Export Finance Australia's loan book grows to support exporters

Export Finance Australia’s increased borrowing activity in 2020 is another illustration of the impact of government stimulus on the wider economy and exporters in particular. Chris Collard, director, treasury at Export Finance Australia in Sydney, shares insights into the agency’s new lending activities and the funding it now requires.

It has been a tumultuous year for Australian exports, first with the COVID-19 crisis and then the escalation of disputes with major trading partners. How has Export Finance Australia supported Australian exporters?

During COVID-19 and beyond, we have continued to help Australian businesses pursue export opportunities despite the uncertain economic outlook and challenging credit environment.

Throughout COVID-19, the agency has increased its support for exporters. Among other initiatives, the government’s A$500 million (US$382.6 million) COVID-19 export capital facility, which we administer, is helping previously profitable Australian businesses affected by COVID-19 to keep operating, maintain jobs and prepare for the economic rebound.

Has COVID-19 resulted in an increase in the agency’s funding task?

On an outright basis, the increase in funding requirement has been modest compared with the semi-governments and the sovereign. Notwithstanding this, our borrowing has increased – to fund COVID-19 facility loans along with larger project-finance transactions and other government-led projects.

This loan-book growth is expected to continue in 2021. To accommodate this, our ECP programme limit was increased to US$2 billion from US$1.5 billion and our Australian dollar multicurrency MTN programme was increased to A$5 billion from A$1.5 billion during 2020.

Export Finance Australia is typically active in short-term offshore funding markets. What did the funding mix look like in 2020?

We maintained a constant presence in the US dollar ECP market and, to a lesser extent, in euros. During 2020, we issued more than US$3 billion equivalent in short-term offshore debt, resulting in Export Finance Australia being the largest issuer of non-Australian dollar, Commonwealth of Australia-guaranteed debt in ECP markets.

Export Finance Australia paper is keenly supported by investors even in challenging market conditions. However, there was a period during mid-March to early April where ECP markets were simply not functioning. We adjusted the way we funded our short-term borrowing needs, instead using some of our surplus liquidity to satisfy day-to-day funding requirements.

We continued our disciplined issuance approach and only resumed ECP offerings when margins reverted to acceptable levels and confidence was restored following support from central banks around the globe. We continue to tender all our ECP requirements to ensure we receive the tightest pricing.

Export Finance Australia’s A$650 million 3.5-year transaction in July 2020 was its largest-ever syndicated deal in the domestic market. What led to this outcome?

We had always planned to revisit term debt markets during 2020. Apart from the growth in our loan book, we had a A$500 million fixed-rate bond maturing in November that required refinancing.

As we predominantly require US dollar denominated funding, we were monitoring many moving parts in both debt and derivative markets early in the year. We decided to postpone any term issuance when markets dislocated around mid-March. After 30 June, when conditions improved, we refocused on matching our issuance requirements for volume and tenor with potential investor appetite.

Working closely with our arrangers, we launched a A$500 million, 3.5-year fixed-rate transaction and then printed a A$650 million deal. Compared with our previous Australian dollar deals, we achieved a record tight margin on an outright basis as well as against Australian Commonwealth government bonds on a curve-adjusted basis.

The proceeds were swapped to floating-rate US dollars at a competitive level. The transaction was well received by domestic and offshore buyers, and further increased the diversification of our investor base from a variety of different sectors.

In November, we issued a A$150 million 10-year, fixed-rate Australian dollar bond, partly in response to requests from some investors for longer tenor. This also suited our desire to lengthen the maturity profile of our total debt. As a result, we ended the year with a matched funding ratio of close to 90 per cent.

How actively is Export Finance Australia seeking to increase its investor base?

We always endeavour to satisfy investor demand in various markets with our modest borrowing requirements. To this end, it was pleasing to see a record number of new buyers of our paper, domestically and offshore, in the two term issues we completed last year.