Uncertainty on the financial market increased demand for Finnvera’s financing
In 2008, demand for financing for both domestic operations and exports was greater than ever. Demand for export credit guarantees already rose markedly during the first half of the year. In domestic financing, demand only picked up after the summer.
“The exceptionally rapid advancement of the global financial market crisis changed the financing patterns of both exports and domestic operations so that Finnvera was needed increasingly often as a risk-sharer. Both Finnish and foreign banks reduced their lending. At Finnvera, this was seen as greater demand for financing,” says Managing Director Pauli Heikkilä.
During the year under review, Finnvera provided more financing for domestic enterprise and export trade than ever before. The value of export credit guarantees offered totalled EUR 6.3 billion, or EUR 4.5 billion more than the previous year. Of this sum, guarantees pertaining to foreign risk-taking accounted for EUR 4.2 billion. Financing for domestic enterprise rose by 15 per cent on the previous year, to EUR 1.0 billion.
The financing for domestic enterprise offered by Finnvera contributed to the creation of over 12,500 new jobs (10,900).
A new model for export financing
Finnvera’s ceilings on outstanding commitments both in domestic financing and for export credit guarantees were raised at the turn of the year. In addition, the limit for interest equalisation administered by Finnvera’s subsidiary, Finnish Export Credit Ltd, was raised. Finnish Export Credit can use refinancing to ease the liquidity problems faced by export financiers. The legal amendments concerning the ceilings on outstanding commitments and refinancing entered into force at the turn of the year.
Owing to enterprises’ increased difficulties in obtaining financing, the Cabinet Committee on Economic Policy proposed yesterday that an additional EUR 2.5 billion be allocated for refinancing exports during this year. This means that the total sum available for refinancing in 2009 would be EUR 3.7 billion.
Since the projects to be refinanced always include an export credit guarantee granted by Finnvera, it has been proposed that the maximum outstanding commitments for export credit guarantees be raised at the same time to EUR 12.5 billion.
“Within the last few months, many large investment projects have been subject to reconsideration, and some Finnish companies have postponed export projects,” says Executive Vice President Topi Vesteri, who is responsible for Finnvera’s export financing.
According to Vesteri, this stems from problems in arranging financing and also from buyers’ wish to put off investment decisions. The improved financing options available to Finnvera and Finnish Export Credit can help companies when there is the risk that a deal is called off because of financing problems.
“The arrangements now introduced are temporary for the years 2009 and 2010. They still require risk-sharing with financiers operating on market terms,” Vesteri explains.
Additional input into SME financing
The availability of financing for SMEs has also declined. As part of the State’s stimulus policy, Finnvera’s ceiling on outstanding commitments in domestic financing was raised from EUR 2.6 billion to EUR 3.2 billion as from the beginning of 2009.
Yesterday, the Cabinet Committee on Economic Policy also proposed that the ceiling on outstanding commitments for domestic loans and guarantees be raised by EUR 1 billion, to EUR 4.2 billion.
“With the greater demand for financing, raising the ceiling on outstanding commitments makes it possible to provide financing for an increasing number of projects deemed to be profitable. Finnvera cooperates and shares risks with other financiers in domestic financing as well. In its financing policy, Finnvera must take account of the EU rules on state aid,” says Executive Vice President Veijo Ojala, who is responsible for domestic regional financing.
The Cabinet Committee on Economic Policy also recommended the adoption of counter-cyclical loans and guarantees for enterprises that have experienced temporary difficulties in their business and financing because of the financial crisis.
“Finnvera is prepared to introduce new financing products of the counter-cyclical type. These would help ensure that enterprises with the prerequisites for profitable business could continue their operations beyond the recession,” Veijo Ojala says.
Of the domestic financing of over one billion euros offered by Finnvera to SMEs, 17 per cent was offered to small enterprises, 54 per cent to regionally operating enterprises, and 29 per cent to growing and internationalising enterprises. Financing granted to national assisted areas increased by 24 per cent on the previous year, to EUR 438 million; this accounts for 43 per cent of all domestic financing offered.
Finnvera provided a total of EUR 135 million for the financing of ownership arrangements in about 1,050 enterprises.
