Large corporates
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Large corporates need EKN’s involvement at an early stage, in order to create stability and the preconditions for financing.
Photographer: Aytunc Akad/Silver Photo
The demand for offers from EKN has remained high. EKN are involved at an early stage, but not necessarily once the deal has been agreed. Exporting has continued to go well for large Swedish companies.
As in recent years, the private sector’s liquidity and willingness to take risks has remained high. Financing costs have fallen for many purchasers of Swedish exports. As a result, a greater number of export transactions have been possible without EKN’s involvement. Another consequence is that an increasing number of loans guaranteed by EKN have been paid off early. But overall, this trend has not led to any reduction in the demand for our support, nor in the level of our business activities. During 2007, the demand for EKN’s products from large companies continued to increase. The number of applications for offers increased by 13%, and the number of guarantees by 18%.
Even in good times, EKN is needed to complement private sector alternatives. This trend means that we get involved in transactions at an earlier stage. Another consequence of this trend has been increasing demand for export guarantees in increasingly difficult risk markets and market segments which has been made possible by new products. This is in line with the skills in our business area for large corporates and the focus on more complex transaction structures which may require special solutions in various forms.
Our role in developed markets
In recent years, good access to private sector financing means that such finance has been subscribed to and arranged without EKN’s involvement. Even so, there has been strong demand for our commitment and support even in developed markets. A clear trend is for EKN to step in at an early stage in order to create stability and the preconditions for financing, even if the financing is ultimately handled by the private sector. Sometimes we need to support a transaction by guaranteeing certain parts or stages of the financing. In other cases we are asked to provide bridging finance or other special arrangements.
New and old markets
It is in very high risk markets that EKN fulfils its most important function. In high risk markets, our involvement is often a precondition for a Swedish export transaction to go through at all. At all events, we can help to make the Swedish offer more attractive than it would have been without our involvement. As the private sector has developed a greater appetite for risk, and has moved its positions forward and has taken greater risks, so EKN has kept pace with the market and done the same. Our role in complementing the private sector in high-risk markets has imposed greater demands of us to continually review and develop special solutions, terms and prices.
Countries, industries and guarantee types
From a low level, Africa continues to take an ever greater share of our business. However, it is Iran, Russia and Turkey, plus the Middle East, that dominate new transactions and offers. More than twice as many guarantee offers have been issued for transactions in Iran than in Russia, which is in second place. Guarantee issues to Iran are for several different industries, including telecoms, transport, power and industrial plant. Most of our products are utilised in the guarantees to Iran. The most usual are letter of credit guarantees and short-term loss of claim guarantees, but for major projects, and project-like risks, exporters often have a need to cover production risks.
Many industries and products are also represented in the offers for exports to Russia. In contrast, guarantees to Turkey and the Middle East have been primarily for the more traditional export finance for transport and construction vehicles, reflecting the construction boom in these countries.
In Africa and Cuba, our GSL facility has been an important means for being able to support exports. It has increasingly been used mainly by trading houses, but also by companies exporting vehicles, construction machinery and mining equipment.
Telecoms does not dominate as much as in some previous years, but remains an industry with a steady flow of large and complex projects and project-like risks, with a wide geographic spread. During the year, there have been transactions with both new and old telecoms purchasers in many regions. In several cases, EKN has been asked to make the initial risk assessment without the involvement of financiers. This is a change compared to previous years.
Exports
Shared risks favour Volvo’s expansion in Brazil
Brazil is Sweden’s largest trading partner in Latin America. Swedish exports in 2006 totalled SEK 6.8 billion.
Volvo is one of the largest Swedish companies in the country, with its own assembly factories for trucks and buses. A large proportion of the vehicle components are exported from Sweden.
Credits for resellers and customers
Volvo Financial Services (VFS) operates as the Volvo Group’s own “bank” in more than 40 countries, of which Brazil is one. VFS facilitates sales in the country by offering credits to resellers and end customers. Until spring 2007, VFS handled all credits for Brazil on its own. Once the credits for particular customers or countries reach a certain size, the strategy is to collaborate with other parties in order to spread the risks.
“To enable us to continue growing in Brazil, we got in touch with EKN and Nordea, and discussed a collaboration on credit risks,” says Mikael Gisslén at VFS. “The discussion started in 2006 and were formalised in a contract in the spring of 2007. Thanks to EKN providing guarantees for a proportion of our credit portfolio, we have greater capacity to take on new deals.”
Nordea provides additional support for the deals by reinsuring EKN for a certain proportion of the credit portfolio. Nordea is an agent in the transaction, and also looks after the administration of the collaboration.
Favouring Swedish exports
The collaboration between VFS and EKN is based on the fact that Swedish export goods are often included in the products that Volvo sells in Brazil.
“EKN’s support for Swedish exports have been very important for us, so it was natural for us to turn to them as a financial partner,” says Mikael Gisslén. “The collaboration works extremely well, and I believe that EKN and Nordea are as happy as we are. For VFS, this is the first step in a new collaboration that could become a model for our expansion in other markets.”
Export company’s extended arm carries out transactions in all corners of the world
The trading house Elof Hansson has, ever since the start in 1897, been a channel for many Swedish companies’ export sales.
The product area paper and pulp still forms the bulk of the turnover, even though over time Elof Hansson have expanded its activities to cover products such as timber, steel, machinery, yarn, fabrics and household electronics. 550 employees work all round the world, and the business is managed from the head office in Gothenburg.
“We can be seen as our suppliers’ sales organisation in markets where they themselves are not represented,” explains Hans Andersson, CFO. “Our customers are therefore mostly in countries in Latin American, Africa and Asia.”
Market know-how and financing services
Among Elof Hansson’s competitive advantages are long experience of local markets, and the ability to offer their customers financing. The company’s own finances are strong, and it can therefore take on transactions at its own risk. However, in large transactions Elof Hansson shares the risk with private sector insurance companies or EKN.
“EKN can often offer good terms and conditions, particularly where the risk is a bit larger than usual,” says Hans Andersson. “For forestry products, it is mostly a question of short payment terms, whereas machinery may require credits for 5-7 years.”
Long collaboration with EKN
The long-standing collaboration between Elof Hansson and EKN has resulted in good contacts and smooth collaboration. “We often have chats with EKN’s country managers, to update each other about things like the current situation in various countries,” says Hans Andersson. “This collaboration works very well.”