£5 billion Export Refinancing Facility launched to boost UK exports
1 May 2014 12:27 PM
UK Export Finance, the
UK’s export credit agency, has launched its £5 billion Export
Refinancing Facility.
The Export Refinancing
Facility (ERF) will enable UK-based exporters to offer competitive
long-term financing to overseas buyers who require loans in excess of £50
million to purchase UK capital goods and services.
See an infographic that
explains the new facility
The ERF is targeted at
project sponsors in emerging markets who need long-term loans to finance
investment-related capital goods and services for high value opportunities such
as large-scale construction or infrastructure development projects. It allows
overseas buyers to access the highly competitive funding of the debt capital
markets to refinance export finance loans after their initial funding by the
banks.
The ERF will support
UK bids for these projects which typically involve lengthy contract
negotiations. It is the first time this financing approach is being used for
civil project finance by an export credit agency.
Under the new facility, UK
Export Finance will guarantee repayment of bonds issued by the buyer to
refinance the initial loan. This will allow the bonds to be competitively
priced at a fixed rate, which takes account of the UK’s credit rating.
Should the borrower be unable to refinance the loan, UK Export Finance will
become the lender until alternative funding is found.
Trade Minister Lord
Livingston said:
Increasing UK exports and giving
UK exporters the support they need is key to our long-term economic plan to
promote sustainable growth. The Export Refinancing Facility will help British
firms succeed overseas by lowering the cost of finance for buyers who choose UK
companies for their major projects.
Richard Adam, Group Finance
Director at construction company Carillion Plc, said:
In an increasingly competitive
market, we are pleased to see UKEFlaunching this new innovative product
that complements their current toolkit and enables us to offer it to potential
overseas project sponsors in the future.
Irene Graham, Executive Director
of Business Finance at the British Bankers’ Association,
said:
The BBA’s export finance
banking specialists have worked closely withUKEF and HM Treasury on the
development of this facility and are pleased it is now launched. Competitive
pricing of UKEF-backed loans is key to UK exporters winning long-term
export contracts, and we are supportive of a flexible ERF scheme that
can further support long-term projects and finance options at competitive
rates.
The new ERF is part of
wider UK Export Finance plans to expand the ways in which it supports UK
exports. Another example of this is the enhanced £3 billion Direct
Lending Facility (DLF), also announced by the Chancellor of the Exchequer in
last month’s Budget.
The DLF will see UK
Export Finance lend directly to overseas buyers at the lowest interest rates
allowed by international agreements. This facility, which complements
the ERF, is expected to become operational by the end of June 2014. Given
the announced relaxation of eligible loan sizes, the DLF should be
more attractive to a wider range of companies including mid-sized businesses,
for whom UK Export Finance will be introducing specialised export finance
advisers in the UK in 2014.
David Godfrey, CEO of UK Export
Finance, said:
We are being more targeted and
innovative in our support of UK exporters. In particular, we are building
closer partnerships with banks and professional advisers to ensure UK exporters
have the full range of support available for export success.
Professional services firm KPMG
has worked with UK Export Finance on the department’s contribution to the
UK’s growth and enterprise agenda. Jeremy Barker, KPMG’s director
of corporate finance said:
KPMG has been working with UK
Export Finance to improve UK competitiveness in overseas markets. We believe
the launch of the ERF, along with other UKEF developments
announced in the Budget, will put the UK in the frame for major overseas
projects. Jon Coleman, Chairman of the British Exporters Association,
said:
BExA welcomes the launch of the
Export Refinancing Facility. This will help to ensure the availability of long
term financing to support exports of capital and semi capital goods exports and
overseas projects.
Notes for
Editors
- UK Export
Finance is the operating name of the Export Credits Guarantee
Department, the UK’s export credit agency and a government department. It
complements the private market by providing assistance to UK businesses,
principally in the form of insurance to exporters and guarantees to banks. UK
Export Finance works closely with UK Trade &
Investment (UKTI) to support UK export competitiveness and
growth.
- The information available on
the ERF at www.gov.uk/export-refinancing-facility includes: FAQs,
description of main features, high-level infographic of how the facility works,
eligibility criteria and application form.
- How ERF works: a
typical ERF deal would see a bank provide a $150 million loan to an
overseas buyer in order to purchase UK exports. The buyer will have the option
at any time during the term of the loan to request that UK Export Finance
guarantee a refinancing of the loan. This would normally be via issuing bonds
in the debt capital markets. The UK Export Finance guarantee of repayment of
the bonds will allow the bonds to be priced very competitively, taking account
of the UK’s credit rating. In addition, if the buyer is not able to
refinance the loan within the first year after the final date for its
disbursement in full (the disbursement of the loan is often spread out over 3
to 4 years) for example because there has been a crash in the financial
markets, UK Export Finance will undertake to take over the loan and become the
lender until the debt capital markets (or another funding source) becomes
available. If UK Export Finance takes over the loan in this way, a higher
interest rate will apply.
- Why ERF is needed:
following the 2007/8 international financial crisis and later the Euro crisis,
European banks experienced severe difficulty in funding medium and long-term
export finance in dollars. This was reflected in problems in accessing dollar
funding that adversely impacted the competitiveness of UK exporters. While
dollar funding pressures have eased as the euro crisis has ebbed, the main
obstacle for commercial banks entering into new export credits is the lack of
refinancing solutions. There is a continuing concern that a similar event could
occur that will trigger a bank funding crisis. ERF is therefore
designed to address past, current and future export finance
challenges.
- The intention to develop an
export refinancing facility was announced by the Chancellor of the Exchequer in
2012, with the 2014 Budgetannouncing
the ERF would go live in April.
- Exporters and overseas project
sponsors interested in the ERF can contact the UK Export Finance
business enquiries helpline, +44 (0)20 7271 8010.
- UK Export Finance has introduced
18 regional trade finance
advisers to give export credit advice to UK businesses. The number
will soon be increased to 24, including three dedicated mid-sized business
advisers, as part of a wider government initiative alongside UKTI to ensure
comprehensive export support for MSBs.