with Søren Møller, Deputy CEO, EKF
Could you start by introducing the Export Credit Fund and its role as a partner to Danish business?
Export credit associations exist in almost every developed country in the world. It is an OECD phenomenon; we are regulated and there exists close collaboration between the export credit associations.
The EKF takes risk when exporters sell to customers outside the national borders. We mostly assist in financing transactions when a customer in a foreign country is looking to buy from a Danish exporter. First of all the Danish exporter may have to take some risk in entering into a business with this foreign company, and we can help them to do that. We can also help the company, the buyer, to finance the acquisition of the Danish export.
We do not help the exporter directly but rather indirectly by financing the buyer.
Since 2002, EKF has assisted around 1,000 companies with guarantees totaling in excess of DKK 70 billion (+- 10 billion Euros).
We have been helping exporters for many years, in line with globalization of Danish companies that set up shop all over the world. EKF has moved out with them and have helped them for many years to set up businesses and take the risk involved in setting up a business in a faraway country.
Nowadays developing new jobs in Europe and in Denmark is high on the agenda. We hence also try to help exporters that are actually setting up production facilities in Denmark with the purpose to export.
Over the past decade, EKF has seen a considerable change in the breakdown of our portfolio by type of debtor and risk. Previously, a large part of export credits were guaranteed by either a state or a bank in the recipient country. Today, the lion’s share of EKF’s business is subject to direct buyer risk.
At the end of 2012, 83 per cent of EKF’s guarantee exposure consisted of direct buyer risk in the form of businesses and project companies. This means that the commercial conditions in the recipient countries play an important part in EKF’s credit assessment.
Could you outline the role of EKF as a partner to the Danish energy sector?
We are working both with the renewables and the oil & gas side. The wind energy guarantee exposure rose from 40 per cent at the end of 2010 to 48 per cent in 2011 and 53 per cent at the end of 2012. The high activity in the wind energy sector is primarily attributable to strong demand for wind turbines in the OECD countries. Oil & gas represents about 10 percent of our exposure.
Energy is thus a huge part of our day-to-day life. Vestas and Siemens alone have more than 200 sub-suppliers in Denmark. It has quickly developed into a big & mature industry. Denmark has a long maritime tradition and has been working in the North Sea for decades developing new technologies. This combined with wind has provided the ability to expand on the offshore wind business. Over the past three, four years, much of our growth has come from the North Sea offshore wind sector.
Oil & gas represents roughly 10 percent of our exposure. Financing in the oil & gas industry historically has never been an issue. We see that it is getting slightly more in demand in certain areas in particular where risks are involved that are not with EU- or OECD- partners.
Welltec for instance looks for projects in places where financing is scarce. Then it is relevant to talk to EKF. But Statoil and other blue chip companies do not look at us for credit.
Could you outline the scope of the loan that EKF guaranteed to Petrobras in 2012?
Indeed last year EKF issued a loan guarantee totaling 500 million dollars to state-controlled Brazilian oil company Petrobras. With this loan, Danish exporters in the oil and gas industry will be much stronger positioned when going for orders in the Brazilian market, one of the largest in the world.
Petrobras has over the past five years invested around 12 billion DKK in Denmark and has been acquiring services & equipment from Danish exporters for a number of years. We saw an opportunity to come up with a new kind of EKF product for a major international player like Petrobras that allowed them to continue to buy from Denmark. We are very happy to have come up with a package that was of interest to Petrobras.
Petrobras of course is a huge company that rarely does transactions below 500 million USD. We came up with a credit card-like product that allows them to purchase services & equipment from Danish exporters. This kind of shopping line concept is something that we think will work well with oil & gas companies of such size.
We did the same with Pemex in 2008 and 2012 for a total of 200 million USD, which is for 8-10 years term. This is very interesting to them, because banks are having difficulties providing long-term financing; we are able to assist in this field. We can not only provide the guarantee cover but also fund the transaction.
We are in for the long haul and provide long-term facilities. Within the wind industry we provide up to 18 years of financing for corporate clients. At the moment many things are happening. The shale gas issue is having massive impact, also on the wind energy sector, as it even further increases the urgency of turbine manufacturers to build more efficient turbines. Their focus on reducing manufacturing costs is key to their ability to provide and keep their position in the market.
A number of European countries is having budgets issues, and since the renewables sector is very much leaning on government support, this will also have an impact.
We look at risk on a project-to-project basis, but also on a macro-level: where is the project situated, is the energy paid directly by the consumers or is it the state that pays it? This is a major difference.
EKF has a close dialogue with the energy industry. With over 60 percent of our exposure in the energy sector, this is of paramount importance.
Could you outline the international spread of your exposure?
Western Europe remains EKF’s largest region, accounting for 38 per cent of the guarantee exposure at the end of 2012. In Western Europe is still mainly in the wind energy sector, where demand was high in 2012. EKF believes demand in the region will remain strong over the coming years, reflecting the expansion of offshore wind energy capacity in Western Europe, since it is still difficult for private-sector banks to finance this expansion alone.
EKF’s guarantee exposure in the Americas increased in 2012, from 14 per cent to 23 per cent, making the Americas EKF’s second-largest region. In recent years, EKF has experienced strong demand in this region, especially in Brazil.
Asia/Pacific is EKF’s third-largest region, accounting for 21 per cent of the guarantee exposure at the end of 2012. EKF continues to see strong demand from the region’s wind energy sector, particularly in Australia and New Zealand.
Eastern Europe, including Russia and CIS, accounted for 10 per cent of EKF’s guarantee exposure at the end of 2012. Russia is one of EKF’s main markets, and EKF expects demand for risk cover in this country to remain strong.
The Near and Middle East, including Turkey, accounted for 7 per cent of EKF’s total guarantee exposure at the end of 2012. Turkey is EKF’s largest market in this region.
What are your plans with EKF in the coming three to five years?
Firstly, EKF will roll out Strategy 2016. We will do so in three stages. In stage 1 in 2013, the focus is on attracting more customers with EKF’s current solutions. EKF is to target new customer segments and simplify internal processes and procedures through standardization and streamlining.
In tandem with this process, EKF will embark on developing solutions for the future to ensure that in the run-up to 2016, EKF will still be able to pave the way for global growth for Danish companies. The objective is to double the number of customers. New customers are expected primarily to be small and medium-sized enterprises.
Looking at the energy industry, we have a very strong relation with them already today, and this will only keep on growing. The renewable energy business will continue to make up a massive part of our exposure. We will probably see that in terms with the globalization in the oil & gas sector as well, we will also see the EKF be more active in oil & gas as a whole. We can actually provide additional financing, security, insurance when doing business abroad.
Having said that, it is also fair to mention that EKF is a counter cyclical tool used by the government to assist in creating jobs in Denmark. That is why we are here. One of the reasons that we are so busy these years is that we see difficulties with the financial system and many things that are pointing in the wrong direction. That is where we will be able to assist with our solutions.
If global growth would go up again, we would probably not see that much business, because once growth gets going, financing is easy. We would most likely withdraw from our activities that involve providing securities to the banking sector. It would be healthiest for everybody if that part would disappear.