Export credit agencies (ECAs) will play a key role in funding business deals in Gulf Arab states in the coming year as banks still recover from the global credit crunch, industry players observed. Over the past two years, ECAs have become an important prop for both project deals and major procurements. “The main financing component of an ECA that offers credit guarantees is the premium, i.e., the insurance for covering risk,” said a European banker specializing on the use of ECAs. “But that premium didn't really change during the financial crisis, unlike the cost of normal bank financing. ECA tenors are also more attractive for big capital spending projects, especially after the Dubai World problems, which arose from having constantly to roll over short term borrowing,” he added. Bankers said the credit crunch forced them to think about alternative ways to finance major projects. ECAs have also learnt to be more flexible in developing their own products. Ex-Im bank now offers a “take-out” option to buy back from commercial banks the loans that it had guaranteed, easing their liquidity risks. “In the financial crisis when certain windows closed off, there was a sense that the way to be prudent was to have a lot of different windows,” said Fred Hochberg, chairman and president of the Export-Import Bank of the United States, known as Ex-Im. “My sense is there is still that approach.” Before the financial crisis, Gulf clients frequently reacted dismissively to the idea of using ECAs in financing, say bankers who specialize in the field. Sometimes seen as “banks of last resort” because they may have a higher risk threshold, ECAs are government entities that support exports from their country of origin. Some, like Ex-Im, offer loans themselves. Others guarantee loans made by commercial banks. Hochberg said Ex-Im Bank lending today was up around 70 percent from 2006. In the Middle East that figure was more like 200 percent, he added. As a result of the increased numbers he is planning to visit the Gulf region in October. ECAs are less risk averse at the moment, say bankers, and they can sometimes offer more attractive pricing and, crucially, longer loan durations. “International bidders are more creative now about how to source long-term dollars,” says a banker working on Gulf infrastructure deals. “For example, GDF Suez took a big chunk from the US export bank as the lead arranger on the Riyadh power plant.” Ex-Im Bank contributed $400 million to the $2.1 billion-project on a 17-year tenor. South Korean and Canadian ECAs have also been involved in Saudi power projects in the past year. “We've seen borrowers are seeking to diversify their debt portfolio, so even entities that didn't need ECA financing are saying: ‘we'd like to have a blend of capital markets, debt markets, ECA and sovereign debt',” said Hochberg. On some aircraft purchases, it is also developing capital market transactions to help diversify the pool of funding, Hochberg said.
