Kyle that a guarantee would not be compliant with the agency’s exposure management framework.
“I am satisfied that the overall risk in relation to [Jaguar Land Rover] is acceptable, and that UKEF would receive adequate premium to compensate it for its estimation of that risk,” Reid wrote on September 25.
“However, the quantum of exposure that UKEF could be required to take on a single entity relative to the overall size of its portfolio is high and occurs at a time of great uncertainty for the firm; this would therefore fall outside UKEF’s normal underwriting criteria.”
As such, Reid required a written instruction should Kyle “wish to take a broader view”.
Kyle’s response the following day acknowledged the transaction exceeded UKEF’s “normal risk appetite”, but instructed Reid to provide the cover because the carmaker directly employs 34,000 people and a further 120,000 across its SME-heavy UK supply chain.
“I therefore instruct you to make the appropriate arrangements for the relevant support mechanisms guarantee to be put in place,” Kyle wrote.
The guarantee was announced on September 29. At the time, no loan to Jaguar Land Rover – owned by India’s Tata Motors – was in place, but the Financial Times later reported that HSBC and MUFG had agreed to provide financing covered by the guarantee.
HSBC did not respond to a request for comment from GTR, while Jaguar Land Rover declined to comment. A UKEF spokesperson said the agency had nothing to add beyond the published letters, but confirmed the guarantee had been signed.
UKEF has been a focus of the government’s attempts to support the UK’s export-oriented automotive industry, as it faces low-cost competition from Asia and US tariffs.
The cyber-attack on Jaguar Land Rover triggered an almost 36% drop in UK car production in September compared to the same month last year, according to industry data, offseting growth by most other manufacturers.
However, it is unusual for UKEF to seek a government instruction to go beyond its risk limits, and the move is typically reserved for large transactions that are linked to government policies.
The agency most recently took the step to allow a £9bn guarantee for the financing of air defence equipment for Poland. It also previously did so to hike the cover limit for Ukraine in late 2021, and then to keep that cover in place after Russia’s invasion the following year.
