“You can become a part of an eventual success story in a project that should raise the living standards for a local population.”
In her day job, armed with decades of experience on countless export finance transactions, Margaret Eyres* is a director of export and agency finance at Commerzbank in London. Behind the scenes, she eagerly engages students and graduates on the different career opportunities in the international trade industry. In this interview, with all the flair of a natural-born mentor, she outlines the complexities behind export finance.
*Depicted above visiting an insect infected national park in northern Argentina.
Q: What is export finance and why is it needed?
Eyres: First I should say that export finance can mean different things to different people. Some alternative financiers define export finance as funding for exporters to grow their international trading. However, I am going to talk about export finance as understood in major international banks who work with national export credit agencies in providing long-term finance to overseas borrowers.
For me, export finance is a sales tool for an exporter where it is able to get support from both its government through an export credit agency (ECA) and an international bank so that a buyer of its capital goods and services, usually in a developing market, can enjoy a long-term loan in order to pay for those exported goods and services over time. The exporter has the confidence that it can be paid from the bank which manages the loan as the exporter performs its contract and so reduces its payment risk on the buyer. And the importer has the comfort of a long credit period so it can make repayment from the revenues generated by its capital investment. If the borrower defaults on its payments (interest and/or principal), the international bank will claim from the ECA (which has provided its support for the loan), usually after a waiting period of around three months, and will act under the instructions of the ECA in pursuing the borrower.
A distinguishing feature of export finance is that it is not a commercial ‘free for all’ and the parties normally have to respect the guidelines of the OECD Arrangement on Officially Supported Export Credits, also known as ‘the Consensus’. (Notably China is outside the OECD, though the Chinese ECA, Sinosure, may follow the general principles.) The guidelines were introduced in 1978 (i.e. before the rise of China as a dominant exporter) to create a level playing field in order to encourage competition among exporters based on the quality and price of goods and services, and not on the financing terms. The guidelines have been regularly updated and widened to cover specific sectors with special features.
Contrary to what a banker would normally expect, the OECD restricts the repayment periods for higher income countries and permits the low-income countries to have the longest repayment periods. ECAs do not wish to be seen undercutting the commercial banking market, especially for borrowers in high income countries. The OECD website has a section dedicated to export credits and you can take a look at the guidelines here: https://www.oecd.org/trade/topics/export-credits/arrangement-and-sector-understandings/. Given the relative decline of the OECD in the exporting field and the rise of China there is currently much discussion at OECD level as to whether some of the current limitations need to be reviewed. So watch this space.
Export finance can be needed for a variety of reasons:
In developing/emerging markets:
- The borrower is in a country where the local banks just do not have the ability to lend long term;
- The local borrowing conditions are simply prohibitively expensive;
- A negotiated contract is sought by the borrower as opposed to going out to competitive bidding which is required for loans from a multilateral borrower such as the IFC;
- The project needs the ECAs as the anchor facilities and, given their involvement, commercial lenders will be more generous as they can have an acceptable sweet/sour’ ratio of covered/uncovered portions. This is common in project financing situations;
- A government wishes to court another government for geopolitical reasons and will enter into a large contract on a loan basis so the respective foreign government will have a long-term interest in supporting the borrower country in the international arena.
In advanced markets (noting that the biggest user of ECA financing is the US):
- The project is so large that the ECAs are needed to fill a financing gap;
- The borrower is a difficult credit and local commercial lenders are not prepared to lend on the long-term basis that the capital investment requires;
- An ECA facility is negotiated as a safety net. If a cruise liner, for example, once built and delivered, can be funded more cheaply on a commercial basis, for example on the bond market, the ECA facility is dropped;
- There is a global financial crisis and original plans to use commercial funding fail and ECA support is urgently requested.
Q: Who are the players involved in export finance?
Eyres: By category, the main players are the exporters; project sponsors and overseas buyers; borrowers acting on behalf of the overseas buyers (for example a Ministry of Finance on behalf of other government departments), export credit agencies; international banks (and local banks who may act as borrowers or guarantors).
Both ECAs and banks may also look (discreetly) to the private insurance market to share the non-payment risk under the export credit and any tied commercial loan (for example down payment finance) respectively. There are also law firms, environmental specialists, engineering consultancies and others involved in bringing a transaction to completion.
And, of course, media companies like GTR and TXF are very important in bringing the market together at various conferences and communicating with us throughout the year on the latest issues, trends and deals closed.
Among the exporters you can probably guess the main producers of capital equipment, such as the likes of GE and Siemens in the power sector – including renewables, Airbus, Boeing and Rolls-Royce in the aviation sector and Ericsson, Nokia and Samsung in the telecoms sector. However, there are many lesser-known names too. Corporate borrowers can be household names in their own country or even international bond issuers. Much smaller corporates but with financial accounts to international standards can also be eligible – along with project finance vehicles.
The ECA that has grown this century to be the largest volume ECA by a long way is the Chinese Sinosure. From the OECD the main volumes have usually been from Japan (JBIC/NEXI), South Korea (KEXIM/KSURE), Italy (SACE), Germany (Euler Hermes) and France (BPI France). The oldest ECA is UK Export Finance which this year celebrates its centenary, being established in the aftermath of World War I. In recent years it has revitalized itself, is viewed as innovative and is now catching up with its European counterparts in volume terms.
