On 3 June 2022 the EU adopted its sixth package of sanctions against Russia and Belarus. These prohibit the purchase, import or transfer of crude oil and certain petroleum products from Russia into the EU, as well as insuring and financing the transport, in particular through maritime routes, of Russian oil to third countries. Prohibitions include import or export advances and all types of insurance and reinsurance, including export credit insurance.
Newsletter
US EXIM renews supply chain finance for Boeing
(Global Trade Review, London, 1 June 2022) The Export-Import Bank of the United States (US Exim) has bolstered its support for the domestic aviation manufacturing industry, renewing a US$450mn supply chain finance (SCF) guarantee backing sales to Boeing. Under US Exim’s SCF programme, the government agency granted a 90% guarantee for a US$500mn facility from Citi, allowing the bank to finance payments
ECAs fill in SME trade finance support under Covid supply chain disruption
(Fintech & Finance News, Tunbridge Wells, 1 June 2022) Lack of trade finance for SMEs threatened to bring supply chains to a halt in 2020. SMEs play a critical role in trade – responsible for between 20 and 40 per cent of exports from OECD countries. When it comes to affordable trade finance, they face the biggest barriers, with more than half of trade finance requests by SMEs rejected, compared with seven per cent of multinational corporations’, according to the WTO. The OECD, reflecting on the experience of SMEs in the international supply chain during 2020, said short-term trade finance in all its forms (intra-firm financing, inter-firm financing, or more dedicated tools such as letters of credit, advance payment guarantees, performance bonds, and export credit insurance or guarantees) was critically hard to come by – but not because the cost to banks of providing that liquidity had increased. That forced SMEs to fall back on government agencies to stay in business: the Export-Import Bank of the United States, one of the largest providers of short-term government export support, for example, reported a 112 per cent increase in working capital guarantees and a 12 per cent increase in short-term export credit insurance during 2020. According to an OECD survey, 64 per cent of export credit agencies took measures that year to increase working capital support because private liquidity simply wasn’t forthcoming.
European Temporary Short Term Export Credit Aid Extended to Year End
(Lexology, London, 31 May 2022) On 19 March 2020, the European Commission adopted the Temporary Framework on State aid measures to support the economy in the current context of the COVID-19 outbreak. This included, amongst other forms of aid such as grants, advances, tax concessions, loans, etc., aid in the form of short-term export credit insurance… In just over two years after the Temporary Framework’s entry into force, the Commission will have enabled Member States to provide rapid and flexible support to companies affected by the COVID-19 crisis. The Commission has in fact adopted more than 1,300 decisions in the context of the coronavirus pandemic, authorising almost 950 national measures for a total amount of State aid estimated at almost EUR 3,200 billion.
Afreximbank mobilises $35b for African development and national ECAs
(Vanguard, Lagos, 15 June 2022) The African Export-Import Bank (Afreximbank) has mobilised a whopping $35 bilion for the development of the continent in the last 4-5 years, with significant support from Nigeria and Egypt. The Central Bank of Egypt has also partnered with Afreximbank to train several African bankers in many areas and Afreximbank was CBE’s choice to advise on the creation of a national Export Credit Agency (ECA), as a result of which Afreximbank has now been mandated to do the same in other countries.
Kuwait’s state oil company seeks JIBC insurance for $1 billion
(Reuters, Kuwait, 7 June 2022) The state-owned Kuwait Petroleum Corporation is seeking to borrow up to $1 billion from banks including HSBC and JPMorgan, according to a parliamentary document reviewed by Reuters. The Kuwait Petroleum Corporation is currently negotiating with the Japanese export credit agency JIBC to provide insurance cover for the financing that the corporation will obtain from a group of international banks, including HSBC and JPMorgan, with a value not exceeding $1 billion for a period of 13 years, The financing will be used for capital expenditure, including on oil and gas production.
