On 4 February we submitted a “Letter to the Editor” in response to Michael West’s article, “Multinational miners grab Export Finance Australia’s cash” published by Fairfax on 2 February.
I felt it was important to correct certain errors and some misconceptions about how Export Finance Australia allocates its capital when supporting Australian companies. Detailed below is an expanded version of our letter.
As Australia’s export credit agency, Export Finance Australia’s focus is to fill the “market gap” left by the private sector when it is either unwilling or unable to finance commercially-viable export transactions for small-to-medium enterprises (SMEs).
A focus on SMEs
Last financial year, 206 of the 230 transactions that we financed were for SMEs, which helped to support export contracts worth almost $600 million.
This means around 90% of all transactions we completed were in support of SMEs, up from 80% the previous financial year.
To help support this SME growth strategy and ensure we meet the needs of Australian SMEs in the best way possible, we also:
- expanded our SME teams in Melbourne, Perth and Brisbane, with over 70% of our origination staff now solely focused on SMEs
- decreased the administrative burden for SMEs through improving our application processes, which has reduced our transaction turnaround times from 180 to 105 days
- reduced our minimum support thresholds from $500,000 to $100,000, in an effort to provide support to more growing SMEs.
When measuring our success in the SME space, I believe the most relevant benchmark is the number of transactions provided, not the value of the underlying transactions.
Supporting a small business with a $500,000 export working capital guarantee is equally important to me as assisting a larger business with a $10 million performance bond.
However, support for SMEs is small by virtue of their smaller financing needs and so larger transactions, like our support for Nyrstar’s environmentally-enhanced lead smelter at Port Pirie in 2014, can significantly distort the numbers.
Given our knowledge of the transaction and expertise in managing risk on large projects, the South Australian Government requested our support for this transformation project.
We assisted with the risk management of this project, which secures over 740 jobs directly and approximately 2500 indirectly, helping to create significant growth for the local economy.
Helping Australian companies access new markets
The other “market gap” that we service is helping Australian companies willing to take risks and create jobs through expansion into emerging markets, given the funding capacity constraints they can face.
When larger companies engage in projects overseas, they often bring their Australian suppliers with them, many of which are SMEs, which provides these smaller exporters and subcontractors with invaluable access to new export markets.
Recently this included a loan to Minera Escondida predicated on the involvement of Australian service providers and suppliers in various works at its Escondida copper mine in Chile.
Our support for this project was tied to significant Australian content, with no less than 80 Australian companies – many of which were SMEs – providing a wide range of services including engineering, mineral equipment, fatigue detection systems, tyre management and research.
Our governing principles
Mr West also questioned our disclosure of related-party transactions. I would like to be clear that Export Finance Australia takes governance and disclosure obligations very seriously.
Export Finance Australia’s independent directors may also have other directorships within the finance community. Transactions with Board member related entities can occur in Export Finance Australia’s normal course of business, such as the simple deposit of funds with a bank.
So Board member related entity transactions are not transactions with an individual Board Member, but rather transactions with an entity of which we have Directors in common, and in Export Finance Australia’s case, that relates solely to arms length transactions with large Australian financial institutions.
In addition to appropriate disclosures of interests made by Directors, required under relevant legislation,Export Finance Australia is subject to external and internal audit.
Like Australia’s exporters, we are optimistic about the future
In October 2014, the Government announced its decision to have Export Finance Australia focus on SMEs.
This is reflected in the proposed amendments to the Export Finance Australia Act currently being considered by the Federal Parliament and the Government’s new Statement of Expectations for Export Finance Australia.
Given our strategic objective is to support 300 SME transactions in 3 years and 400 SME transactions in 4 years, we look forward to assisting even more Australian companies with the financial support they need to achieve export success.
Managing Director & CEO
Export Finance Australia