Structured financing and a creative approach permits funding in local currency with longer tenors and lower financing costs – plus the added benefit of risk cover from EKN.
Covid-19 has hit global trade and exports hard, which is particularly troublesome for smaller countries like Sweden, where exports make up for close to half of total GDP. Given its assignment of promoting Swedish exports, EKN closely monitors the economic development and decided in April to launch a battery of measures aimed at securing access to financing for companies of all sizes. EKN’s export credit guarantee limit will be raised by SEK 50 billion to a total of SEK 500 billion, which further strengthens EKN’s financial position.
Marie Aglert, Head of Large Corporates at EKN, says there was no time to waste in presenting a series of what she calls extraordinary measures: “We felt compelled to act swiftly and in three weeks, we devised over SEK 100 billion worth of support measures. I personally called CFOs and Treasury Heads of large corporations to learn what they needed from us right now,” she says. “Given the size and strong balance sheets of Sweden’s blue-chip companies, there was no immediate need for additional funding, she says, but the extreme difficulty of assessing the duration and scope of the current crisis fostered a need for reassurance.”
The new support measures from EKN fall under three categories: A new working capital guarantee for large corporations, six months payment respite due to Covid-19 in existing transactions and new possibilities to issue guarantees for short-term transactions to the EU and high-income OECD. All measures are in place until the end of 2020.
“We wanted to send a signal of reassurance to Sweden’s exporters and instill a sense of confidence that if they should encounter difficulties in securing credit, EKN is there. And, just as important, to encourage banks to continue doing business with Swedish companies even in uncertain times says Aglert. “As a creditor, it’s obviously difficult to grant loans to companies facing uncertain revenue streams as their exports fall off, or when production shuts down due to disrupted supply chains.”
Applications worth 190 billion
The new guarantee covers 75 per cent of the bank’s risk when lending to large corporates, easing fears of a sudden credit crunch and assuring access to larger volumes and longer tenors. The response from the companies concerned has been overwhelming, confirms Aglert:
“Our phones wouldn’t stop ringing. Within just over two months we have received applications from 60 companies, worth a total of SEK 190 billion in limits. We did not anticipate these limits to be drawn upon in full, but already as much as 50 billion have been drawn.
During the financial crisis ten years ago, EKN introduced a similar temporary measure, which then attracted 26 companies to apply for a total of SEK 96 billion in working capital credit. Why is the demand so much greater this time?
“Because the reasons behind the crisis are very different and it’s difficult to assess how long the crisis will last and how bad it will get,” says Aglert. “The roots of the last crisis were well understood and easier for the financial sector to comprehend.”
In addition, awareness of how EKN can support companies of all sizes in many different ways has grown significantly compared to ten years ago.
Credit crunch ahead?
Given the abundance – at least until recently – of cheap capital and funding in today’s financial markets, however, why would a credit squeeze suddenly materialize?
“The appetite for risk has been reduced even if the coffers aren’t empty,” notes Aglert and adds: “In addition, Sweden’s banking sector consists of a handful of players who may not be willing, or permitted, to extend their credit lines, even to blue-chip clients, in times like this without a guarantee. With our new solution they have it, it’s backed by Sweden’s triple A rating, and it offers international banks an added opportunity to discover and do business with new Swedish exporters.”
Aglert says it is an advantage if shareholders are willing to join in providing capital injections to companies that fear future difficulties. “That is a token of their belief in the company and strengthens the business case in our eyes.”
The working capital support guarantee from EKN may cover different types of capital injections and bonds, from a revolving credit facility to private placements up to five years of duration.
Besides the new – or relaunched – working capital credit guarantee for large corporates, EKN offers other means of support to the exporters. One example is a simplified procedure to approve a rescheduling of payment plans that benefit importers of Swedish goods and services in letting them postpone payment for up to six months beyond the original terms of contract.
“There hasn’t been a huge demand for this yet,” says Aglert, “since importers are still paying their invoices, but those who may be facing rougher times may find it difficult to meet their obligations at a later stage. So far, companies in need of payment deferrals are mostly found in Latin America, and they were facing financial issues even before the Covid-19 crisis.”
Finally, and somewhat unexpectedly, not all exports have dried up in the Covid-19 standstill. Aglert reports that EKN witnesses a continued strong demand for “regular” export support measures: “Mining, construction and telecoms are some industries that have anything but shut down and we still see a lot of transactions,” she concludes.