Funding the export outlook

Export Finance Australia, the trading name of Export Finance and Insurance Corporation, has been more active in global markets over the last 12 months as it supports Australian export-trade growth. KangaNews speaks to Chris Collard, the agency’s Sydney-based director, treasury, about the outlook for Australian exports.

Export Finance Australia was less active in the Australian dollar debts market in 2019. Is this likely to change during the next 12 months and can you give an update on your ongoing funding requirements and strategy?

In broad terms, we aim to match-fund our portfolio of liabilities with that of our assets with respect to tenor and volume. During 2019, we sustained a healthy, albeit decreasing, funding ratio. New export financing opportunities were signed during the year, which will require an increase in our longer-term funding to boost that ratio.

More likely than not, this means we will re-engage with term debt markets during 2020. Even though most of our funding requirements are in currencies other than Australian dollars, our last five public issues have been in the Australian dollar market.

We expect this trend to continue. Local investors are familiar with our name and are keen to support our modest issuance requirements. 

Export Finance Australia has been active in global short-term markets. What has been your experience there the last 12 months?

We continue to access the euro commercial paper (ECP) market regularly, raising both US dollars and euros for tenors from one week to six months. During 2019, we issued more than US$3 billion and €500 million (US$550.4 million).

Investor demand for our debt has remained strong despite challenging market conditions at times. Investing in our ECP gives buyers the opportunity to gain an exposure to debt that the Commonwealth of Australia explicitly guarantees, in currencies other than Australian dollars.

As a result, we are usually a highly sought-after niche issuer – even when market conditions are tough.

How do you manage investor relations during quieter periods and ensure that investors remain engaged with Export Finance Australia?

It is important that we maintain open dialogue with the investor community, both on- and offshore. We work closely with our arranger banks to ensure ongoing communication.

It is imperative that we continue to update investors, not only on our funding requirements but also on any changes to our underlying business – including our support from the Commonwealth and involvement in its policy initiatives. It is equally important that we reinforce the explicit guarantee we have from the Commonwealth.

Sanctions, tariffs and trade wars seem to be the new normal. Can you give an idea of expectations for Australian exports in the year ahead?

Our analysis suggests moderating export growth in the next 12 months. Prices for Australia’s major exports will probably drift lower after seven-year highs in June 2019. However, a weaker Australian dollar will offset this and continue to support our export competitiveness and Australian dollar export receipts.

US-China trade tensions and slowing global industrial demand will put pressure on exporters of base metals, although China’s efforts to stimulate infrastructure development will continue to support demand for materials such as iron ore and aluminium. Services exports are expected to continue to grow steadily. Overseas student enrolments are underpinning this, as is the lower Australian dollar over the last year. 

Agricultural exports, on the other hand, will weaken as the ongoing drought hits crop and livestock production. Manufacturing exports are expected to continue to increase steadily, especially exports of medicinal and pharmaceutical goods and professional and scientific instruments.

Longer-term demand for these products will probably be driven by an ageing population in Asia and Australia’s reputation as a high-quality producer.

What kind of initiatives does Export Finance Australia get involved in with the federal government?

In 2019, our role and mandate evolved substantially as the federal government made several announcements.

The US$3 billion Defence Export Facility was established in January. Export Finance Australia administers and funds this as part of the Defence Export Strategy to support Australian contractors.

Our callable capital was increased by A$1 billion (US$672.3 million) in April. This was designed to allow us more fully to support infrastructure projects in the Indo-Pacific region as part of changes to the Export Finance and Insurance Corporation Act 1991. Our trading name was changed to Export Finance Australia in July.

Finally, in November came the adoption of the Critical Minerals Strategy and new financing initiatives to help build and expand the critical minerals sector.