Financing sought for exports and working capital

Information on Finnvera’s operations in 2010

Despite rising production, companies made only modest investments during the period under review. This was clearly reflected in the demand for Finnvera’s domestic financing, which was nearly one-third less than during the record year of 2009. In contrast, demand for export credit guarantees and special guarantees rose by about one-fifth. Finnvera provided more financing for starting enterprises than the year before.

Thanks to the monetary policy and fiscal policy measures taken in various countries, the economy started gradually to revive.

“Economic activity was still fairly modest during the first months of the year. Signs of economic growth strengthened as the year progressed, but at the same time new, even surprising crises surfaced in European countries and banks. Conflicting data on economic outlooks in different parts of the world fuelled uncertainty,” says Managing Director Pauli Heikkilä.

In 2010, Finnvera provided EUR 913.7 million in financing for enterprises’ domestic operations; this was 24 per cent less than the year before. In particular, financing was provided for starting small businesses, and the volume of venture capital investments was record high.

Offers for export credit guarantees totalled EUR 2.4 billion (4.4 billion). Telecommunications accounted for 71 per cent of all guarantee offers given. Among individual countries, the most guarantees were granted for exports to Spain, Saudi Arabia, Turkey and Russia.

The number of clients increased by three per cent and was 29,300 at year’s end.

Lively demand for financing among start-ups

“Because of the sharp decline in production, companies’ investments plummeted in 2009, and despite the revival of production, their volume remained surprisingly low in 2010 as well. The scarcity of investments had a major impact on the demand for Finnvera’s domestic financing, which was clearly lower than in previous years. Financing was mostly granted for working capital,” Executive Vice President Veijo Ojala explains.

Finnvera financed more new start-ups than a year ago. Altogether 3,611 starting enterprises received financing (3,457). Demand for early-stage venture capital investments was also high. In all, 17 decisions on initial investments and 61 decisions on continued investments in starting innovative enterprises were made in 2010. The total value of these investments was EUR 16.3 million.

Finnvera’s counter-cyclical financing was introduced on 6 March 2009, when the financial and economic crisis was at its height. The counter-cyclical financing granted by the end of 2010 totalled over EUR 300 million. It has helped over 800 enterprises to overcome financial difficulties caused by the recession.

Demand for export credit guarantees remained high

Although it will still be years before the Basel III regulatory framework enters into force, it had an immediate effect on banks’ operations, which were otherwise returning to a more customary level after the crisis.

“This was seen at Finnvera in that an increased number of applications was filed for Finnvera’s export credit guarantees, especially for large export projects with a repayment period of over seven years,” says Executive Vice President Topi Vesteri.

Measured in euros, the demand for export credit guarantees and special guarantees was 22 per cent higher than during the previous year. In contrast, the amounts of new guarantee offers and guarantees that came into effect declined when compared against 2009. Offers for export credit guarantees totalled EUR 2.4 billion (4.4 billion) and the total value of the guarantees that came into effect was EUR 2.6 billion (3.8 billion). Most export credit guarantees are granted for the principal sectors of Finnish capital goods exports: telecommunications, shipyards and shipbuilding, power generation, and wood processing.

Temporary arrangements for export financing to continue

Owing to the EU rules on State aid, Finnvera as a public export credit agency cannot insure short-term risks that private insurance companies are able to insure in normal market circumstances. The European Commission has given Finnvera temporary permission to grant short-term credit insurance also for exports to Western industrialised countries. This permission was initially in force until the end of 2010, but it has been extended until the end of 2011.

The short-term credit insurance granted by Finnvera in 2010 totalled EUR 103.6 million, of which exports to Western industrialised countries accounted for EUR 52.6 million.

The Finnish government decided to continue the temporary refinancing of exports through the Finnish Export Credit until 30 June 2011. During 2010, Finnish Export Credit signed one refinancing agreement; its value was EUR 77 million. By the end of the year, the refinancing used totalled EUR 357 million.

The shipyard industry: a pivotal sector for domestic and foreign risk-taking

The world’s largest cruise vessel, the Allure of the Seas, was delivered from the Turku shipyard of STX Finland Oy in November 2010. Finnvera participated in the pre-delivery and post-delivery financing of this vessel. Altogether 80 per cent of the Allure’s price was paid with a 12-year buyer credit of USD 1.1 billion, of which Finnvera’s Buyer Credit Guarantee covers 95 per cent.

Domestic risk-taking in export financing is associated with measures to secure working capital for export projects when export products are being manufactured, or with domestic ship deliveries. With a Ship Guarantee, Finnvera is participating in the financing arrangements for a new vessel ordered by Viking Line. Finnvera’s subsidiary Finnish Export Credit Ltd is a lender in the buyer credit granted for the vessel ordered by Viking Line. The credit is about EUR 180 million, or about 70 per cent of the ship’s price. Finnvera is guaranteeing 50 per cent of the credit, which is granted on the OECD terms for export credits; the repayment period is 12 years.

Future prospects

As enterprises have made few investments, demand for domestic financing has been exceptionally low.If there is an upturn in the volume of investments, demand for financing is expected to pick up already during spring. It is thought that business reorganisations among SMEs will become more common, especially as increasing numbers of enterprise owners retire and pass on their businesses to the next generation.

Demand for export financing is likely to remain at the same level as before. Outstanding commitments for export credit guarantees are expected to rise in many sectors. However, at the same time, the volume of existing commitments is decreasing, and therefore the total commitments are not expected to rise.

Finnvera’s financial statements and annual report for 2010, as well as the report on corporate social responsibility, will be published on 22 March 2011 on the company's website www.finnvera.fi.

Additional information:
Pauli Heikkilä, Managing Director, tel. +358 20 460 7321
Topi Vesteri, Executive Vice President, tel. +358 20 460 7238 (Financing of exports)
Veijo Ojala, Executive Vice President, tel. +358 20 460 7405 (Domestic regional financing)
Annamarja Paloheimo, Senior Vice President, tel. +358 20 460 7267 (Financing for growth and internationalisation)

Leena Jaakkola, Senior Vice President, Communications and Marketing, tel. +358 20 460 7232 or +358 40 352 9332