“Irregularities on the financial market and the controlled increase of risk-taking in the financing of starting enterprises and growth enterprises, and in areas affected by restructuring, increase the demand for Finnvera’s financing. We expect that generation changes among entrepreneurs will increase during this year; this will also be reflected in the demand for our financing products,” Ojala predicts.
Finnvera has developed a model to provide financing for enterprises in areas affected by abrupt structural changes where major companies have reduced their staff. Through this financing, it has been easier to create new jobs and to secure existing jobs. A total of EUR 164.1 million was granted to areas affected by restructuring. This helped to create some 2,200 new jobs and to secure over 370 existing jobs.
Record-high demand for export credit guarantees
Demand for export credit guarantees in 2008 broke all records in the main sectors of capital goods exports – telecommunications, shipbuilding, wood-processing and power generation. Measured in euros, the demand rose by 386 per cent on the previous year; measured by numbers, the increase was 21 per cent. The total sums of guarantee applications, guarantee offers and guarantees that came into effect were higher than ever before in Finnvera’s history.
In particular, Finnvera was needed to provide guarantees for the financing of large capital goods transactions against political and commercial risks, and to share risks in all sectors of capital goods exports. The greatest demand for financing was for exports to Russia, the United States, Germany and Brazil.
Increasingly often, guarantee applications were also filed for exports to industrialised countries. Projects that had been initiated in good time before the onset of the financial crisis proceeded quickly to the stage where offers are given and guarantees come into effect. Towards the end of the year, implementation of projects slowed down as it became more difficult to arrange total financing.
The shipyard industry – the pivotal sector in domestic risk-taking
In 2008, Finnvera concluded a guarantee agreement on pre-delivery financing for the world’s largest and most modern cruise vessel, “Oasis of the Seas” , and for her sister vessel, “Allure of the Seas”. Ordered by Royal Caribbean Cruises Ltd, the ships will be built at the Turku Shipyard of STX Finland Oy.
Pre-delivery financing for these cruise vessels can reach at most EUR 900 million, of which Finnvera guarantees at most EUR 525 million. The maximum credit sum per vessel is EUR 650 million, and the maximum credit sum guaranteed by Finnvera is EUR 325 million per vessel.
Future prospects
Uncertainty on the financial market will increase the demand for Finnvera’s financing in Finland. With slower economic growth, the emphasis in financing is likely to shift from investments to working capital.
Among industrial enterprises, the volume of orders on hand will probably continue to decrease at least for the first six months of the year. The situation of service enterprises will also weaken, but their prospects are still lighter thanks to domestic demand that will remain reasonably good.
The number of enterprises in distress and the number of bankruptcies may well rise already during the first half of the year.
During the first few weeks of 2009, the global economic crisis has deepened further. According to Finnvera’s estimate, exports covered by means of export credit guarantees will account for a higher share of total exports.
At the outset of 2009, the number of claims based on short-term guarantees has been on the rise in Russia, owing to buyers’ difficulties in meeting their payments. So far the sums have been small. Finnvera has not yet encountered any disruptions in payments with respect to export credit guarantees for capital goods exports, but Finnvera’s counterparts abroad have already reported increasing payment delays. The availability of financing has fallen everywhere, in particular on the emerging markets. This increases the country, bank and enterprise risks existing in Finnvera’s outstanding commitments for export credit guarantees.
Finnvera’s financial statements and annual report for 2008, as well as the report on corporate social responsibility, will be published on 31 March 2009 on the website www.finnvera.fi.
Additional information:
Pauli Heikkilä, Managing Director, tel. +358 20 460 7231
Topi Vesteri, Executive Vice President, tel. +358 20 460 7238 or +358 400 702 002 (Financing of exports)
Veijo Ojala, Executive Vice President, tel. +358 20 460 7405 or +358 400 672 401 (Domestic regional financing)
Annamarja Paloheimo, Senior Vice President, tel. +358 20 460 7267 or +358 50 309 7368 (Financing for growth and internationalisation)
Leena Jaakkola, Senior Vice President, Communications and Marketing, tel. +358 20 460 7232 or +358 40 352 9332
