The onslaught of Covid-19 in the spring left few businesses unscathed, but companies that receive their earnings from the movement of people and goods between countries obviously faced a bigger challenge than most.
To instill confidence into jittery markets and support companies of all sizes, EKN launched a new working capital credit guarantee for large corporates in April, where the agency would cover 75 percent of the risk. In order to strengthen its balance sheet and bolster liquidity ahead of an anticipated sharp drop in earnings, Swedish shipping group Stena was among the first to apply. Finance Director Peter Claesson explains why:
“Even under normal circumstances we always seek to maintain a strong liquidity position to have maximum flexibility. And in the case of the pandemic we were facing an unprecedented level of uncertainty.”
Even if Stena Group is fairly diversified and also active in less cyclical industries such as property management and investment, passenger ferry traffic in Scandinavia and the North Sea is still an important source of income. “Besides rapidly reducing costs by cancelling routes and furloughing staff,” recalls Claesson, “we were also looking for measures to add liquidity and bolster our balance sheet, to be able to survive even the worst-case scenario.”
Consequently, Stena added SEK 10.7 billion to its liquidity through a bank loan from a consortium of four leading banks. Of the total, SEK 8 billion is guaranteed by EKN. The duration is five years maximum; terms and conditions are not disclosed.
“Swift and commercially sound”
During the financial crisis of 2009, Stena turned to EKN for a similar measure and Claesson praises the swiftness and ease of the process, then and now: “EKN introduced a good mechanism that proved swift, simple and commercially sound to all parties involved. The whole process was commendably unbureaucratic.”
Because, time was of the essence, he adds: “A rapid handling was essential to reduce uncertainty in a highly unusual time. The pandemic brought on a chaotic time for financial markets in general. We faced uncertainty as to what sort of scenario would play out in our case, and in preparing for a worst-case setup we appreciated having the guarantee in place so quickly.”
What else did you gain from a strengthened liquidity position?
“We obtained leeway in the sense that, if necessary, we would be able to undertake correct measures from a business perspective and not resort to selling off assets in panic, if need be.”
Since passenger traffic is slowly recovering, and the movement of goods – which Stena’s ferries also undertake – never completely stopped, the sell-off panic scenario never eventuated. Still, Claesson points out other benefits of receiving a credit appraisal from a team of professional institutions. “Risk sharing and assessment by professional partners working together offer real value in providing us with a fresh and objective assessment of our commercial risk.”
Marie Aglert, Head of Large Corporates at EKN, recalls the process: “The shipping industry represented a new type of industry for us, which made risk assessment a tad harder but as always we focused on the long-term debt servicing ability of the applicant.”
On a positive note, Stena’s tank business has actually enjoyed an all-time high during the first six months of 2020, reveals Claesson: “The sharp drop in oil prices and sudden excess in supply of oil triggered a demand for storage capacity, including tank ships.”
As for passenger ferry traffic, finally, travel restrictions and the state of the pandemic varies with each day. The coming quarters are, at any rate, normally a slow period for Stena Line. What matters more, says Claesson, is that Q2 and Q3 next year return to normal. “There may even be a pent-up need to travel.”
Battery of support measures
At the time when the pandemic was a fact, EKN launched new support measures in three categories: Besides the new working capital guarantee for large corporations (such as the one granted to Stena AB), measures included six months payment respite in existing transactions and new possibilities to issue guarantees for short-term transactions in the EU and the OECD. All measures are in place until the end of 2020.
In addition, the government raised EKN’s statutory limits with a special eye on relieving the shipping industry. The working capital credit guarantee for large corporates proved a resounding success: As of August 31, EKN had issued 45 guarantee commitments totaling SEK 135.6 billion for this solution, of which 26 guarantees worth SEK 52.1 billion had been issued at the time.