KredEx 19 November 2014 Finnvera and Finnish Export Credit Anita - - PowerPoint PPT Presentation

KredEx 19 November 2014 Finnvera and Finnish Export Credit

Anita Muona Managing Director Finnish Export Credit Ltd

Finnvera plc

› Finnvera is a specialised financing company 100% owned by the State of Finland › Responsibility for the ownership and industrial policy steering of Finnvera is vested in the Ministry of Employment and the Economy › Finnvera promotes the SME sector, the exports and internationalisation of enterprises › Finnvera does not compete with commercial banks; it shares the risks with banks and supplements the financial services provided by the private sector › Finnvera’s obligations are guaranteed by the Republic of Finland › Finnvera’s operations shall attain self-sustainability over the long term

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› Finnvera and its daughter company, Finnish Export Credit are together Finland’s official export credit agency (ECA) › Finnvera provides export credit guarantees to Finnish exporters and financiers and covers commercial and/or political risks › Finnish Export Credit provides interest equalisation and financing for export and ship credits › Transactions to be guaranteed and financed shall contain certain Finnish interest requirements › Officially supported export credits shall fulfil the conditions laid down by the OECD Arrangement and the OECD Common Approaches Recommendation for environmental and social due diligence

Finnvera plc and Finnish Export Credit Ltd

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Export Credit and Environmental Risk Management

Structured Finance Trade Finance

Juhani Mononen Ritva Hara Eeva-Maija Pietikäinen

Underwriting

Legal Services and Commercial Recoveries

Business Support, Middle & Back office International Relations Foreign Risks and Political Recoveries

Pekka Karkovirta Raija Rissanen Heidi Dahlqvist Päivi Lehtonen-Palmqvist Tuukka Andersén

Topi Vesteri

Finnish Export Credit Ltd

Anita Muona

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Export Credit Guarantees and Financing Organisation

› Outstanding commitments EUR 12,5 billion 30.9.2014 › The largest sectors are telecommunications, shipping, forest industry, energy industry, and mining and metals industry › Export credit guarantees granted for exports to over 80 countries › the biggest country exposures are in the United States, Germany, Brazil, Russia, Spain and Uruguay

Export Credit Guarantees

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11% 8% 1% 24% 10% 1% 45%

Asia CIS (Commonwealth of Independent States) Central and Eastern Europe Latin America Middle East, North Africa Sub-Saharan Africa Industrialised countries

Export Credit Guarantees by Region 30.9.2014

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MEUR 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Offers Commitments

15 Biggest Country Exposures 30.9.2014

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MEUR 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 12/2012 12/2013 09/2014

Export Credit Guarantee Commitments by Sector 30.9.2014

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› A subsidiary of Finnvera plc › Finnish Export Credit promotes exports by enhancing the options available to commercial banks to arrange long-term export financing › by administering the interest equalisation system for officially supported export credits on behalf of the State of Finland › by financing export and ship credits arranged by commercial banks

› In several countries credits from Finnish Export Credit enjoy a more favorable tax treatment than credits from commercial banks, which means an additional cost benefit for the lender

Finnish Export Credit Ltd

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Financing of Export and Ship Credits 30.9.2014

› Export credit agreements EUR 5.1 billion › Offers EUR 1.8 billion › Applications EUR 4.1 billion

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200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000

MEUR

› The first temporary refinancing programme was EUR 2,5 billion › The Government decided to establish a temporary program for refinancing of export credits from the beginning of 2009 due to the outbreak of financial crisis at the end of 2008 › The temporary program was available for export and ship credit transactions applied for by the end of June 2011 › The second temporary refinancing programme was EUR 1 billion › In May 2012 the Government introduced a second temporary refinancing programme › The programme was available until Finnvera’s permanent funding scheme was expected to be operational; i.e. until October 2, 2013

Background of the Permanent FEC Financing Scheme

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Background of the Permanent FEC Financing Scheme

› The funding for the temporary schemes was provided by the State through State Treasury › The number of transactions financed was: › First temporary programme 12 transactions / EUR 2.4 billion › Second temporary programme 5 transactions / EUR 0.85 billion

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› Due to the Basel III regulations (tightened rules for capital and liquidity, matching of lending and funding) and continuing challenges for European banks in particular to fund long term export credits there was a need for a permanent financing scheme to secure Finnish exporting companies when bidding for export transactions › The Government proposed that › a permanent, internationally competitive financing scheme for export credits will be implemented › funding will be raised by Finnvera supported by a Government guarantee › In this permanent scheme commercial banks still have an essential role as arrangers and agents

Background of the Permanent FEC Financing Scheme (cont’d)

