BNP Paribas walked away with the coveted Best Export Finance Bank trophy at the recent
Yasser Henda, Global Head of Export Finance at BNP Paribas, explains how ECA financing is evolving globally and how his teams have managed to remain leaders in the market.
2019 Trade Finance Awards. The bank earnt the accolade due to an impressive 2018 which saw it support as Advisor and MLA the first ever offshore wind farm in Taiwan to K-Sure's largest deal in India to date, etc.
The diversity of these deals demonstrates how the market is changing, and how BNP Paribas is swiftly adapting and changing with it. Geographically, for example, the bank is engaged in several markets.
Yasser Henda, the bank's Global Head of Export Finance, explains: "We have franchise positioning across regions to support our clients. We take a global approach but with a deep understanding both locally and regionally of clients' needs, which are evolving at high speed." Henda points out that BNP Paribas has achieved diversification not just in terms of countries benefitting from ECA financing, but also in regards to the sectors and breadth of financing products his team is offering to clients.
BNP Paribas has maintained its leadership position and is making waves in a wide range of areas. Large renewable energy deals have now also become a fundamental part of the bank's business, while it also completed major deals last year spanning the telecoms, transportation, and infrastructure sectors. At end-2018, renewable financing for BNP Paribas Group reached a level of €15.4 billion.
Market evolutionHenda explains that while much is changed about the market, global volumes have remained steady. "This market has seen consistently stable volumes in ECA finance over the last few years, including 2018. Though we have seen some reduction in the contribution of commercial banks, we have also seen still significant direct contributions from ECAs, particularly on the largest deals. And those jumbo deals are definitely back. For a number of years, we hadn't seen big limited recourse transactions. But then in 2017 and 2018 we started seeing these deals come back to the market across regions."
Henda believes the reason for this surge in activity is due to a combination of cyclical macroeconomic trends and (geo)political events. A harder factor to mitigate is if slated investment decisions get delayed or displaced due to geopolitical issues.
"We have seen investments in many sectors which had been delayed, with delays having less to do with geopolitical issues and more to do with market cycles and current priorities of investors", Henda says. "We have not seen a single deal not make it to the finish line due to a lack of liquidity, but the sources of funding, financing structures and breakdown in terms of liquidity contribution – all of these things are evolving", he adds.
"We have seen investments in many sectors which had been delayed, with delays having less to do with geopolitical issues and more to do with market cycles and current priorities of investors."Another trend Henda identifies is an increasingly willingness of ECAs and associated funding entities to support major deals through their direct funding programmes. It is not unusual to see a major transaction with direct loans of several billion dollars.
With expectation increasing that US Exim may soon be back operating at full capacity again, the volume of direct lending could increase further still in support of large transactions.
And demand for ECA financing is not just coming from emerging or developing markets, according to Luca Lunari, BNP Paribas' head of Export Finance Mature Markets & Italy. He says: "In spite of the total amount of negative-yielding debt hitting a record of $13 trillion in July 2019, meaning that many investment grade-rated corporate borrowers in Europe and elsewhere can tap the Debt Capital Markets at near-zero or even negative rates, we still see opportunities for export finance in mature markets, which still accounted for over 35% of the volume of new export finance loans in 2018, a trend which we believe is likely to be confirmed in 2019".
Meanwhile emerging markets continue to present new opportunities too. Loic Le Sache, BNP Paribas' head of Export Finance APAC, says: "The APAC market is less predictable but the good news is that it is getting more diversified in terms of borrower profile, sectors and markets".
Henda highlights the huge infrastructure needs in emerging markets. The Asian Development Bank has previously estimated that $1.7 trillion of infrastructure investment is required in Asia every year over the next two decades. Investment is falling short of those levels at present. ECA and DFI supported financing will play an essential role in closing the infrastructure gap in the region. And the needs goes beyond just Asia, as technological disruption demands major renovation of infrastructure around the globe.
Philippe Birebent BNP Paribas' head of Export Finance America says: "In key LatAm markets there has been renewed interest in the risk mitigation benefits of ECA/DFI products. There is an emphasis on leveraging financing resources through the layering of ECA, DFI and commercial facilities; the wind sector exemplifies this approach. As in North America, ECA financing often is an effective means of overcoming tenor limitations in the commercial market, and is therefore of interest to sectors requiring longer tenors, such as the telecom and renewable energy industries. The common threads are an uptick in perceived risk coupled with our clients' rapidly expanding sustainability objectives. ECA and DFI financing offerings, reflecting our commitment to serve our clients, can be an essential part of the solution."
