Charles Carlson, global head of structured export finance at Standard Chartered, tells GTR why the export finance market must accept ECA direct lending facilities.
Export credit agencies are increasingly important in maintaining the flow of global trade, but Charles Carlson, Standard Chartered’s global head of structured export finance, argues that there is scope for many agencies to do much more beyond just providing traditional guarantees.
With liquidity currently more expensive, and banks soon set to face higher capital requirements, Carlson believes that there is an opportunity for more ECAs to increase their direct lending capabilities.
Despite some banks believing such a development would squeeze commercial institutions out of the market, Carlson suggests that it would complement rather than compete against the commercial trade finance providers.
Direct lending facilities would also help clients of the banks tap an additional source of liquidity, and therefore should be a welcome trend.
“I would definitely encourage – in a situation of limited and expensive liquidity and tightness of capital in the market – that ECAs should be direct lenders,” says Carlson.
Recent events in the credit markets have seen an upsurge in interest in the financing options available from ECAs. According to data analyst Dealogic, ECA guarantees accounted for 54% of the total global trade finance volumes in the first half of 2010. This figure is the highest H1 proportion since 1994 and up from 7% in H1 2009.
The Berne Union announced at its semi-annual meeting in Finland in July that it expects business volumes to increase during 2010. Last year, Berne Union members provided US$1.4tn of credit and investment insurance support.
The idea of supporting ECAs in their bid to offer direct lending may be one that is shunned by the majority of banks, but Carlson believes that those with a large, established network – such as Standard Chartered, which focuses specifically on Asia, the Middle East and Africa – will not be usurped by ECAs with an increased remit.
“There is an ongoing debate about whether ECAs should do more direct lending. Some of the banks are saying that if they do then clients won’t need the banks. And I would argue that that is true if you’re a bank that’s only in Europe – they don’t need you if you don’t have a network.”
Yet he maintains that there are certain criteria that a potential ECA deal should meet before being considered by Standard Chartered. That the deal is within the bank’s core focus markets of Asia, Africa or the Middle East – and then only with existing clients – is entirely essential.
“We will not go out and seek to do every deal out there simply because there’s an ECA,” says Carlson, adding that an ECA’s participation in a deal is part of a larger account plan.
As such, once Standard Chartered has closed an ECA deal, the bank’s team monitors the deal and the risks in much the same way as it treats a commercial transaction.
“We won’t do the deal because of the ECA. We will do it and monitor it as if there was no ECA cover. We’re already monitoring the client and have assigned a relationship manager, and so forth. If the deal doesn’t suit that particular account plan then we won’t do it.”
He adds that it is essential for ECAs to work with the banks that operate within established networks, so that they may be introduced to the banks’ clients there. As such, by encouraging deals, banks are in fact helping their clients create streams of revenue.
As the global trading model changes and emerging markets become major industrial countries in their own right, Carlson believes that the facilities used to support trade should echo this shift.
“I think ECAs should now not only support exports, but national interest as well,” he notes, adding that he is a “great supporter” of the untied programmes that ECAs such as Canada’s EDC offers. He also highlights Japan’s Nexi, Italy’s Sace and Korea’s K-sure as the handful of ECAs offering their clients “tremendous programmes” and doing an all-encompassing good job.
Moreover, Carlson recognises a geographic shift away from the traditional European-style export to the Asian trade corridors of China, Korea and Japan.
Carlson believes that these exporting markets provide a “new access” to trade – particularly China, which has become the world’s largest exporter. According to Carlson, China’s two policy banks – China Exim and China Development Bank – together with its official ECA, Sinosure, do “fantastic” jobs supporting Chinese interests all over the world.
As a result of the untied programmes facilitated in China as well as in Korea and Japan, and the ability of their ECAs to make use of direct lending, Carlson believes that the region will yield a steady increase in business volumes. “They have all the ingredients of where I see the future going,” he says.
“The trade corridors of Africa/China, Africa/India and China/Middle East are the growth trade corridors, and a bank like Standard Chartered is in a fantastic position to facilitate access to these markets because we’ve been there for such a long time. So it’s intra-trade within our core markets.”
As a sign of its commitment to working with ECAs, Standard Chartered has been closing a number of deals involving credit agencies from around the globe.
Just a few months ago, Standard Chartered joined China Development Bank in signing a US$1bn loan facility for Sonangol Finance, a subsidiary of Angola’s state oil company. The seven-year financing agreement will assist Sonangol in their plans for expansion.
“We’ve also recently done a power project in Oman,” says Carlson. “As advisor we raised US$3bn from Chinese banks, including Sinosure, China Exim and China Development Bank. This deal fits in very much with what we are doing.”
“We are pushing the more non-traditional business; more of the untied, national interest deals. Although we will continue to do some business as usual.” GTR
New hire in Beijing
Hai Hai Yuan has joined Standard Chartered as the regional head for structured export finance, based in China. Yuan leads a Beijing-based team and is responsible for delivering financing solutions for Chinese importers and exporters.
Yuan joined Standard Chartered in 2002 and has held roles across the bank’s network in Hong Kong and London, with responsibilities including relationship management, programme management and organisation development.
She most recently worked as director of the bank’s China franchise corporates and head of public sectors where she was responsible for marketing and deal origination, lead deal negotiation and client relationship management, with an end-to-end responsibility in financing structuring, documentation and risk monitoring.