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Banks vacating infrastructure financing
14-12-2009
ATI ASIA2010 Magazine
SYDNEY — The Global Economic Crisis has seen Australia’s export credit agency, the Export Finance and Insurance Corporation (EFIC), adopt a higher profile in providing financial backing for Australian suppliers to offshore infrastructure projects.
As some foreign banks have withdrawn from the offshore infrastructure market because capital is required in their home countries, EFIC has been supporting both small and large Australian suppliers with a clear export link in their financing needs.
Peter Field, EFIC’s Executive Director, Origination and Portfolio Management, describes infrastructure financing as “a space that has been vacated” by some traditional players. “For the first time in many years, some projects have failed to attract finance,” he says, adding that banks and other financiers have also been reducing the tenor of their lending activities in response to the difficulties that they face in raising longer-term funding.
So while many emerging infrastructure projects are being driven by Government stimulus programmes which generate great opportunities for Australian exporters, the difficulty they face in raising the necessary finance is limiting their ability to bid and win valuable business. In concert with Australian banks, EFIC has been stepping in to help with working capital needs, including pre-shipment financing and bonding requirements.
“We have seen increasing demand in the infrastructure sector, and we think a domestic market gap has emerged, so we stepped in to support our exporters and contractors to export projects until liquidity returns to a more normal level,” says Field.
“Even at the top end of town, there have been limits to the capital available for high-quality credit risk,” Field told ATI. “While credit markets were most constrained in the last quarter of 2008 and the first quarter of 2009, and liquidity is definitely improving, there still remains a gap in available funding relative to demand”.
Earlier this year, EFIC supported the Leighton Group, now the world’s largest contract miner, with financing to assist delivery of a number of mining services contracts in Indonesia. EFIC entered into a direct loan agreement with ANZ to provide up to US$150 million to finance 85 per cent of a leasing facility for Leighton’s Indonesian subsidiaries, PT Leighton Contractors Indonesia and PT Thiess Contractors Indonesia.
The facility supported leasing of mobile mining fleet and equipment in contract mining operations. Growth in Leighton’s Indonesian operations had created a need for expansion of the mining fleet and related equipment.
Field points to the transaction as an example of how EFIC has been able to respond to the tightening of credit conditions in capital markets. “Leighton had raised capital in the bank, bond and equity markets to finance an ambitious expansion programme” he says. “We were pleased to be a part of that funding programme to assist in what was a good export contract for Australia.”
In the area of general trade credit, SME inquiries to EFIC have this year increased by a multiple or two-to-three. Demand is strong for credit risk products, with a noticeable increase in requests for bonding lines.
“The sharp contraction in inventory levels in late 2008 has been followed by inevitable restocking since the middle of this year. That makes the data difficult to interpret, when looking for underlying trends, although it seems that the contraction in trade credit markets was a response to weakened demand, rather than the cause,” says Field.
The good news, he says, is that the cost of credit for Australian banks is easing and, as a result, some of that benefit will flow to end-users as competition strengthens.
His advice to exporters in the current climate is to work closely to strengthen the relationship with their existing banks, to satisfy their financing needs. “If further support is needed, give us a call,” he says.
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