Henda says: "The world is in need of infrastructure investment. These needs are across sectors and becoming more sophisticated as living standards improve in emerging markets and with a heightened focus on sustainable development. DFIs, ECAs and private markets will all play a role in providing the required funding. Private investors and institutional investors have capacity but this capital needs to be channelled through the right products and structures to where it is needed most."
Sustainability and disruptionSustainability is incredibly important to BNP Paribas as an institution, in terms both of how the bank operates and what it supports with its lending. Henda says: "We are very focused as an institution on sustainable development and we believe we are ahead of the curve in this regard."
The bank has the accolades to back up its claims. In January 2019, it was ranked 24th in the Global 100 Most Sustainable Corporations report compiled by Canadian magazine Corporate Knights. BNPP has also been awarded "World's Best Bank for Corporate Responsibility" in July 2019 by Euromoney.
Georges Curey, BNP Paribas' Head of Structured Export Finance, explains that it is important to both improve your business practices and encourage other institutions to follow your lead.
Curey says: "There are many ways our business is already supporting sustainability but we have to go much further as an industry. And this is not just being led by the banks and other financial institutions. Clients are increasingly asking for green or sustainable solutions."
Véronique de Blic, BNP Paribas' head of Export Finance EMEA, agrees: "Supporting clients in their sustainable trajectories has become another key red thread in the export finance activity across the EMEA region, from Africa through the development of wider access to electricity, water, healthcare or public transportation, to Europe through renewable energy or waste-to-energy plants."
Henda explains that the bank is using three levers to pursue its sustainability goals.
- The first is the way the bank promotes sustainability, not just through its products but also through raising awareness. This can either be through bank-led initiatives, or spreading the word through industry forums.
- The second lever is working on ways to incentivise sustainable behaviour and actions.
- And the final lever is collaboration – creating a dialogue with other businesses and working with international organisations like the World Bank and the United Nations to agree standards and guidelines.
Henda is keen to stress that sustainability is not just another initiative but rather fundamental to what the bank does as a business, and more specifically what his team does. "Just as BNP Paribas wants to be a leader in the issuing of green bonds, for example, we also want to be a global leader of ECA sustainability."
Another much-debated topic in financial institutions right now is technological disruption and how it is impacting and changing business models. As Henda points out, in almost all sectors there are emerging technologies which threaten to entirely change whole industries. This raises the risk of discontinuation of some assets.
Satellites, telecoms infrastructure, power plants both renewable and conventional could all be negatively impacted, while financing models for emergent technologies like electric cars and battery storage are still being determined. And financing itself is being transformed, with blockchain and distributed ledger platforms already changing how transactions are carried out.
Henda stresses that the key to manage technological disruption is to remain agile so that you can adapt your business, but risks are high. Henda agrees that it is becoming increasingly difficult to predict what the world will look like in a few decades' time, which makes long-term planning difficult. New funding models are likely to emerge. "With technological disruption you need to have your eyes wide open, and also make sure you have the right glasses on", Henda says. "It is sometimes difficult to tell if you are being short-sighted or not."
"With technological disruption you need to have your eyes wide open, and also make sure you have the right glasses on. It is sometimes difficult to tell if you are being short-sighted or not."
SeasonalityWhile overall volume of deals and capital invested has remained consistent, activity appears to have become lumpy, with many of the biggest transactions closing at the end of the calendar year.
Henda explains: "We have started to see some seasonality. In 2018, volumes were quite low at the start of the year, but the market unanimously agrees that the second half, and particularly Q4, was crazily busy. It was one of the busiest quarters ever in terms of signings and closings. This year  started in a similar way, with Q1 quiet. In Q1, we saw obligors launching requests and looking at funding their investments across the world but not many deals concluded."
It is not entirely clear why this compression of deals occurred at the end of 2018, though Henda says it may be to do with limited resources creating a backlog of similar type deals.
This article was published in Trade Finance Magazine in July 2019.