Challenges and Opportunities for Medium and Long Term Export Finance in the Middle East. Euro Finance Week, November, 17 th 2011

Transcription

1 Challenges and Opportunities for Medium and Long Term Export Finance in the Middle East Euro Finance Week, November, 17 th 2011

2 German exports to the Middle East significantly succeeded in 2010 and 2011 despite of major challenges and uncertainties The debt crisis of states, regions and municipalities all over the world undermines the fundamental trust in investments more political stability is needed Exchange rate volatility and inflation risk complicate the predictability for future cash flow projections, swap rates for currency hedges have significantly increased Access to MT- and LT-liquidity (especially in USD) is restricted to central banks and covered bond markets Rating downgrades for OECD countries have negative impact on the acceptance (and the respective pricing) for ECA-cover from Italy or Spain Impact of Basel III on lending and pricing of banks, especially for long-term loans cannot be estimated yet No "level playing field" for criteria, according to which international projects and their implications for environmental and social standards are assessed 1

3 The focusing of export financing activities of Commerzbank (SETF) The SETF team (45 specialists) offers the whole range of export finance solutions from straight-forward ECA-covered loans to complex individually structured financings Support to German/Western European exporters by using the export promotion schemes of all major ECAs (Hermes, ONDD, US-Exim, EKF, ekn, Atradius, Finnvera etc.) Relationships with foreign banks and selective corporates to structure up-to-date export-/ import-financing solutions (standardized: Basic Loan Agreements, Framework Agreements, Framework Cover, Revolving Buyer s Credit Schemes) Broad structuring expertise through sector-specific know how, e.g. metals, renewable energies, petrochemicals, medical equipment, agricultural machinery etc. (e.g. Nordstream Pipeline project) Advanced know how and economies of scale for LT-funding (Verbriefungsgarantie, KfW program, ELO Scheme, covered bonds) Experience in small ticket solutions (ILAs, purchase of ECA-covered receivables, Forfáiting, Fast-track-Scheme) Member in several committees and working groups supporting export finance (Inter- Ministerial Committee/IMA, Expert Circle of Hermes etc.) 2

4 Funding costs of German banks covered bonds vs. Senior unsecured ASW-Spread (in bps) Funding Advantage (in bps) Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Funding Advantage (Senior vs Covered) iboxx German Pfandbriefe iboxx German Senior Unsecured 0 Covered bonds under German legislation provide a substantial lower spread (on average 70 b.p., currently further increasing 3

5 Exports and ECA-cover in major (OECD) countries Country Exports 2010 as a whole Cover New ECA-Cover 2010 ECA-Exposure as a whole Rating* ratio ECA Acceptance Italy 337,9 10,4 3,1 32,2 A Sace France 392,4 20,0 5,1 60,0 AAA Coface Spain 185,8 7,3 3,9 15,2 AA Cesce Austria 109,2 1,5 1,4 4,9 AAA OeKB Switzerland 140,3 2,9 1,8 7,0 AAA SERV Belgium 310,5 7,4 2,4 18,7 AA+ ONDD Netherlands 371,7 5,6 1,5 9,0 AAA Atradiu s Luxemburg 10,6 0,3 2,4 0,7 AAA ODL UK ,4 1,1 15,6 AAA ECGD Finnland 69,5 52,5 3,3 6,2 12,0 AAA Finnvera Denmark 73,1 1,2 1,6 7,4 AAA EKF Sweden 119,4 12,6 10,6 22,4 AAA ekn Japan 581,2 26,1** 4,5 44,5** AA- Nexi/JBIC China 1.191,6 n.a. n.a. n.b. AA- Sinosure * Korea 352,1 10,2 2,9 29,7 A K-Sure USA 964,6 17,2 1,8 52,9 AA+ US-Exim Germany 959,5 32,5 3,4 76,4 AAA Hermes S&P Foreign Currency Ratings per October 5th 2011 ** based on 2009 figures. Source: CB-exhibit, CB Risk-Research, Annual Reports of ECAs 4

6 Export financing is no longer limited to emerging markets The demand for export financing from OECD and developing countries remains high: in short-term business with improved opportunities due to the return of private insurers in long-term business under Hermes cover (eg. USA, South Korea, Sweden, Spain) Russia, Kazakhstan and other countries rich in raw materials benefit from steady income, but prices are uncertain The Middle East is a major driver for German exports, but will increasingly need LT financial solutions Asian markets continue to show stable growth and consistent demand in 2011 (India, Taiwan, Hong Kong, Indonesia, Vietnam) Latin America and Africa offer many opportunities (Brazil, Mexico, ECOWAS, Angola, Gabon) OECD countries Near and Middle East BRIC Africa and Latin America 5

