The willingness to take risks, and liquidity, have both increased in the private market. But in more difficult markets, EKN’s provision of guarantees is very often a precondition for new transactions taking place at all. During the year, we have been striving with undiminished energy to pursue our ambition to issue guarantees – even in high-risk markets. Compared to the previous year, the number of new customers has more than doubled.

Swedish exports have continued to flourish, in step with the favourable trends in the world economy. At the same time, the risk profile has generally improved, and that in turn means that the financing costs for buyers have fallen. This applies above all to EKN’s major and more important debtor countries, as well as for private debtors.

The generally strong world economy has not led to any weakening in the demand for EKN’s services, as happened in previous economic booms. On the contrary, the volume of offers increased during the year by over 30 percent to a total of SEK 50.9 billion. This is all the more remarkable, bearing in mind that the sums that EKN has paid out in premium repayments during the year have continued to increase from an already high level. Premium repayments are a right that the guarantee holder is entitled to in the event of pre payment of guaranteed credits. The occurrence of such early redemptions can be explained by good access to alternative sources of finance and risk coverage on the market on better terms than those offered by an EKN guarantee. Despite this, the demand for EKN’s services has increased.

Increased demand for African countries and Iran

The willingness to take risks and the liquidity in private markets means that EKN’s activities are increasingly focused on the more difficult risks. This is shown by the increased demand for EKN to collaborate in transactions in various African countries. In general, there has been an increase in the provision of guarantees within what is known as the GSL facility (providing guarantees for normally off cover countries). Another example is Iran, where for the time being the private market has limited opportunities to offer the risk cover demanded. For EKN’s part, a reduction in the volume of business with Iran is evident, but the actual number of transactions has doubled. For many exporters, EKN’s guarantees have been a precondition for doing business with Iran. The relatively large demand for risk cover for Iran, despite that country’s strong external trade balance, can largely be explained by concern about developments in that country’s relationships with the rest of the world.

Business sectors

In the telecom sector, EKN is playing a growing role in insuring risks for new entrants to the market. Very often, the companies that dominate this market have such high creditworthiness that they attract the interest of the private financing and insurance market. EKN has instead been able to support exports by taking on risks presented by new operators in established markets. This applies, for example, to operators in countries like India, Algeria and the Ukraine. The large proportion for the defence matériel industry relates to one single transaction.

More transactions

The number of guarantees issued during the year was 2,101, compared to 1,808 the previous year. The international distribution of guaranteed export transactions remains high. During the year EKN issued offers for exports to 102 countries and guarantees for exports to 95 countries. If we look at the number of offers – which best reflects the activities of exporters during the year in various markets – Iran tops the list. Sweden comes second, because of the large demand for counter guarantees to banks for contract guarantees in export transactions, in which EKN carries risks of recourse to Swedish companies. After that, there is a relatively large spread of risks across many countries.

Greater volume

If we look instead at the guarantee amounts, the international spread is not as great. As in earlier years, ten countries account for 80 percent of the volume of guarantees issued. Pakistan was the single largest country during 2006. The reason was a very large transaction to do with the sale of an airborne surveillance system. Other major countries include Russia, Saudi Arabia, Turkey, the Ukraine, China and Iran. To a large extent, the need for EKN’s involvement was because these were large transactions with elements of project finance, mostly in the telecom sector. This is the reason why even well-developed market economies such as Spain and Italy feature in the group of the ten largest countries.

During 2006, EKN issued guarantees to a total value of SEK 39.6 billion. The increase of 45 percent compared to the previous year is because of the Pakistan transaction.

Continuing demand for counter guarantees and basic guarantees

Interest in the counter guarantee that was improved in the previous year has remained high. We have also noted continuing increased demand for the basic guarantee, the simplified loss on claim guarantee issued to SMEs. As for the new products – the bill of exchange guarantee, the credit guarantee and the working capital credit guarantee launched during the spring – it is too early to assess the market demand. The marketing of the investment guarantee has had to take second place to the marketing of other products to SMEs. No new offers or guarantees for investment guarantees have been issued during the year,

New customers more than doubled

During the year, EKN issued offers in support of exports to a total of 192 exporting companies. Over and above these, there are also exporting companies behind letter of credit guarantees issued to banks. The 192 companies represent everything from large multilateral groups to companies with very limited operations. Of these companies, 74 were new to EKN. This represents more than a doubling compared to the previous year. The new exporting companies involved with EKN during the year are mainly SMEs. They are the target group for the intensified marketing efforts made by EKN during the year. On the marketing front, the previously initiated collaboration with Almi was further expanded during the year. Four Almi regions began during the year to issue EKN’s counter guarantee. Subsequently several other regions have joined in as resellers. There are plans to expand the product range, and all 21 Almi regions throughout the country will be able to arrange these.

