Latin Finance - July/August 2009 - 32

trade finance Trading Places by Ben Miller P etrobras’ rewarding visit to China in May underscores one trend while bucking another. The 10year $10 billion loan it signed with the China Development Bank was a milestone in LatAm trade finance, for its size and geopolitical significance. The deal funds Petrobras’ purchase of Chinese goods and services in the development of new oil fields. Excluding that and a similar transaction for América Móvil, however, LatAm trade finance was down substantially in the first five months. Volume in the region stood at $1.71 billion through June 1, according to Dealogic, compared to $7.71 billion in the corresponding period of 2008. Last year’s total was $24.60 billion, up from $22.05 billion in 2007. Citi, BBVA, BNP Paribas, Société Générale, and Calyon were the top five private trade finance lenders by volume in 2009 through June 1, in that order, according to Dealogic. BBVA led for the full year 2008, with Santander leading the pack in 2007. Overall volume should be down 30%-50% this year versus 2008, predicts Erich Michel, head of global trade finance at BBVA. Most of the drop is linked to commodities, he says, as lower demand from Asia, the US and Europe means diminished trade flow. “International banks find themselves out of the market,” Michel says, adding that they are pulling back amid pressure on costs. Besides Chinese money, multilaterals, development banks, local commercial banks and export credit agencies are picking up slack. Multilaterals, ECAs and China are covering for traditional providers of trade finance, who are expected to deploy less this year. However, commercial banks are poised to jump back in. Latin American Trade Finance Volume Feeling the slowing growth Year 2009 (to June 1) 2008 (to June 1) 2008 full year 2007 full year 2006 full year Source: Dealogic $m 1,713* 7,707 24,601 22,054 23,625 * Excluding $10 billion Petrobras facility from China Help or Hindrance? “Official agencies from around the world are stepping in and providing special resources for trade financing,” says Valentino Gallo, head of export and agency finance for the Americas at Citi. “They put together resources to mitigate the scarce liquidity in trade finance.” This mostly includes multilateral banks and export credit agencies (ECAs). Gallo says international banks have made fewer funds available during the liquidity crunch. Also, emerging marketbased banks have less access to hard foreign currency as a result of the decline in commodity exports. Remittances – an important source of liquidity to many of the region’s smaller economies are also down – reducing overall liquidity. Agencies that have started to increase direct lending might, to some extent, be competing directly with banks, says Gallo, who adds that there is room for both. He says most of the export credit business is actually still represented by financing guaranteed by ECAs but provided and funded by banks. This means there is common ground, he says, and it would be against the ECAs’ interest to completely crowd out commercial banks. Kenneth Tinsley, senior vice president for credit and risk management at the US Export-Import Bank (US Exim), says his institution does not aim to displace commercial banks and that direct lending still accounts for much less than half of its business. US Exim has seen total activity in LatAm increase, with $1.88 billion in the period from October to May, versus $1.58 billion in the same period one year earlier. “ECAs have had to step in and fill the gaps that have been created from a financing of export standpoint by the global crisis,” Tinsley says. “Some of us have had to dust off the products that have not been used that much in the past,” he adds, referring to US Exim’s direct credit program as an example. In the fiscal year ended September 2008 there were two direct loans globally, Tinsley says. This fiscal year to date, there have been more than 12, some to Latin borrowers, including Pemex, which he says is US Exim’s top global borrower. He adds that there has been an uptick in the number of top-quality borrowers, both in LatAm and globally. Other ECAs actively lending to LatAm include the export-import bank of Korea and Italy’s Sace. Petrobras is the biggest example of a shift to borrowing more from state-backed entities. Other LatAm blue chips – prior users of multilateral and ECA financing who might have moved away from it during the recent boom – are also taking advantage. Cheapest Funds Around América Móvil, one of the region’s most savvy issuers, secured a similar deal from the China Development Bank in April. The $1 billion 10-year loan came in line with other ECA financing, at slightly above 100 basis points over Libor, very competitive 32 LatinFinance July/August 2009

Latin Finance - July/August 2009

Table of Contents for the Digital Edition of Latin Finance - July/August 2009