Export credit agencies – flying high in the Middle East

As the global economy recovers, the role of export credit agencies in facilitating trade flows in the Middle East is more important than ever. by PIERS CONSTABLE, director of Deutsche Bank’s structured trade and export finance for the Middle East and Africa.

The World bank’s global economic outlook for 2010 points to a trade resurgence. In recent months, quarterly growth rates have moved into positive territory and world exports are anticipated to rise by 3.8% in 2010, and by a further 6.9% in 2011. In particular, the Middle East is once again set to ramp up its investment, with growth in imports anticipated at 4.9% in 2010 and 6.6% in 2011. but the overall strength of the recovery and its durability will be dependent on the adequate supply of trade finance. It is here that the official export credit agencies (ECAs) can take the lead.

Middle Eastern corporates have not traditionally been major users of eCa finance or guarantees, being able to source financing in the private market. yet the financial crisis has severely reduced the private market’s ability to provide trade finance (the IMf recorded an 11% fall in availability in 2009) thus reducing trade volumes and threatening the spike in demand caused by the recovery. This lag in the supply of trade finance is a classic element of the later phase of a recession, especially with respect to big-ticket capital goods imports. It is also a cue for ECAs to become more involved in breaching that gap.

The major ECA players (predominantly located in Europe and North America) are all tied, directly or via a mandate, to their national governments. These private or quasi-governmental institutions exist to offer insurance, financial guarantees or export financing on capital goods and equipment. agency-backed financing entails bank-supplied loans to exporters and importers being covered by the export credit agency on an insured or guaranteed basis. This gives the exporter a certainty of payment and the importer usually improven, or at least extended, payment terms. In past periods of financial uncertainty, the reduction in the effectiveness of the capital markets in providing trade finance has always been a classic trigger for ECAs or other government-related or supported entities to step in and act as the insurer or guarantor of last resort. This recession has been no different.

And given the uncertain market conditions in the past 18 months, many Middle East deals have been almost impossible to structure using private-sector financing or insurance. subsequently, ECAs offer the only alternative and indeed have significantly expanded their capacities.

Certainly, major Middle Eastern corporates have been keen to access ECA-offered financing. This includes in wealthier Middle Eastern states such as the YAE, Saudi Arabia, Bahrain and Qatar. here the focus is inevitably on heavy investment in infrastructure as well as residential, corporate and industrial developments – as they face renewed population and commercial growth in the coming year. Moreover, the Islamic Development Bank estimates that Arab countries may need to invest up to $200bn over the next decade to meet demand for water and sanitation. These projects require big-ticket imports of capital goods, often from europe or the us, and are thus eligible for eCa backing. Indeed, one uae-based deal to recently sign was the dubai electricity & Water Authority’s (DEWA) successful closing of a $1bn multi-ECA backed financing (negotiated by Deutsche Bank in a syndicate of four) in support of its ongoing and future capital expansion. The deal has a maturity of 13 years – allowing bank loans to the uae to go beyond 10 years for the first time in recent years. It is supported by guarantees from european ECAs Coface (France), hermes (Germany) and SACE (Italy).

ECAs are vital in their role of providing long-term (10-15 years) credit solutions – a necessity for big infrastructure investments. due to government support and the resulting aaa rating they receive, ECAs are in many cases more than willing to secure long-term debts, thus reducing risk and appealing to banks in optimising their balance sheets.

ECA financing is also proving vital to the airline industry. Last year proved to be a record one for ex-Im bank as the ECA guaranteed $8.6bn of loans financing 150 commercial aircraft. similarly, the UK’s export Credits Guarantee department guaranteed around $2.44bn and is set to play an even bigger role in 2010, estimating that it will support around 30% of airbus sales. such support is important to the Middle East-based airlines. Deutsche Bank concluded an ECA-financing for the purchase of eight airbus aircraft by Gulf Air, Bahrain’s national airline. The future trend will continue towards group ECA-lending, as even the largest ECAs struggle to cover larger project finance deals single-handedly. Indeed, as trade recovers, speed has become of the essence for Middle east importers as the future may see ECAs becoming increasingly selective in what deals they decide to participate in.

