Trade Finance Briefing

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The Middle East and Africa (MEA) appeared an obvious focus for ... AfDB and a consortium of Chinese banks have been mand
28 February 2017

Trade Finance Briefing All about MEA Last summer Peter Luketa, global head of export finance at HSBC, described to Trade Finance the growing opportunities for export credit agencies in emerging markets: “Commercial banks are constrained by balance sheet reduction and are much less inclined to lend beyond 8 years”, he said. The Middle East and Africa (MEA) appeared an obvious focus for aggressive ECAs, given the downturn in commodity prices, particularly oil. Many borrowers, across all sectors, are heavily exposed to oil prices in this region, meaning their credit ratings have been dented over the last two years, making the raising of commercial debt more challenging. Commercial banks in MEA, especially in the GCC, are also heavily exposed to oil prices, making them less able to lend. ECA lending was expected to rise in MEA as a consequence, and that appears to be borne out by Trade Finance data. Lending for both export and agency and commodities-linked transactions rose in the region in 2016, with the growth in the former particularly stark. An obvious concern for borrowers would be that this growth in demand would translate into increased pricing on lending, particularly for borrowers suffering credit rating downgrades. Trade Finance data shows a rise in pricing during 2016 but only a slight one. ECAs consider and factor in changes in credit ratings on a much less regular basis than commercial banks, which leads to a lag in pricing readjustments. Though it will be interesting to track pricing trends as we progress through 2017. Two countries in the region, Egypt and Iran, particularly grabbed the attention of the export finance market last year, though only one of them has opened up as hoped. Back in August, Luketa said: “The biggest opportunity of all is Iran, subject to sanctions”. The second clause of that sentence has proved to be decisive. The election of Donald Trump in the US has thrown further doubt on the chances of Iranian sanctions being fully lifted, and Trade Finance data only recorded two Iranian transactions reaching financial close last year: An Export-Import Bank of India loan to Iran’s Bank of Industry and Mine; and a debt guarantee from NEXI against a loan from Marubeni to Persian Gulf Petrochemical Industries Company. Egypt, by contrast has lived up to expectations and

proven fertile ground for ECA lending and guarantees. Trade Finance data shows that last year was by far the most active in terms of transaction volume and total value over the last five years. Looking at Sub-Saharan Africa, Chinese lenders appear to have been particularly active of late. 2016 was high point of lending by Chinese commercial banks, development banks and export credit agencies. The dip in total loan value in 2015 seem to be entirely due to reduced activity by China Exim, which has lent on more transactions (30) in the region since 2012 than any other lender from China. See Trade Finance's Full Year 2016 League Tables here.

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Mandate Mill Afreximbank is arranging up to $1.5 billion in financing for projects under Burkina Faso’s five-year National Economic and Social Development Plan.

AfDB and a consortium of Chinese banks have been mandated to finance a $3.3 billion deep water port at El Hamdania in Algeria. Chrysaor, the independent oil and gas E&P company backed by Noble Group is looking to raise a $1.5 billion reserve-based loan from a bank syndicate to part fund its acquisition of a portfolio of assets in the North Sea from Royal Dutch Shell. Export-Import Bank of China has been mandated to lend $600 million for the construction of a deep-sea port in the Cabina enclave north of Angola, alongside the Angolan sovereign wealth fund FSDEA. Tanzania has made a funding request to the Export Credit Bank of Turkey for the construction of a new cross-border railway line starting Da es Salaam. Dankse Bank Markets and DNB Markets have been mandated joint lead managers for Norwegian shipping line Odfjell's planned kroner-denominated bond issuance. Odfjell is looking to raise between BKr500 million and NKr700 million for "potential future growth opportunities." Export-Import Bank of China has agreed to provide funding to support China Harbour Engineering'sworkon the Uganda-Kenya rail route. Terms of the loan, which will support construction of the 273km standard gauge route from Kampala to the Kenyan border, are yet to be made public. KPMG Fakhro has won the financial advisory tender for the Al Due 2 independent water and power project (IWPP), beating rival offers from PwC and HSBC.

Top Stories Trump backs Exim Bank, says senator US President Donald Trump is expected to allow the US’ Exim Bank to operate with a quorum, a senator said on 9 February, potentially freeing up tens of billions in financing for the country’s exporters.

Ethiopian Airlines closes ECA-covered loan

African Trade Insurance Agency has covered a loan from the African Development Bank to Ethiopian Airlines to finance purchase of a new airliner.

SACE covers cruise ship financing SACE has signed guarantees on up to $3.15 billion of loans backing the construction of four new cruise ships by Italian shipbuilder Fincantieri, it was announced on 16 February.

EKN seeks Iranian infrastructure deals Swedish export credit agency EKN has reintroduced export credit guarantees to Iran and is expecting to support project development in energy and infrastructure.

All pain – no gain Export credit agencies, particularly the European majors, have had a hard time balancing their mandates with US and EU sanctions against Russia.

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