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29 MARCH 2022
Structuring sustainable Export Credit Agency finance transactions
At the GTR Africa Conference held in Cape Town recently Inal Henry, Head of Structuring, Markets, was invited to speak at a workshop with other industry experts on The fundamentals of Export Credit Agency (ECA) financing in local currency.
She was joined by an esteemed panel that included Gabriel Buck, Managing Director, GKB Ventures; Jules Samain, Managing Director, GuarantCo; Alarik d’Ornhjelm, Director, Deutsche Bank and Michelle Dee, Regional Head, UKEF.
A key point raised in the discussion was the use of ECA Wrapped Local Currency Issuances to fund infrastructure projects. The ability to structure a long-term local currency tranche in large capex projects increases the sustainability of projects by creating a healthy mix of long-term hard currency and long-term local currency borrowings. The need to structure for debt sustainability going forward, necessitates the inclusion of local currency financing especially for non-hard currency revenue generating projects and social infrastructure projects.
Local currency capital market issuances are important to crowd in long term local (and potentially foreign) currency investors to fund long term local currency ECA debt as infrastructure assets are well suited for this type of funding given the tenor and cashflow profile. The risk diversification and credit enhancement provided by the ECA is paramount to support this structure and ECA documentation needs to cater for these issuances.
The participation and support from local banks in structuring these projects will ensure success and give local banks a competitive advantage. Local banks can also play an invaluable role in addressing construction risk and helping to develop local regulatory and legal frameworks for local ECA covered issuances.
The Kenyan local currency infrastructure bond programme has been successful in crowing in local investors. Kenya has approximately USD6 billion local currency equivalent infrastructure bonds in issuance currently in the 12 – 25-year space.
The panel acknowledges that due to a number of factors most projects will not be fully local currency funded in most jurisdictions (besides South Africa) but that the impetus and need to start at least including a local currency tranche is important, and goes to overall debt sustainability for SSA sovereigns which are often constrained by hard currency obligations. Most importantly local currency borrowings address potential future currency inconvertibility concerns.
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