Export credit agency deals flourish

PUBLISHED : Thursday, 26 February, 2009, 12:00am
UPDATED : Thursday, 26 February, 2009, 12:00am

The number of export credit agency-backed financing deals in Asia is expected to rise further this year, after more than doubling to 20 last year, as bonds and syndicated loans become difficult to obtain during the financial crisis, Societe Generale says.

Commercial banks are adopting a 'flight to quality' approach as they face the liquidity crunch. This is prompting them to do only the safest deals, such as those backed by government guarantees, including those provided by export credit agencies, said Michelle Ling, the French bank's head of export finance for Asia.

'Syndicated loans used to take two months or less to close - now you are looking at three to six months,' Ms Ling said. 'Before, it was quite easy to raise US$2.5 billion. Now one is struggling to do even a US$1 billion deal.' With guarantees from the export credit agencies, 'banks are taking only the sovereign risk, as they are insulated from investment and market risk', she added. 'Demand for deals [backed by these agencies] will remain strong this year.'

ECA China Export & Credit Insurance (Sinosure) provided US$5 billion in investment insurance for the resources and energy sectors in 25 deals last year, up from US$9 million in 2004, Ms Ling said.

Owned by their governments, export credit agencies implement state policy goals by helping domestic firms execute trades and overseas acquisitions through guarantees and insurance for transaction risks.

Mainland state banks, relatively unscathed in the global financial crisis, have also been supporting overseas acquisitions by state enterprises. The most notable example is Aluminum Corp of China's US$19.5 billion offer to buy Australian mining company Rio Tinto Group and stakes in some of its prime assets. Other recent deals in Australia include China Minmetals Corp' US$1.7 billion offer for OZ Minerals; Hunan Valin Iron and Steel's 16 per cent stake in iron ore miner Fortescue Metals Group for US$770 million; and zinc producer Shenzhen Zhongjin Lingnan Nonfemet's US$29.8 million offer for 50.1 per cent of Perilya Mining.

Stephanie Clement de Givry, Societe Generale's co-head of natural resources and energy financing in Asia, said mainland state firms could 'cherry pick' overseas acquisition targets after resources and energy prices plunged and the credit crunch hurt rivals' ability to compete.