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› Legislation for the permanent financing scheme of EUR 3 billion came into force on 1 January 2012 › Permanent scheme replaces the temporary financing programmes › Legislation was amended in summer 2014 and the limits were increased as follows: › financing limit from EUR 3 billion to EUR 7 billion › interest equalisation limit from EUR 5 billion to EUR 7 billion › state guarantee for Finnvera’s funding from EUR 5 billion to EUR 9 billion › export credit guarantee limit from EUR 12,5 billion to EUR 17 billion

Limits under the Permanent FEC Financing Scheme

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› Finnish Export Credit manages the interest equalisation system associated with officially supported lending and offers a fixed CIRR- based rate for export credits › Advantages › The CIRR rate will be locked in upon the conclusion of the supply contract thus providing a known financing cost from an early stage until the end of the repayment period › The Government is responsible for the interest support (BIS 0 %) › Conditions › Credit currency is euro, the United States dollar or the currency

• f the buyer’s country

› Interest equalisation shall be applied for prior to the conclusion of the supply contract

Interest Equalisation

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› Principles › The commercial bank having a valid co-operation agreement with FEC will make a credit agreement with the borrower and provide financing for the export credit › The bank will administer the credit and the Finnvera guarantee (if any) › The bank will swap the fixed CIRR rate received from the borrower into floating rate receivable (Euribor/Libor) from FEC › The borrower will pay to the bank fixed CIRR rate plus a margin for the bank (if any) › The bank will pay fixed CIRR rate to FEC › The bank will receive a floating rate plus a spread from FEC

Interest Equalisation (cont’d)

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Interest Equalisation Offer Credit documentation and structuring, loan administration CIRR + Bank’s margin Co-operation and Interest Equalisation Agreement, Interest Equalisation Offer Swap Instructions and reporting Euribor/Libor + spread CIRR › IE management › ECA role › Government risk › Paying agent (swap) › Interest risk hedge

CUSTOMER (Supplier and Buyer) FINANCIAL INSTITUTION State Treasury

Interest Equalisation

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Rate fixed for 120 days Deliveries & Draw downs Swaps 6 months Supply Contract Credit Agreement Repayment period Borrower’s decision to use CIRR Lock-in Interest Equalis. Offer Interest Equalisation Agreement Starting point

• f the Credit

Handling fee for each renewal

€200 up to €75 million

€500 over €75 million Commitment fee 10 bp p.a.

Interest Equalisation Process

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› Finnish Export Credit grants financing for export and ship credits › Conditions › Credit currency is euro or the United States dollar › Fixed rate (CIRR) + margin / Floating rate (Euribor or USD Libor) + margin › Currently the commitment fee is 0.35 % p.a. for EUR and 0.40 % p.a. for USD › Financing shall be applied for prior to the conclusion of the supply contract › Requires always a 100 percent Finnvera’s guarantee

Financing of Export and Ship Credits

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Financing of Export and Ship Credits (cont’d)

› Requirements › Co-operation agreement and assignment agreement with the arranger bank › The arranger bank negotiates the credit agreement with consulting Finnvera, administers the credit and the Finnvera guarantee › Finnvera does not take documentation risk, although it has a major role in the documentation process

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Finnvera Buyer Credit Guarantee Supply Contract Credit Agreement

Buyer/Borrower Arranger Bank Exporter

15% down payment (20% in ship financing)

Security

Co-operation Assignment

FEC Financing - Stage 1

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Disbursement Repayment Residual Guarantee Co-operation Assignment Finnvera Buyer Credit Guarantee Supply Contract Disbursement

Buyer/Borrower Arranger Bank Exporter Security

Transfer of Credit Agreement Assignment of Finnvera Guarantee Repayment Credit Agreement Finnvera Funding

FEC Financing - Stage 2

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Latest news of Finnvera

› The Act on the Export Credit Guarantee was amended in autumn › Under the new provisions Finnvera can be a party to financing arrangements in domestic investments that benefit exports › This will make it easier for Finnish companies competing with foreign equipment suppliers to offer their products for investments of export industries in Finland › Eligible investments can include: › factory projects, projects aimed at improving the level of processing, and projects involving logistics and other areas of infrastructure that help to improve the operating prerequisites and competitiveness of export companies

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Latest news of Finnvera (cont’d)

› A further amendment to the Act on the Export Credit Guarantee will be give to the Parliament later this year › It will increase the possibility of risk taking by introducing a refinancing guarantee › The refinancing guarantee › Is an on-demand guarantee issued by Finnvera in connection with a buyer credit guarantee › is issued in favour of the refinancing institution, and › is payable to the refinancing institution upon default of the lending bank › The amendment is intended to enter into force in the spring of 2015

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Latest news of Finnvera (cont’d)

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Refinancing Institution Commercial Bank Buyer/ Borrower Finnvera

Buyer Credit Guarantee Refinancing Guarantee Agreement on Refinancing Guarantee Refinancing Repayment Refinancing Guarantee Disbursement Repayment

Thank you!

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