Export Finance and Insurance Corporation (EFIC) recently endorsed a framework financing agreement with members of the Asian Exim Banks Forum.
EFIC is the Australian government’s export credit agency assisting Australian exporters with finance and insurance solutions to help them grow their business overseas.
The endorsement was signed at the 16th Annual Meeting of the Asian Exim Banks Forum in Busan, Korea by EFIC and the Exim Banks of China, India, Indonesia, Japan, Korea, Malaysia, the Philippines and Thailand.
The agreement forms the basis for Exim Banks to jointly finance large projects that are beyond the capacity of commercial lenders or a single Exim Bank.
With international projects and contracts increasingly involving multi-sourcing using suppliers from several countries, the agreement will help these agencies work together to support exporters from member countries.
EFIC’s Head of Product Management & Risk Transfer, Chang Foo says that the risk-sharing arrangement can benefit exporters, overseas buyers, project sponsors and the Exim Banks.
Mr Foo expects a number of advantages from the new agreement for Australian companies.
For an Australian company, it creates a one-stop shop for project finance when they’re sub-contracting to an Asian firm or using Asian suppliers. Only one set of documents needs to be negotiated with the agency providing the loan, which then enters separate risk-sharing arrangements with other members.
Starting from a framework agreement also means negotiations between member agencies will be quicker and easier. Risk-sharing can additionally free up an agency’s capacity to support more exports.
Mr Foo also sees risk-sharing as a way to support export-focussed projects located in Australia.
For instance, he says EFIC is increasingly being called upon by Australian corporate clients to finance large domestic projects with an export focus such as oil or gas extraction projects where the resource will be exported, or the construction of infrastructure like rail or port facilities to enhance Australia’s export capacity.
When the debt finance required for these projects exceeds the limits of commercial markets, the Australian company can turn to these Exim Banks and EFIC as an alternative source of stable, long-term finance.
Mr Foo adds that risk-sharing agreements mean that resources can be pooled by the Exim Banks to meet these project financing needs. As most exports from these projects are destined for Exim Bank member countries especially China, Japan, Korea and India, agencies from these countries have a vested interest in working with EFIC to get the projects up and running.