The telecoms sector has been making waves in the export credit market. Michael Turner discusses how the industry is managing to stay funded.


A pair of events has pushed export credit onto the radar of network and satellite operators. The first event was the global financial crisis. Though the aftershock of this is waning, the crisis caused a fundamental shift in the way that big companies financed their business. The crisis forced even some of the largest companies in the world, the Thales and the Nokias, to rethink how to diversify their fundraising options. The second event is the Arab Spring, which thrust the importance of 2G and 3G networks into the limelight. The Arab Spring brought the power of social media, largely accessed through mobile handsets, sharply into focus.

Now, more than ever, telecoms networks are seen by the more developed of the emerging countries as imperative to economic and social change.

Operator Vodafone even went so far as to imply that it was at least partially responsible for the January 2011 uprising in Egypt. An advertising agency affiliated with the mobile telephone operator posted a video online that juxtaposed images of the uprising in Egypt’s Tahrir Square with Vodafone advertising. The advert was promptly removed after widespread criticism from protesters, who felt even angrier because Vodafone had cut off its internet services during the riots after a legal demand from the Egyptian government. Vodafone Egypt distanced itself from the advert.

In countries with political instability, such as those involved in the Arab Spring, export finance is one of the sole funding streams available to companies. For mobile phone operators, the competition has never been fiercer to secure a healthy share in these new markets. Telecoms firms are finding that banks and export credit agencies have to streamline processes to keep
up with demand.

Step up, the ECAs
“The ECAs that are relevant to this sector are highly specialised,” says Emmanuel Galzy, head of the export finance transaction group at BNP Paribas.

“They know the risk of the sector and they are very professional in supporting their exporters. The application process is highly adapted. The rate for suppliers to provide equipment, and therefore financing needs, is much faster in telecoms than in other sectors.”

Both network and satellite operators have large and almost permanent requirements to raise funds for capex needs. And the capital equipment purchased is practically 100% eligible for export finance guarantees from ECAs, meaning that the telecoms industry and ECAs dovetail remarkably well.

Indeed, companies such as Ericsson are so integral to their respective countries’ economies that Sweden’s ECA EKN has spent years constructing the procedures and limits needed to make guarantee applications as swift as possible.

“It’s a big business line,” says Tomas Duffy, head of telecoms at EKN.

“In Africa, for example, we have issued approximately US$1.4bn in guarantees.”

In Asia too, the Swedish ECA is active in covering export finance deals. In May 2011, the agency backed a US$350mn tranche to Indonesian firm Natrindo Telepon Seluler.

The money was fronted by HSBC for the tranche as part of a larger deal that eventually reached US$1.2bn. Natrindo used the money to buy network equipment from Ericsson and China’s Huawei Technologies.

“In the two sectors (network and satellite), the evolution which has been noticed during the years of 2009 and 2010 is continuing with operators still taking advantage of ECA financing in both emerging and developed countries,” a spokesperson for Société Générale’s export finance team tells GTR.

French banks and France’s ECA Coface are a testament to this, as both are heavily invested in the industry. In the last year, Coface has been responsible for guaranteeing more than a staggering US$2.9bn in telecoms investments; both network and satellite. The largest of which came in October 2010 with a US$1.8bn cover for US firm Iridium Communications’ satellite constellation and also included both BNP Paribas and Société Générale.

Société Générale was also a lender alongside BBVA to a Finnish-backed deal to Telefonica in Q2, 2011, and jointly provided a US$375.8mn debt facility.

The 8.5-year loan was the first time that the French bank and FEC, a subsidiary of Finnvera, had teamed up for network financing. Telefonica used the funds to buy 2G and 3G equipment from subsidiaries of Nokia Siemens Networks.

The satellite financing business is a very competitive industry. The industry nestles in such a niche position amongst ECAs that the top 10-by-value deals signed in the last year have only called on the services of five agencies; Coface, Finnvera, EKN, Germany’s Euler Hermes and China’s Sinosure. The Export-Import Bank of the United States also made an appearance on the list, though as a lender rather than guarantor.

The list of banks involved in the satellite industry is almost as short. French banks make up most of the numbers, with BNP Paribas, Crédit Agricole, Natixis and Société Générale all competing for business. Other major industry players have active telecoms finance desks too, such as Deutsche Bank and Barclays.

The low number of banks involved means that those doing business in the industry have to be nimble enough to spot an opportunity when it is there.

“It’s a small world so banks that are active in this niche are very quick in identifying business opportunities when there is one,” says BNP Paribas’ Galzy.

“It’s always the same competitors around and this makes it competitive. On the other hand, there are not that many banks that have real experience or track record in satellite financing.”

Different global needs
The main driving factors for the competition other than speed of financing approval are tenor and price. For companies working in developed economies, particularly Europe, settling at a low price is more important than getting a longer tenor. In the mature European market, telecoms firms are extremely savvy to debt markets and come with a strong enough credit rating that if the price isn’t right on an export finance contract, they can raise funds elsewhere.

The average export finance loan given to a network operator in Europe matures in six to seven years. It’s not the longest that can be provided with export credit, but it is what is most commonly applied for in mobile phone networks.

BNP Paribas’ Galzy says: “It’s fractionally longer than what the operator could have access to on the commercial market, but only marginally.”

Société Générale’s spokesperson tells GTR that while there are other funding routes available, the debt market is still the most attractive for satellite firms. The spokesperson says: “In the communication satellite sector…when considering project finance structures, fund raising is the key driver and export financing is one of the preferred solutions with the active support
of equipment exporters.”

In emerging markets, getting a long tenor is one of the main drivers as the companies operating there cannot tap local financial markets for funds and so must rely on the international market to provide long-term loans. The deals in emerging markets also face being highly structured to spread the risk amongst lenders and insurance agencies, which pushes the price up.

“In the more difficult countries where the structures are maybe more demanding for the customer, there is a general understanding that ECAs are seeking stronger structures for the deals that we are guaranteeing,” says EKN’s Duffy.

“Obviously, the customers are meeting the same requests from financers and banks.”

While there is understandable caution, there have been very few defaults across the industry and considering the high sums loaned in export and project financing, the defaults have been relatively low. One of the biggest failures to pay came immediately after the global financial crisis when in 2009, network operator Zain Saudi Arabia defaulted on some of its commitments in a US$2.5bn Islamic finance murabaha loan. However, since then, defaults have been relatively few and far between. “So far we have been lucky. There have only been very minor defaults,” confirms Duffy to GTR.

The low defaults rate is both a testament to how specialised the risk models are at the relevant financial institutions and ECAs and an acknowledgement of how difficult it is for new operators to get funding via the export credit market. Only known entities with a solid credit rating can be certain that the export credit market is open to them, and while newcomers can still try, they will find it much more difficult to secure funding through export credits. The events of the past three years, alongside the growing middle classes of a number of powerful new global economies, will ensure that the telecoms finance business will continue to see a healthy demand through the industry’s organic growth.