New solutions
for large corporates
Our large corporates business area was mainly involved in responding to increasing demand for guarantee offers, developing the potential that our new mandate has unfolded and designing solutions to counter the lack of risk capacity.
There were a large number of applications from large companies for transactions in established and newer markets. Statistics show the global nature of our business. We issued 853 offers in 103 different countries. About 30 of these countries are heavily indebted emerging countries. The large projects in these countries include a telecommunications project in Bangladesh, with Ericsson the exporter, a pulp mill in Vietnam, with Metso an important project supplier, and Volvo’s truck exports to Angola. A large proportion of the transactions in this type of country were covered by letter of credit guarantees, with EKN sharing the risk with the bank. Demand for the letter of credit guarantees was concentrated on certain countries – in particular Nigeria and Bangladesh.
At the same time, almost a quarter of the year’s offers concerned transactions with three countries – Iran, Russia and Turkey. We have adopted a more restrictive policy with regard to offers for transactions with Iran and we declare banks off cover if we see a likelihood of UN sanctions being imposed on them. The number of offers for Iranian transactions fell to 90 from 128 the previous year. In transactions with Iran, we work with the Swedish Inspectorate of Strategic Products (ISP) as some exports to Iran require an ISP licence.
In the autumn, with the financial crisis deepening noticeably, demand for EKN's guarantees rocketed. There were 136 applications from large companies in November, which was 55 percent higher than the 88 which we received in November 2007.
Large companies often have a long lead time between tender and contract. With this in mind, EKN comes in at an early stage and issues a guarantee offer well before the company needs a guarantee and requests one. One-tenth of offers to large companies became guaranteed transactions during the year. Some of the large transmission projects in Africa for which we issued guarantees this year are transactions for which we issued offers two years earlier. Other examples of offers which have been needed well in advance include ABB’s projects in Angola and Namibia, Eltel’s project in Botswana and several large Ericsson transactions in India, Pakistan and Turkey.
Doing more for foreign subsidiaries
In mid-2007, EKN was given a broader mandate. With the focus on export links and Swedish interests, we can now guarantee global transactions, without being restricted to transactions involving a specific quantity of Swedish goods. Several large export companies have welcomed the change. We exercised the mandate in twenty or so of the year’s transactions, guaranteeing transactions with Swedish interests, where the guarantee holder was a foreign company. These included transactions for subsidiaries of some of our large corporates such as Ericsson, Volvo and Scania. Some were individual transactions, while others were portfolios of risks relating to the subsidiary’s customers in another country.
The work involved in dealing with legal obstacles to guaranteeing transactions between parties in the same country is continuing in the new financial year. This concerns countries such as Russia, Brazil, Turkey, Argentina and Chile, where the insurance legislation makes it difficult for EKN to guarantee transactions in the country.
Cooperating for risk capacity
In the autumn, lack of financing became an increasingly difficult issue for our customers. We have worked to adapt our guarantee issuing to the new situation. One of our responses in autumn was to intensify our cooperation with banks and the Swedish Export Credit Corporation (SEK) in order to release risk capacity for export transactions.
The new solutions we produced are much needed in a market which is suffering from a lack of capital. We expanded our working capital guarantee for small and medium-sized companies so that it can be used by large companies. The working capital guarantee allows the bank to share the risk with EKN when it issues working capital credit in the form of loans or different types of overdraft facility. We issued two of these guarantees in December 2008 and received a large number of enquiries. We also produced a solution for bonds. With a bond guarantee, the bank shares the risk with EKN when it purchases the export company’s bonds or certificates. This solution has also attracted keen interest. The expanded working capital guarantee and bond guarantee are solutions which help export companies gain access to risk capacity. This then allows them to continue and increase their export activities.
The solutions mean we assume the risks associated with Swedish companies’ financing. Judging by demand, the likely scenario is that Sweden will dominate EKN’s risk exposure. In the financial crisis, EKN’s role of assuming risk with regard to Swedish companies is at least equally important as its risk-taking with regard to the ability of foreign buyers to pay.
Arrears on the increase
Trends on some of the established markets took a negative turn, resulting in a dramatic increase in the number of payment arrears. The number of payment arrears in the last quarter was higher than the previous three quarters put together.
Most of the arrears related to the automotive industry in Russia, Ukraine, Turkey, Oman and Qatar. Carriers in these countries have had problems due to the slowdown in activity in transport-sensitive industries such as construction and car manufacture.
However, in most cases, the arrears have not gone on to become losses. This has been avoided by various loss prevention measures – the most common being deferred payments and extended payment plans. During the year, indemnifications to large companies only amounted to SEK 10 million. However, the risk of losses has increased significantly and we are prepared for an increased number of claims.
Marketing and customer relations
To celebrate EKN’s 75-year jubilee, while also establishing contacts with companies which have not yet used EKN, we invited representatives of export-intensive companies to a lunch which was also attended by Sweden’s Minister for Trade Ewa Björling. We have also worked closely with the Swedish Trade Council’s international offices, which play an important role as advisers to exporting companies.
At the training days we arranged for our customers, we met some sixty representatives of large companies. With them, we reviewed how we work together in the transactions –from guarantee request to indemnification and recovery. We also discussed the business potential unleashed by our extended mandate. These meetings give us valuable information about our customers’ needs and views on our work.
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