How Deutsche Bank’s Structured Trade and Export Finance (STEF) team has been supporting exporters, buyers and their governments in South America, Africa and China with infrastructure and energy trade finance
Positive impact of export finance
Export credit agencies came into their own during the 2008 Global Financial Crisis, stepping in with increased trade finance support when commercial bank liquidity was at a standstill.
This is where an investment insurance agency – a government or quasi government institution that supports its country’s exports in the form of credits (financial support), credit insurance and guarantees makes a geography that might otherwise have been out of scope for a private sector lender in terms of risk possible to finance.
ECA activity continued to build and now exhibits a wide range of mandates and operating models, as well as a wide spectrum of financing, risk mitigation and other products and solutions that support the international activities of small businesses, mid-corporates and global multinationals.
Back to Ecuador
Architect’s impression of new hospital. Source: eluniverso.com
In 2016 we saw the transformational effect of working with the Spanish ECA CESCE to help rebuild a hospital after the April 2016 Ecuador earthquake and supported educational infrastructure in line with the UN Sustainable Development Goals (SDGs).
On 22 May 2017 Deutsche Bank signed an additional US$47m CESCE (the Spanish export credit agency) with Instituto Ecuatoriano de Seguridad Social (IESS), the Ecuadorian social security and health provider, for the partial financing of the construction of a new hospital in Quito. Acting as agent, mandated lead arranger and lender with Banco Santander and Banco Popular as co-MLAs and co-lenders, the deal follows the Guayaquil and Machala hospitals arranged in 2016.
The EPC contract scope includes the design, construction and equipment of the new 450-bed Quito hospital. This particular deal finances the Spanish content of the total US$198.8m commercial contract, executed by the Spanish corporate Grupo Puentes. This hospital, together with the new Guayaquil and Machala ones made a huge difference to Ecuadoreans who have seen their access to quality healthcare vastly improve in the aftermath of the earthquake.
An example of Deutsche Bank’s structuring and coordination capabilities with both the Borrower and Guarantor, as well as CESCE, this deal demonstrates how the financing relationship becomes part of an overall disaster recovery programme.
Source: Nippon Signal Co Ltd
This theme of transformation continued in 2017 when on 19 May 2017 Deutsche Bank closed a JBIC/NEXI (the Japanese ECA and insurance arm) buyer’s credit facility with the Government of Argentina to support the export of an automatic train stop system (ATS) from Japan’s Marubeni Corporation. The system will be implemented at eight suburban railway lines near Buenos Aires with the Nippon Signal Co Ltd manufacturing the railway signal systems.
When a passenger train failed to stop at Once Station in Buenos Aires, colliding with the buffer stop on Saturday 19 October 2013, more than 100 were injured, and the decision to install a high quality ATS system was taken by the Argentine government to prevent any reoccurrences.
Japan’s Prime Minister, Abe said the railway equipment deal was “substantial”, and commented on how JBIC had “resumed loan operations to the government of Argentina for the first time in 20 years”. The deal was a landmark for the sovereign because it was the first OECD ECA finance it received since the last crisis in 2001. Having been conspicuous by its absence from the debt market for more than a decade, Argentina’s return to the ECA finance market and diversification of its funding sources happened with Deutsche Bank support.
Importantly, this was a deal of diplomatic significance – Deutsche Banks was part of a defining moment in the resumption of Argentine/Japanese lending and trade relations. With a Japanese exporter, an Argentine borrower and a German lender this is a good example of a truly global deal.
Lighting up Cameroon
With a direct correlation between economic growth and electricity supply, Sub-Saharan Africa is dependent on the ability of government, investors and financial institutions to develop its electricity capacity. The scale of the problem and the opportunity was helpfully enshrined by McKinsey in a February 2015 report, Powering Africa.
On 13 July 2017 Deutche Bank signed a €51.1m multi-ECA CESCE buyer credit and Credendo (the Belgian ECA) buyer credit and commercial financing for a project to reinforce the electricity network of the city of Yaoundé in Cameroon. The buyer was the Ministry of Water and Energy of Cameroon and the borrower is Cameroon’s Ministry of Economy. Elecnor, SA, a specialist in infrastructure, technology and renewable energy, is the Spanish prime contractor, while Siemens NV is the Belgium-based sub-contractor.
The deal has helped Cameroon go some way towards meeting its development objectives under the programme Vision 2035 prepared by the Ministry of Economy Planning and Regional Development (MINEPAT) which includes significant investment in the energy sector.
Water and sanitation in Kenya
Lack of clean reliable sources of water are another huge barrier to economic growth. Water supply in Kenya is a critical development requirement and the Ruiru II Irrigation Dam project was earmarked as a key priority in Kenya’s National Water Program. In 2005 the Kenya Water Report observed, “Kenya is classified as a water scarce country with only 647 cubic metres of renewable freshwater per capita”. Ten years later, An African Ministers’ Council on Water (AMCOW) Country Status Overview of Kenya, Turning Finance into services for 2015 and Beyond’ made the point that water supply and sanitation coverage Millennium Development Goal targets were not likely to be met and additional finance was needed to improve coverage rates.
In June 2017, Deutsche Bank arranged a €180m financing for the Government of the Republic of Kenya, acting through its National Treasury for the financing of the engineering, procurement and construction contract signed between the Athi Water Services Board (AWSB) and the consortium comprising Sogea Satom, Cinci Construction Grands Projets and Egis Eau. Deutsche Bank acted as structuring bank , MLA, agent and original lender with Societe Generale invited to act as co-MLA and co-lender.
Among the positive impacts and outcomes of the deal were:
- Provision of good quality surface water to residents who currently depend on unreliable ground water
- Distance and time spent in search of water reduced for beneficiaries (especially women and children); and
- Improvements to the standards of living in the region, in particular in respect of health and hygiene, putting the economy in a better position to increase income and productivity.