G7 ministers pledge end to fossil fuel finance amid signs of backsliding on commitments
(Global Trade Review, London, 1 June 2022) Following talks in Berlin on May 27, G7 climate, energy and environment ministers issued a communique in which they promised to halt new public finance for the unabated fossil fuel sector by the end of the year, except in “limited circumstances clearly defined by each country that are consistent with a 1.5 degrees Celsius warming limit”. All G7 nations bar Japan – one of the world’s largest financiers of oil, gas and coal – made a near identical pledge at the Cop26 climate summit in Glasgow in November. [Japan however did join this recent G7 statement.] Data from Oil Change International show G7 countries have upped their exposure to fossil fuels since 2017, despite growing climate concerns. Between 2018 and 2020, they provided US$100bn towards oil, gas and coal projects through export credit agencies (ECAs) or development finance institutions – over four times their contribution towards clean energy. Western ECAs have broadly moved to cut their exposure to fossil fuels, with members of the OECD Arrangement on Officially Supported Export Credits formally banning support for unabated coal-fired power projects in late 2021, despite reported pushback from certain countries, including Japan and Australia, to the proposal.
UKEF named best sustainable finance ECA despite continued review of Mozambique LNG
UK Export Finance (UKEF), was named the world’s best for sustainable finance at the TXF Global Export Finance Conference in Lisbon on Tuesday.June 7 despite its continued promotion of a $1.5 billion LNG project in Mozambique.UKEF claims to allocate £3.6 billion to “sustainable” projects, or 49% of its £7.4 billion 2021/22 expenditures, defining them as clean energy, healthcare and critical infrastructure projects. Critical infrastructure however included £1.1 billion for Turkey’s 500 km electric railway, a lower-carbon alternative to current air and road travel, but hardly a “green” investment.Last autumn, Global Trade Review reported the government’s own inquiry into aid provided by the agency, which revealed that nearly 90% of the £12.3bn of support it committed in 2020/21 went to just nine companies. In terms of geographical spread, 92% of UKEF’s support in 2020/21 went to just 10 countries, with Qatar, Egypt and Mozambique together receiving nearly two-thirds of the total.
Lexology’s overview of ECAs
An interesting overview of official export credit agencies and activites. In 2020, the 10 largest MLT export credit volumes were from the ECAs for China (US$18 billion), France (US$12.1 billion), Germany (US$8.6 billion), Italy (US$8.4 billion), South Korea (US$5 billion), Sweden (US$4.7 billion), the United Kingdom (US$3.4 billion), Denmark (US$2.8 billion), Belgium (US$2.5 billion) and India (US$2.3 billion). [However],it should be noted that US EXIM, due to domestic debate on its role, was not able to authorise financings larger than US$10 million between 2015 and 2019. However, it is now reauthorised and can be anticipated to have increasing volumes in coming years. For example, in 2012, its total was approximately US$36 billion, whereas in 2021 its total was approximately US$1.8 billion. While down from 2020, this is reflective of the fact that, in 2020, US EXIM agreed to provide US$4.7 billion for the Mozambique liquefied natural gas (LNG) project alone.Loking at medium and long-term (i.e., over two years) (MLT) export credit volumes, which are most relevant to project financings, Atradius DSB on behalf of the Netherlands in 2020 provided US$1.9 billion of support, whereas Turkey provided only US$1.6 million of support, despite Turkey having a larger gross domestic product (GDP) than the Netherlands.
Berne Union reports uncertain trade credit insurance bounce back
(Global Trade Review, London, 18 May 2022) A more stable trade environment helped generate US$117.7bn in new medium to long-term trade credit insurance business in the second half of 2021, according to freshly released data, although soaring inflation threatens to undercut the bounce back. A data snapshot released by the Berne Union, the export credit industry association, shows the medium to long-term sector beginning to rebound from the pandemic, with the US$117bn of new business representing growth of 13% compared to the same period in 2020, but still 12% down on pre-pandemic levels. Short-term trade credit insurance has also notched up continuous growth – rising 14% on the second half of 2019 and 12% on the second half of 2020 to US$2.45 trillion. In a statement released following its spring meetings in Istanbul, the Berne Union says that growth of 12% across all trade insurance types in the second half of 2021, compared to the same period in 2020, is “somewhat complicated” by the gradual rise in inflation last year, in addition to “fluctuating” exchange rates.