The number of international banks capable of arranging export finance (involving several ECAs and not just their national ECA) is probably only around two dozen. Borrowers tend to mandate banks which have a good relationship with them, often via a local or regional presence, as well as being experienced in the requirements of an exporter’s ECA. So, export finance favours those banks which have kept, despite the global financial crisis, a wide international network including in developing countries and have retained economists for such countries too. Therefore, the international banks doing the main volumes of business include ANZ, BNP Paribas, Citi, Commerzbank, Crédit Agricole, Deutsche Bank, HSBC, ING, JP Morgan, Mizuho, MUFG, Santander, Société Générale, Standard Chartered, SMBC and UniCredit.
Q: What financial instruments are typically used in export finance?
Eyres: For me, there are two basic facility types: loans to borrowers, sometimes referred to as buyer credits, and facilities known as supplier credits. The former is the most common, for larger values at least, and comprises a bank or ECA lending directly to an overseas purchaser of eligible exports. The latter is where an exporter provides long-term deferred payment terms to the purchaser of its goods but has arranged in advance for an ECA to cover the non-payment risk of those obligations and for a bank to buy the receivables. So, the exporter is paid cash shortly after exporting by the bank, which then waits for the principal and interest, sometimes evidenced by bills of exchange or promissory notes, on the eventual due dates. Most export finance banks probably prefer the comfort of a 150-page loan agreement under English law than a much thinner documented supplier credit, particularly on larger transactions.
Q: What’s the most rewarding and fun aspect of your work in export and agency finance?
Eyres: What is generally rewarding is the sheer variety of transactions around the world and their multicultural nature. You can become a little part of an eventual success story in a project that should raise the living standards for a local population in some way.
Real satisfaction is when you know the project went according to plan (more or less) and the loan is repaid in full without a claim on the ECA(s). Now I am of an age when transactions being negotiated today will be in repayment during my retirement and perhaps beyond the grave.
The most fun part is certainly some of the international travel where you find yourselves off the beaten tourist track and with VIPs who you would not encounter in your private life. In export finance you can have much more proximity to a foreign country’s political leaders than in your home country. Highlights for me included visits to Angola, Paraguay and Uzbekistan just to indicate the parts of the globe export finance reaches.
Q: What have been some of your career highlights?
Eyres: At the turn of the century I was posted to Paris for five years and I just loved living and working there in a winning team built for growth as we followed our mantra GATT – Global Alignment, Teamwork and Trust. I was back in London for the global financial crisis and my highlight in those turbulent times was to have a power project sign within 48 hours of the weekend collapse of Bear Stearns when it was bailed out by JP Morgan in 2008. Incidentally the project was a success and the loan fully repaid.
Once the crisis was behind us, I enjoyed my stint in UK Export Finance as their first Head of Direct Lending. I was involved in building a team and procedures to manage the £3bn limit the Chancellor of the Exchequer had granted and which turned out to be very popular with overseas borrowers and UK exporters alike.
Q: Tell us about the mentoring work that you do as a Loughborough University graduate?
Eyres: You question is very timely. Last summer I was elected by alumni on to the Alumni Advisory Board and my manifesto, so to speak, was to get students and alumni more genned up on international trade. An evening event ‘Insights into International Trade’ at the Shard in the New Year was a sell-out the same day as the announcement was posted. We are planning a follow-up focused on doing business in the US and again using alumni as speakers.
In early June I was invited to chair a panel of alumni giving tips on applications and interviews with 20 graduates from the 2018 graduation year who were not really settled with their current employer. My enthusiasm for the trade and export finance field evidently raised curiosity in some of the attendees. Three students have got in touch to find out more and for bedtime reading I have told them to read the Annual Report and Accounts of UK Export Finance. They have all found the document surprisingly interesting and it has opened their eyes to a field they knew nothing about. One of them twigged, without prompting, that export finance is a niche where neither AI nor digital banking was likely to take over in any meaningful way as there are just too many variables over time.
For me, the industry is a very people orientated (and multicultural) business as relationships with both exporters and borrowers are for the long-term and personal reputations count. It is a small enough market for professionals to be friendly and know each other, sometimes over decades, as they compete on deals or work together, for example on industry committees.
There are few young professionals currently in this captivating industry which has its fun and adventurous moments, whilst there are a lot of 50-plus-year-olds heading to retirement. During the global financial crisis, export finance team sizes were reduced but export credit volumes subsequently increased, and it remains an optimistic industry. Though it should do more to promote itself as an attractive career destination.
Export finance does not offer quick riches, but we have an easy job to explain that our activities support economic growth and jobs with environmental, social and human rights standards observed. Even if global trade slows a little, export finance volumes will remain well over US$100bn per year given the power and infrastructure needs in places like Africa.
When banks had to shed staff during the financial crisis it was reassuring to see how export finance professionals, steeped in the real economy, found new employment quite quickly with ECAs, multi-laterals, exporters, borrowers and with other banks.
Please get in touch if you think your employer could be interested in curious and presentable Loughborough graduates. I shall make sure they are tuned into this blog too so they can hear from the readers about your experience and views too.