Opportunities for difficult risks

As part of the effort to maximise support to Swedish exporters within the set restrictions for issuing guarantees, EKN has for a number of years been developing guarantees for normally off cover countries. This means that there are covers for transactions where the exporter can demonstrate good experience with transactions in the country, and where other individual risk-improving efforts can be demonstrated, for example clear import priorities in the host country or the certainty of receiving export revenues. The number of guarantees for off cover countries issued during the year increased sharply from 15 to 58, for exports to Cuba, the Ivory Coast, Angola, Libya and Nigeria. The total for such guarantees increased by 60 percent, to a total of SEK 135 million, of which two-thirds related to exports to Cuba. Against the background of the good experience that EKN has had for several years in this business, EKN has been able to offer more favourable terms, such as lower premiums and larger guarantee amounts.

Increased premium income with lower premium levels

EKN’s premium income rose strongly during 2006. For several years, premium incomes have been in the range SEK 0.5 – 1 billion annually. In 2006 they were just short of SEK 1.6 billion – the highest ever in EKN’s history. The main reason was the transaction in Pakistan. If the premium income from the guarantees for the Pakistan transaction is excluded, premium volumes are largely unchanged compared to the previous year. This is despite the fact that premiums are lower in many markets.

The lowered premiums are due mainly to EKN’s country risk classifications. During 2006, country risk classifications were improved for 21 countries, resulting in lower premiums. Only two countries were given a less favourable country risk classification. This is the continuation of a trend that has been going on for some years. This can be seen from the map, which also shows the changes that took place during 2004-2005. During these years, EKN upgraded 28 countries.

The upgradings that have taken place are geographically well spread, and not concentrated in any specific region. In fact, this favourable trend in risks can be linked to the historically high international commodity prices for oil, metals and agricultural products. In general, this has also been very positive for trends in the risk markets, where EKN has its key task.

Added to this, during the year EKN reviewed its setting of premiums for guarantees for unfair calling, and this has in general led to lower levels of premiums. Furthermore, the setting of premiums for transactions with high-risk countries has become more flexible, and the premium levels have fallen.

Another factor that has created a more favourable situation for Swedish exporters is the increased use of matching, with the aim of levelling out premium differences compared to other countries’ export guarantee agencies.

Increased follow-ups of transactions with environmental impacts

During the year, EKN participated actively in the work to revise the OECD’s Recommendation on Common Approaches on environmental and officially supported export credits. Examples of issues, which EKN has worked for are the further harmonisation of work on environmental issues among export guarantee agencies, stricter procedures for systematically following-up environmental issues in transactions already entered into, as well as increased disclosure.

EKN has also maintained an ongoing dialogue with respect to environmental issues with several environmental organisations, exporters and banks.

During the business year, EKN has also continued to develop its internal environmental procedures. During the year, procedures for monitoring environmental issues in transactions already entered into have been introduced.

The aim of the environmental monitoring is to assess whether the environmental issues have been handled in line with what the guarantee holder stated in his application. Two hydro power projects, Three Gorges in China and Nam Theun 2 in Laos, have been monitored. These have included a review of documentation, interviews with staff on the project, and visits to the project sites. According to EKN’s assessment the environmental issues in the projects are generally being handled in line with what was stated in the application documents.

In line with its environmental procedures, EKN classifies all medium- and long-term export transactions in the categories A, B or C, depending on the presumed environmental consequences of the project. Category A signifies a major risk of a negative impact on the environment, B a lesser, C a minimal or no impact of the environment.

The majority of transactions with medium- and long-term credit periods guaranteed by EKN during the business year fell into the C category – in other words they were judged to have minimal or no environmental impact. No transaction was classified in category A, while two were in category B. The table below gives a short account of the transactions in category B.

Heavily Indebted Poor Countries

Ever since 2002, EKN has had a policy on unproductive expenditure in Heavily Indebted Poor Countries (HIPC), based on an agreement in the OECD. The objective is to restrain State borrowing or State guarantees of loans on commercial terms for investments that are not commercially viable. EKN has formulated a policy, stating that EKN will not participate by guaranteeing credits if:

• the country has restrictions relating to commercial borrowing in its IMF agreement
• the project/investment is not commercially viable
• the project does not conform to the country’s poverty reduction or debt strategy, or
• the project exacerbates the country’s social and/or economic development.

During the year, EKN guaranteed 108 transactions to 19 countries covered by this policy. Most of these 108 transactions were made with private debtors, and are not covered by the policy. In the handful of transactions with State purchasers, the transaction has either been too small (less than SEK 25 million) to be covered by the policy, or has been financed by development funds, or has been the reinsurance of a transaction from another guarantee agency that has accepted the OECD principles on unproductive expenditure.

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