By Ed Ansel
Satellite Finance (April 2014)
EXIAR aims to reshape ECA landscape
Export credit agencies continue to play a key role in shaping the satellite sector. Their direct loans and credit guarantees have enabled countless companies to secure cheap debt to push ahead with expensive space projects.
Up until this point, two ECAs have very much dominated the scene, the US Export Import Bank and France’s Coface but this is about to change with the arrival EXIAR of Russia.
SatelliteFinance’s Ed Ansell speaks with Alexey Tyupanov, EXIAR’s head of structure project and international business development as well as a member of the management board, about how his agency plans to shake up the status quo.
Ed Ansell: Could you start by talking about the creation of EXIAR?
Alexey Tyupanov: EXIAR was established as a state-owned joint stock company in 2011 with a state guarantee covering our insurance liabilities. Under our mandate we provide export credit guarantees, typically 95% of a bank loan. We do not provide direct lending like the US ExIm Bank or Export Development Canada, so we have to cooperate a lot with both Russian and international banks.
Our first active year of operation was 2013 when we covered about 60 transactions worth US$2.5bn. Now we have about 100 projects in the pipeline, valued at more than US$10bn.
Unlike some European ECAs we do both short term export credit insurance, like commercial credit insurance, as well as medium and long term transactions. This gives us a presence in more or less each and every industry.
However, though we support all industries and are present in all industries, there is a special talk from the government to focus on high added value exports like satellites and so we will focus on these.
Under our mandate, the only limitation we have is that we do not support the export of crude oil and natural gas.
EA: And how is EXIAR different from other export credit agencies?
AT: What differentiates us from other ECAs, and what we have been presenting to customers of ILS, is that legally we do not have limitations in terms of the minimum amount of Russian content in the project. Every project is considered on a case by case basis and we decide whether we will support it or not. This gives us a certain flexibility compared to other ECAs.
For example, in terms of satellites, we will look at a project with a Russian launcher and a foreign satellite and payload, and we will consider supporting the whole project – not just the launcher.
Hopefully that sort of flexibility should provide more comfort to customers of ILS.
EA: So what is your capacity for deals, what is the largest a loan you could potentially guarantee?
AT: We don’t have any limitations. Last year the largest ticket was €300m and we have a special solution for SMEs so we can go as small as a few thousand dollars. But we are now considering large scale projects worth billions of dollars.
The only limitation is that the state guarantee from the Ministry of Finance is issued at US$10bn but once we reach it we will just apply for a new guarantee.
EA: And by its nature the satellite industry predominantly consists of these large scale projects.
AT: We haven’t done any satellite business as of yet but ILS is a core customer and we will be very focused to support it. Before the creation of EXIAR, ILS’ commercial proposals were lacking the state’s financial support. Now, hopefully, we will fill that gap.
In Russia, the export credit finance industry in general is very young so we have to talk a lot and educate both Russian exporters and Russian banks on how the industry works. How the product works. As such we are always trying to be flexible and proactive.
So, for example, if there is a prospective deal for ILS we would of course talk to the customer, to the bank and if necessary bring banks to the table and try to facilitate the process as much as possible.
What we can bring to the industry in general, and this is something I have told a few CFOs of prospective customers of ILS, is that we can bring financing from Russian banks. And the satellite industry hasn’t seen them before.
While we work well with international banks like ING, HSBC and Deutsche (who have all done due diligence with us), there is substantial liquidity in the Russian banking system and this is an absolutely untouched pocket of money for satellite and telecoms companies all over the world. And the financial terms of Russian banks with EXIAR cover can be very, very competitive.
Russian banks have not been active in export credit because, while they know the Russian client, they have never dealt with the risks outside Russia. Now that they have EXIAR on board they feel much more comfortable.
EA: So do you think that Russian banks can play a larger role?
AT: Whether it is in roubles, dollars or euros, there is enormous liquidity in the Russian banking system and not just large state-owned banks but private ones as well. This is something that prospective customers of ILS can look at.
Maybe the interest rates are not as competitive as ExIm or EDC as direct lenders can provide, but it is a new pocket of money. It gives you diversification of your liability portfolio, which can be very attractive.
Secondly, Russian banks do not have these strict, formal procedures that European and US banks have. Not all satellite and telecoms companies are satisfied with ECA financing because it takes a lot of time.
EA: Further to that point, what kind of covenants and terms are you looking to impose in an ECA-backed loan guarantee?
AT: Of course we have to manage risks and we need to be sure that we can recover or renegotiate if something goes wrong but generally we are ready to be more flexible. We have a philosophy that it is better to be more flexible at the beginning and then, once you get more experience and expertise, then you can implement stricter rules.
Financial terms, though, should meet the financial model. If the business plan does not really work with a seven-year financing and works with only a 15-year financing then this is something we should aim for. So it really depends on the project.
EA: And will you be offering the support of Russian banks as part of your proposals to potential customers?
AT: We can do it both ways. If the customer has his relationship bank and if the bank knows us, it is pretty straight forward. If they don’t, then we will introduce ourselves to the bank, run through the due diligence process and become an eligible ECA to the bank. But if the customer says ‘bring me a financial package’ – this is something we are ready to do.
So whether it is Russian or international banks, we will really try to bring a genuine financial package to the customer. Not just an intention but a real financial proposal.
EA: And what is the difference between EXIAR and Roseximbank?
AT: They have a different business model to us. They provide direct lending but they are limited in their capacity.
The main difference is that they have to approve every single guarantee with the Ministry of Finance because it is issued on behalf of the ministry. So they are more of an adviser, like Coface with the French government.
In our case, all the decisions are made on the management level because every policy or guarantee is issued on behalf of EXIAR not on behalf of the state, although it is guaranteed by the state.
That said, we would and do work with Roseximbank and currently have a couple of deals with them where they are ready to provide financing against our guarantee.
EA: How far are you in terms of working with potential satellite customers?
AT: We have issued a couple of letters of interest to a few prospective customers of ILS. And once a customer has made the decision to go with ILS we are ready to move fast.
EA: And beyond ILS, have you been talking to other Russian companies, like ISS Reshetnev or Sea Launch?
AT: Yes we are working with ISS Reshetnev. We have been approached once by Sea Launch but we haven’t come up with a transaction because we didn’t find any commercial contracts out there.
EA: But you would work with them given Energia’s ownership?
AT: We are supporting all Russian exports. So we are ready to support any Russian company.
EA: And are you looking to support the combined ISS / ILS offering that they recently announced?
AT: Yes. This is the perfect combination for us with both ILS and ISS involved. It is something where we can offer an all-round financing package. And we have already had interest in this combined deal.
EA: Are you also planning on providing any other services to the satellite sector?
AT: As I mentioned to some satellite CFOs recently, we are ready to look at the refinancing structure. So even if the launch has already occurred, we will look at the refinancing of it.
One of the reasons why we are proposing the refinancing structures is that while it is not connected to future Russian exports, it will give a certain degree of comfort to prospective customers. To see how EXIAR operates, how Russian or international banks cooperate with us, and what kind of financial terms you can secure. And because it is a refinancing, you have time to decide, the satellite is already operational. It helps us to gain more heritage and build relationships.
EA: And is there a target amount for satellite business you are aiming for this year?
AT: We have targets for this year but for the whole export support business, not just satellites. We are looking for US$3.5bn of new business for this year.