Local currency cover from EKN secures major telecom deal in Japan

BNP Paribas was among those selected to arrange SoftBank Corp.’s syndicated loan signed in 2020/21 for 5G capex in Japan on the back of EKN support.

The article in brief

EKN provided local currency (JPY) guarantees, enabling financing aligned with the borrower’s revenue base.
The structure reduced foreign exchange risk for both borrower and lenders.
Export finance played a key role in funding large-scale 5G infrastructure investment in Japan.
The deal shows that ECA financing is relevant even in highly developed markets and for blue-chip companies.
Access to multiple financing sources is essential for capital-intensive telecom projects.

Local currency financing enables large-scale 5G investment

Ericsson is a world leader in 5G technology, a key enabler of a digitalised society where the Internet of Things (IoT) and high-speed connectivity take manufacturing, transportation and communication to a whole new level.

Japan is a front runner in terms of 5G network rollout and Ericsson is a supplier of radio network equipment to SoftBank Corp., a leading Japanese telecom operator whose 5G network population coverage rate surpassed 90 percent in March 2022, and it continues to advance. Since Ericsson is a Swedish-based company, its transactions are eligible for support from EKN. The credit, however, needed to be denominated in Japanese Yen (JPY), since SoftBank Corp. – like most telecom operators – earns the bulk of their revenues in local currency and consequently prefers funding in JPY.

Alexandra Bonnet, Export Finance Nordic Origination, recalls, “Local currency financing was very important for the deal. It was quite a challenge to offer financing in JPY.”

BNP Paribas received the mandate to accommodate the transaction, in no small part thanks to the support of EKN, notes Chieko Okita, VP Export & Project Finance at BNP Paribas Japan. “Having a guarantee issued in JPY ensures a currency match and takes away the currency risk from us.”

Part of the mix

Bonnet believes the SoftBank Corp. transaction proves the value of export credits as an important part of the overall financing mix for companies that need to finance the sort of major investments that 5G represents. “Even if a company has a good rating, one bank alone could not meet these massive funding requirements over the long term. That’s why investment-heavy companies benefit from having access to several types of financing in addition to Debt Capital Markets, Revolving Credit Facilities and other tools.”

“The deal shows that ECA financing has a role to play in highly developed export markets and it proves that ECA-backed funding is very attractive to a blue-chip company as well”, says Ove Nyström, Senior Underwriter and Key Account Manager for Ericsson at EKN.

“It’s not so much a matter of de-risking the transaction but rather to put more cash on the table. Having an ECA involved permits funding of the large amounts required in capex-heavy businesses”, adds Alexandra Bonnet.

According to Bonnet, another benefit of the cooperation with EKN was the agency’s ability to provide an attractive package on the back of a comprehensive due diligence process. “EKN pursues a constant dialogue to better understand the companies involved in a transaction and to get a feel for what is going on by visiting clients and local rating agencies. That makes them really sharp.”