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Perspective
05 July 2023

ECA debt volumes up in 2023 – so far

Managing Editor
The ECA-backed debt market has witnessed depressed volumes since the turn of the decade amid the economic bulldozer of the pandemic and ominous energy security clouds hanging over Europe. But the uptick in Q1 2023 volumes has provided a bellwether for ECA business growth.

ECA-backed business is getting back to pre-pandemic deal volumes – albeit slowly. The volume of export finance transactions in Q1 2023 was significantly more buoyant compared to recent years. According to TXF Intelligence, in Q1, overall global ECA debt volumes totalled $29 billion – a year-on-year uplift of over $14 billion compared to Q1 2022 ($14.9 billion) and Q1 2021 ($16.1 billion).

The uptick in deal flow and volumes is expected to continue this year with a raft of export credits due to cross the financial line in H2, including one big-ticket project financing. From metals and mining deals in LatAm and the slow return of the cruise ship sector, to Korean offshore oil tankers and telecoms transactions, to African social infrastructure deals and defence contracts, there’s a multitude of active sectors and regions driving those volumes.

The recently depressed deal flow and volumes had been partly symptomatic of the pandemic and war in Ukraine which spawned a heightened risk perception around extending new export credits. Many emerging market buyers had since struggled to drum up the 15% down payment traditionally needed for an export financing given the stagnation of the private insurance market during the Covid crisis. But private insurance market capacity is increasing and the appetite for ECA debt is returning.

Some active borrowers have returned to the market to help drive the volumes of 2023. For instance, Reliance Industries via Reliance Jio Infocomm – historically a serial user of ECA-backed debt – is back in the market after a two-year hiatus closing a $2.15 billion EKN-covered loan to back the financing of telecoms equipment from Ericsson in March this year.

Reliance Jio is also in talks to raise a loan for about $1.6 billion to fund the purchase of equipment from Nokia, with financial close due by year-end. Banks involved include Citigroup, HSBC, and JPMorgan Chase. The loan will likely have a maturity of as much as 15 years and will be priced over the Secured Overnight Financing Rate (Sofr). Finland’s ECA, Finnvera, is expected to issue guarantees covering the majority of the loan. As the deal has not yet been finalised, the lineup of banks and the terms may still change.

Reliance Industries is also out to banks and ECAs to finance the procurement of a Floating Production Storage and Offloading (FPSO) vessel from a Korean shipbuilder, Samsung Heavy Industries. Mandates are due this summer with financial close expected by year-end. The debt package is around $700 million with a tenor of under 10 years, and Kexim is expected to support the deal with a pool of international and Korean banks.

Over in Africa, Angola’s Ministry of Finance signed a €1.29 billion (about $1.4 billion) Euler Hermes-backed loan to back construction of PV electricity distribution infrastructure last month. And there’s a handful of Ghanian MoF social infrastructure deals due – despite Ghana teetering on the edge of a sovereign default (EKN, ECIC and SACE are heavily exposed); while Senegal’s Ministry of Economy, Planning and International Cooperation is out to banks and ECAs to finance the development of its energy transportation and distribution network expansion. Senegal is no stranger to ECA debt and has, again, opted to tap Bpifrance for support in a deal expected to echo precedents in such transactions.

On the project finance front, the $2.9 billion ECA-covered loan to back ChemOne Group’s Pengerang Energy Complex project in Malaysia is now expected to close in the second half of this year. The majority of banks have been mandated with European and Chinese banks splitting large portions of the debt. SACE, Euler Hermes, CESCE and US Exim are all involved. The uncovered local bank debt portion continues to be the final piece of the funding puzzle, with bank commitments at $2.8 billion. ECAs will cover 90% of the total financing while banks from Thailand, Malaysia, and the Philippines have been mandated for the local portion.

Another sector poised to balloon is defence. Poland’s Ministry of Finance, for example, is tapping Kexim and K-Sure to cover a $20 billion deal to finance the procurement of defence equipment, in a deal said to be the largest arms export in Korean history.

A mix of European, Japanese, and Korean banks are said to be involved in discussions, including BNP Paribas, SMBC, Santander, MUFG, Mizuho, and Credit Agricole. Financial close is due this year. Poland is seeking to bolster its military readiness in light of Russia's invasion of Ukraine and it comes as no surprise the increase in global defence volumes – particularly in Europe – will continue apace.

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