A new £5 billion export refinancing facility has been launched by UK export finance.
The facility allows UK exporters to offer long-term financing at competitive rates to overseas buyers who require loans in excess of £50 million to purchase UK goods and services such as large-scale construction or infrastructure development projects.
It operates by allowing buyers to access the competitive funding provided by the debt capital markets in order to refinance export finance loans after these have initially been made available by the banks. It is also the first time this financing approach is being used for civil project finance by an export credit agency.
In practice what will happen is that UK Export Finance will guarantee repayment of bonds issued by the buyer to refinance the initial loan. This will allow the bonds to be competitively priced at a fixed rate, which takes account of the UK’s credit rating. Should the borrower be unable to refinance the loan, UK Export Finance will become the lender until alternative funding is found. In short, UK Export Finance will underwrite the funding and may become a lender of last resort.
This is clearly an example of the UK government backing UK business and is welcome in today’s increasingly competitive global market. It also should help UK exporters in their attempts to access overseas markets, particularly those in developing countries.
However, it also raises a number of questions, including why could this not be used for UK businesses whose customers do not want or need loans in excess of £50m? Whilst I understand that there has to be a cut-off so that the facility is not being used to refinance a small loan, £50m does seem to exclude this facility from the majority of UK exporters which cannot be right?
Also, why is not a similar facility being used to refinance loans made to UK buyers who are looking to invest in capital projects in the UK? This would surely encourage more banks to lend and, after all, the more capital projects there are in the UK, the better it must be for UK business and the UK as a whole?