£5 billion Export Refinancing Facility launched to boost UK exports
Fri, 02 May 2014
UK Export Finance, the UK’s export credit agency, has today launched its £5 billion Export Refinancing Facility.
The Export Refinancing Facility (ERF) will enable UK-based exporters to offer competitive long-term financing to overseas buyers who require loans in excess of £50 million to purchase UK capital goods and services.
The ERF is targeted at project sponsors in emerging markets who need long-term loans to finance investment-related capital goods and services for high value opportunities such as large-scale construction or infrastructure development projects. It allows overseas buyers to access the highly competitive funding of the debt capital markets to refinance export finance loans after their initial funding by the banks.
The ERF will support UK bids for these projects which typically involve lengthy contract negotiations. It is the first time this financing approach is being used for civil project finance by an export credit agency.
Under the new facility, UK Export Finance will guarantee repayment of bonds issued by the buyer to refinance the initial loan. This will allow the bonds to be competitively priced at a fixed rate, which takes account of the UK’s credit rating. Should the borrower be unable to refinance the loan, UK Export Finance will become the lender until alternative funding is found.
Trade Minister Lord Livingston said:
Increasing UK exports and giving UK exporters the support they need is key to our long-term economic plan to promote sustainable growth. The Export Refinancing Facility will help British firms succeed overseas by lowering the cost of finance for buyers who choose UK companies for their major projects.
Richard Adam, Group Finance Director at construction company Carillion Plc, said:
In an increasingly competitive market, we are pleased to see UKEF launching this new innovative product that complements their current toolkit and enables us to offer it to potential overseas project sponsors in the future.
Irene Graham, Executive Director of Business Finance at the British Bankers’ Association, said:
The BBA’s export finance banking specialists have worked closely with UKEF and HM Treasury on the development of this facility and are pleased it is now launched. Competitive pricing of UKEF-backed loans is key to UK exporters winning long-term export contracts, and we are supportive of a flexible ERF scheme that can further support long-term projects and finance options at competitive rates.
The new ERF is part of wider UK Export Finance plans to expand the ways in which it supports UK exports. Another example of this is the enhanced £3 billion Direct Lending Facility (DLF), also announced by the Chancellor of the Exchequer in last month’s Budget.
The DLF will see UK Export Finance lend directly to overseas buyers at the lowest interest rates allowed by international agreements. This facility, which complements the ERF, is expected to become operational by the end of June 2014. Given the announced relaxation of eligible loan sizes, the DLF should be more attractive to a wider range of companies including mid-sized businesses, for whom UK Export Finance will be introducing specialised export finance advisers in the UK in 2014.
David Godfrey, CEO of UK Export Finance, said:
We are being more targeted and innovative in our support of UK exporters. In particular, we are building closer partnerships with banks and professional advisers to ensure UK exporters have the full range of support available for export success.
Professional services firm KPMG has worked with UK Export Finance on the department’s contribution to the UK’s growth and enterprise agenda. Jeremy Barker, KPMG’s director of corporate finance said:
KPMG has been working with UK Export Finance to improve UK competitiveness in overseas markets. We believe the launch of the ERF, along with other UKEF developments announced in the Budget, will put the UK in the frame for major overseas projects. Jon Coleman, Chairman of the British Exporters Association, said:
BExA welcomes the launch of the Export Refinancing Facility. This will help to ensure the availability of long term financing to support exports of capital and semi capital goods exports and overseas projects.