The deal evidences Deutsche Bank’s expertise in emerging markets and ability to support clients in domestic infrastructure development.
Financing innovation and energy transportation
From four to five
Following Deutsche Bank’s US$1bn EKN (the Swedish ECA) supported loan for US telecoms giant Verizon’s fourth generation of broadband cellular network technology (4G) roll-out programme in March 2016, the corporate came back for more when it was planning its 5G successor.
In July 2017, the bank signed two ECA-backed loans to finance Verizon’s capacity and coverage roll-out programmes for both its wireless and fixed network lines. The package comprised a US$2bn EKN- supported loan to finance purchases from Ericsson and US$2bn Finnvera (the Finnish ECA) and EDC (the Canadian ECA) supported loan to finance purchases from Nokia.
This second visit to the ECA market at four times the size of the 2016 debut confirms that ECA debt is an important part of this corporate’s funding mix. Deutsche Bank acted as the sole bookrunner and sole coordinating MLA on the two ECA loans – closed within seven days of each other.
The EKN and Finnvera supported loans are the single largest ever underwriting by these ECAs for a private sector client – and the second deal was the largest corporate deal for Nokia.
As currently scoped, the 5G network is a replacement for wired fibre optic internet, bringing the next leap in bandwidth speeds to homes, as well as the ability to meet new use cases such as the Internet of Things. However, the faster speed benefit is, for now, confined to the home and not beamed onto mobile phones. This lies some way in the future while wireless carriers and device makers agree on 5G standards.
All that gas…EXMAR
As reported by flow in September 2017, Belgian energy supply chain provider EXMAR has been busy transforming itself from a shipping company into a transformer of energy.
In June 2017, Deutsche Bank, together with Bank of China, provided EXMAR a 12-year US$200m post-delivery ship financing loan facility, 95% of which was guaranteed by the Chinese ECA Sinosure. The vessel was a 16,000m3 new building floating liquefaction, liquefied natural gas (LNG) storage and offloading unit (FLSU) built by Chinese shipyard Wison (Nantong) Heavy Industry Co, Ltd.
By way of background LNG deals with the problem of natural gas transportation – because of its physical state, natural gas is a domestic product and as a gas, the hydrocarbon is transported via pipeline, restricting the number of end users. By lowering the temperature of the hydro carbon, the methane component is liquefied making it possible to be transported at atmospheric pressure, and introduced into insulated tankers for transportation, while kept in its liquid form via auto-refrigeration. Once the LNG has reached its destination it is offloaded from the tanker and either stored or regasified.
The deal was the first financing covered by Sinosure to support the manufacturing of a floating LNG unit by a Chinese shipyard – technically more challenging but a strategic development area for China (South Korea being dominant in this market sector). It is also a good example of how a 25-year business relationship between Deutsche Bank’s Maritime Industry group and EXMAR used its foundation of trust and loyalty to play a vital part in EXMAR’s energy logistics infrastructure.
Shymkent Oil Refinery, Kazakhstan
Chinese determination to equip strategic Belt and Road countries with critical energy production infrastructure was demonstrated in the US$225m Sinosure 95% covered 12.5-year buyer’s credit financing to support a Kazakh oil refinery. Kazakhstan is a key country and corner stone of Belt and Road Initiative, giving high profile and visibility to this cross-regional deal.
The borrower was the wholly state-owned Development Bank of Kazakhstan (DBK) and the guarantor JSC Baiterek National Management Holding (Baiterek) to finance an on-lending by DBK to Petro Kazakhstan Oil Products (PKOP).
In 2010, PKOP drew up a long-term plan to develop the Shymkent oil refinery and upgrade it to a level that would meet modern international standards. Improvements include the increase of crude processing capacity up to six million tons per year, to increase crude processing depth, to improve yield quality and reduce environmental impact.
This facility is for an on-lending financing by DBK to Petro Kazakhstan Oil Products (PKOP) to support the refinery upgrade. PKOP is a joint venture established jointly on equal basis by KazMunayGas (KMG) and China National Petroleum Corporation (CNPC). The engineering, procurement and construction contract was signed with China Petroleum Engineering & Construction Corp (CPECC) in 2015 and the facility forms a vital component of the overall US$1.9m Skymkent refinery modernisation programme.
Once the works are all complete processing performance is anticipated to increase from 5.25 million tons to six million tons a year and deliver an improved fuel quality to local communities, which will help reduce emissions.
The Belt and Road Initiative (BRI) is launched by the Chinese government to promote international trade and investment, and the focus of this initiative have now grown to more than 65 countries across three continents. Deutsche Bank has been present in China for over 140 years and also has presence in around 30 BRI countries. DB is one of the most active international banks in supporting BRI opportunities, and this transaction has been applauded by Chinese authorities including the Ministry of Commerce who has requested Deutsche Bank to provide a case study to put into its 2017 WTO Yearbook focusing on the BRI as a demonstration of successful cooperation with international bank in this initiative.
“The reason I love working in export finance is the huge diversity of projects and business types to which it can apply,” reflects Simon Sayer, Managing Director and Head of Structured Export Finance at Deutsche Bank.
Export finance, explains Sayer, is relevant to everyone from developing market countries where most infrastructure still sits under the ownership of the state, to highly sophisticated, exchange listed, investment grade corporates who are looking to diversify financing sources for large capex programmes – and everything in between. He concludes, “In a world where banks are trying to define themselves again, this is exactly the sort of bank Deutsche Bank wants to be for its clients – facilitating their cross-border business and improving the quality of infrastructure in the developing world.”
This article is the second in a series of articles that discuss trade finance globally at home
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