7 Dubai ranks already among the Top 10 countries with Hermes-cover 2009 / other countries show momentum as well New Hermes-covered volume in m p.a. > < 500 New transactions Hermes- covered 1 m sum Russia China Turkey Brasil USA South Korea Switzerland India Dubai Bermuda Saudi Arabia Oman Abu Dhabi Qatar Euler Hermes is acting as the German Export Credit Agency (ECA) German exporters benefit from the cover of EulerHermes acting on behalf of the German government to promote exports quality of cover is equal to the sovereign rating for Germany (AAA) Source: Euler Hermes Kreditversicherungs-AG / PwC 6

8 Challenges and Opportunities for Export Finance in the Middle East - I - - blue chip companies tend to source their financings directly (e.g. DEWA) - tier 2 corporates are very often highly deversified in different industrial sectors with a huge variety of subsidiaries (mortgage development, construction, production, trade etc.) - exposure of outstanding documentary letters of credit (l/c s) and standby letters of credit within a group is sometimes not known - consolidated and audited financial figures are still rare, major cash flow drivers are often not that transparent, working capital lines are normally financed on very short terms - cash flow projections in general are difficult to assess - sme s are often not that familiar with the financing requirements of foreign banks - ECA experience in local banks is rather low - sharia-compliant export financially is not common for minor ECAs 7

9 Export Finance Potential in Infrastructur Projects - Huge demand for infrastructure investments in the future (port, roads, power generation, fresh and waste water solutions, health care sector, transportation, tourism, warehouses etc.) - Growing importance as a trade hub related to up to date infrastructure - Major sports events upcoming (Football World Championships) - Whereas in the past dredging work was mainly paid on cash terms it is in the meantime a major driver for ECA-covered financing sourced in Belgium and the Netherlands (ONDD and Atradius cover) - Upgrading of Health Care sector shows attention for the people (see following slide) 8

10 Business Potential in the Health Care Sector - Demand for health care services remained rather stable - despite the crisis - Budget constraints and huge debt services may restrict the capacities of the public sector for capex in the health care sector in the near future - Regional budgets are often more burdened with the costs of the crisis then federal budgets due to their responsibilities for social costs - Equipment providing the newest features in diagnostics and therapy becoming more and more expensice (particle therapy) - Integrated health care solutions (turn key hospitals or, centers linked to science and education, up-to-date processing and operations) are more often requested then isolated projects (delivery of medical equipment only) - Private sector and international networks are expanding 9

11 Case Study: HERMES-covered Loan to a corporate in UAE - I - Borrower: Lender: Loan Agreement: Collateral: UAE corporate, consisting of various industrial companies The group was founded 1909 and is active in UAE since more than 30 years with a market share of approx. 70% in its core business. The main part of the production has been generating for foreign markets Commerzbank AG Export Contract Value: EUR 15 m. Loan amount: Disbursement: Repayment: Due date for first Repayment: Interest: Management Fee: Commitment Fee: between Borrower and Lender ECA-cover (Hermes and OekB), chattel mortgage (pledge) on equipment as additional guarantee up to 85 % of the export contract value + up to 100% of ECA-related costs for up to 85% of the export contract value directly to the account of the Exporter with Commerzbank against presentation of documents in 14 equal, consecutive semi-annual instalments 6 months after the Starting Point being the mean weighted delivery date Euribor / Libor + margin payable semi-annually in arrears to be payable within 30 days after conclusion of the Loan Agreement to be payable quarterly in arrears on the loan amount not yet disbursed Indicative Pricing all in (7y, EUR): EURIBOR 1.5 % p.a. or fixed rate plus HERMES-costs being aprox.2% p.a. = 5.00 % 5.5 % p.a. 10

12 Case Study: HERMES-covered Loan to a corporate in UAE - II - Financing Structure Site Visit September 2011 Germany Exporter 1 Export Contract Deliveries 4 UAE Importer/Borrower 2 Hermes- Cover 5 Disbursement out of the Loan 3 Loan Agreement 6 Repayment Commerzbank 2 Hermes- Cover ECA (e.g. Euler Hermes) 11

13 Case Study: HERMES-covered Loan to a corporate in UAE - III - nearly as good as a pledge 12

14 Nord Stream Pipeline A Spectacular Infrastructure Project Flagship project to secure Europe s energy supply designed for the supply of more than 26 million households Two parallel gas pipelines each km in length with an annual transmission capacity of 55 billion cubic metres of gas Estimated investment: EUR 9 billion Financed by a banking syndicate under the lead of Commerzbank regarding the part covered by Hermes (EUR 2.35 billion) Orders for deliveries and services to more than 20 German medium-sized companies amounting to more than EUR 2.4 billion Investors: Special Features: THREE financial advisors, EIGHT external consultants (legal, Insurance, environment, modelling etc.), ~ FOURTY loan- and collateral agreements, FOUR banking syndicates and TEN agents per phase, FOUR internetbased portals, more than FIVE THOUSAND s archived 13

15 Ralph Lerch Senior Vice President / Head of Export Finance Tel.: +49 (0)69 / Fax: +49 (0)69 / ralph.lerch@commerzbank.com Commerzbank AG Corporate Banking Cash Management & International Business Structured Export & Trade Finance Kaiserstraße Frankfurt am Main