Finnvera: Funding enables export companies’ foreign trade
Finnvera’s funding plays a big role for Finnish export companies competing for export deals. The goal is to obtain funding from capital market to enable Finnvera to provide competitive export credits to customers of Finnish export companies and create an impact through financing. Finnvera’s financing and guarantees reduce companies’ risk of losing orders.
Finnvera’s funding has surged in recent years. This is due to banks adopting stricter lending criteria due to regulation and to international cruise shipping companies swiftly renewing their fleet. The price of a large cruise ship can exceed one billion euros, bringing shipyards work for many years.
“Over half of our financing relate to cruise ships. The telecommunications and forest sectors are other large areas,” says Jukka-Pekka Holopainen, Head of Treasury at Finnvera.
Finnvera, a state-owned, specialised financing company, has used capital market bonds to acquire funding for export credits since 2012.
Its outstanding bonds, issued under a state-guaranteed debt programme, amount to just under 10 billion euros. The latest, 1 billion US dollar benchmark bond was issued in October. This year’s first benchmark was a 1 billion euro-denominated bond and took place in April.
“We aim to issue benchmark bonds annually, both in euros and US dollars. It is a strategic decision. Self-sustainability, a goal set for Finnvera, means that Finnvera must manage its financial risks. In the long term, the income from our operations must exceed our expenses and potential losses. At the same time, we must also provide companies with competitive financing that increases trade and creates new jobs. This is our way of boosting the impact of our financing operations,” Holopainen explains.
Finnvera’s annual funding needs amount to some two billion euros. The demand for financing exports is mainly influenced by the banks’ ability to provide loans to businesses and by development in the global capiltal markets. Uncertainty has plagued the capital markets for some time.
“We make rough funding plans for at least a year into the future. Our plans are based on estimates of clients’ needs for financing and our maturing debt. Some of the funds are set aside in a liquidity reserve for later investment. Ideally, the buffer should amount to a few billion,” Holopainen says.
Timing and price are crucial to demand
International institutional bond investors mainly come from Europe, Asia and North America. Most of them are financial institutions, such as banks, central banks, insurance companies and asset managers.
You would expect a guarantee by the Republic of Finland to signal a low-risk bond. Nevertheless, each issue calls for a great deal of work.
“There is demand for safe investment options, but we are still relatively new on the market. It is important to meet with investors regularly to make our bond issues attractive. One basis point in either direction amounts to a large sum of money when talking about a billion-euro debt,” Holopainen points out.
For a bond issue to be successful, there must be adequate demand and the price must be right. The goal is to obtain funding at as low a cost as possible with a healthy maturity structure of the debt.
Our previous issues, coupled with our recent active work in investor relations, has improved Finnvera’s name recognition on international capital markets.
“It is always difficult to estimate the timing, or the maturity, of future issues. Bonds usually have a maturity of five to fifteen years. Ideally, an issue is oversubscribed, and a well-functioning secondary market is in place for the bonds,” says Holopainen.
For example, the one-billion-euro benchmark bond issued in April attracted over 90 investors, and the subscriptions totalled 2.8 billion euros. The target for attractiveness was met. The USD-denominated October issue was also a success, attracting a record number of subscriptions.
“This signals a growing demand. Our previous issues, coupled with our recent active work in investor relations, has improved Finnvera’s name recognition on international capital markets. Such awareness has a big impact on demand. It improves the accessibility of cost-effective funding,” Holopainen explains.
Discussions on new investment trends
Most of Finnvera’s future bonds will be issued under the 15-billion-euro EMTN programme. Time will tell how new investment trends will take root. Especially the provision of environmentally-friendly green bonds, targeting responsible investors, has increased quickly worldwide.
“Investors have also asked us about green bonds. The standards and categorisations related to green bonds are being rapidly developed. Any large investor and issuer keeps close tabs on development in this field,” Holopainen believes.