 

Export Credit Agencies:

Recent Successful Deals

Borrower Dubai Electricity & Water Authority (DEWA)

Country UAE

Amount $1 Billion

Tenor 13 Years

Loan Purpose Ongoing and Future Capital Expansion

ECAS COFACE (France), Euler Hermes (Germany) And SACE (Italy)

Banks Deutsche Bank, CALYON, Citi And HSBC

Status Signed May 2009

 

Borrower Etihad Airways

Country UAE

Amount $233 Million

Loan Purpose to Purchase Two New Airbuses

ECAS ECGD (UK), EX-IM BANK (US)

Structure the Airline Has Signed A $1.3bn Loan Agreement With The European Export Credit Agencies And Us EX-IM Bank for Boeing And Airbus Deliveries This Year And Next. The ECAS and EX-IM BANK Will Look At Financing the Aircraft As They Deliver

Banks HSBC, LANDESBANK BADEN-

WUERTTEMBERG

Status Signed October 2009

 

Borrower Al Jaber Aviation

Country UAE

Amount Not Disclosed

Tenor 10 Years

Loan Purpose to Purchase Airbus Planes

ECAS EULER HERMES, COFACE AND ECGD

Structure a Loan Coverage Of 80% Of The Cost of Aircraft plus The Outfitting Costs

Banks HSBC

Status Signed December 2009

 

Borrower General Electric/Al Dur Water & Power Company

Country Bahrain

Amount $230 Million

Tenor 10 Years

Loan Purpose to Build A 1,234-Megawatt Combined Cycle Power Plant and A 48 Million-Gallons-Per-Day

Drinking Water Desalination Facility On Bahrain’s Southeast Coast

ECAS EX-IM BANK

Structure the Al Dur Project Was To Be Financed By A Private $1.5bn Commercial Debt Facility. However, In The Face Of Tight Global Liquidity, Private Banks Reduced Their Participation In

The Project And Switched From Long- To Medium-Term Financing That Will Need A Refinancing During The First Five Years Of Debt Repayment. To Help Fill The Gap, EX-IM Bank Is Extending A 10-Year Loan And The Korean Export Insurance Corporation (KEIC) Will Be Making A Shorter Term Loan Of $275m

Status Signed August 2009

 

Borrower Emirates Airline

Country UAE

Amount $413.7m

Tenor 11 Years

Loan Purpose Three New Boeing 777- 300er Aircraft

ECAS EX-IM BANK

Structure Public Bond Offering – A Fixed Rate Coupon Of 3.465% Per Annum Are Due 21 August 2021 And Are Payable In Installments of  Principal And Interest On A Quarterly Basis.

Banks Goldman Sachs And  Calyon

Status Signed October 2009

 

Borrower Emirates Airline

Country UAE

Amount $1.13 Billion

Loan Purpose for Six Aircraft That are Part Of A Firm Order For 53 A380s.

ECAS 3 Aircraft Guaranteed By

European Export Credit Agencies Led By COFACE

Structure The Six Aircraft Were funded By Two Separate Finance Agreements, Including The Three Aircraft Financed By Citi. The Other Three Aircraft Were Arranged By Doric Asset Finance and Funded In the German KG market.

Banks Citi, Doric Asset Finance

Status Signed December 2009,Deliveries Ongoing

 

Borrower Dolphin Energy Limited

Country UAE

Amount $4.1 Billion

Tenor 10 Years

Loan Purpose The Total Amount  Raised Through The Refinancing Will Be Used To Repay The $3.45bn Loan Secured In 2005, Provide 70% Of The Construction Costs Of The 240km Taweelah-Fujairah Pipeline And Pay For The Financing Fees Related To The Refinancing.

Ecas Sace

Structure In Late April, Dolphin Secured Financing Commitments Of  $3bn From 25 Financial Institutions. These Commitments Comprised $2.6bn From Local, Regional And International

Financial Institutions Participating In The Commercial Bank Facility And $400m In Export Credit Financing Insured By The Italian Export Credit Agency Sace.

In Late July, Dolphin Priced Its Debut Project Bond Issue Which Generated A Strong Investor Demand Globally, With An Order Book Of $4.7bn. Dolphin Raised $1.25bn From The Bond Market Which Has Allowed A Scale Back Of The Commercial Bank And Sace Facilities To $1.4bn And $218m Respectively.

Additionally, Total And Oxy Are Colending Approximately $1.2bn To The Project. All Of The Debt Facilities Are Fully Amortizing Over 10 Years, And The Total Debt Package Is $4.1bn.

Borrower Wataniya Palestine Telecom (WPT),

Country Palestine

Amount $85 Million

Loan Purpose To Support The Next Phase Of Its Mobile Telephony Network Build-Out.

Structure Senior Secured Syndicated Facility Loan

Lend Ing Banks Bank Of Palestine Plc, Quds Bank, Commercial Bank Of Palestine Limited, Ericsson Credit Ab, International Finance Corporation, And Standard Bank Plc.

Guarantors Exportkreditnämden, The Swedish Export Credits Guarantee Board And Guarantco, A Specialist Guarantor Of Infrastructure Financing In Low-Income Countries

Status Signed February 2009