Strategic insight: Navigating the overlap of export, project and development finance for sustainability

Proximo: You have an interesting title, head of development and structured export finance, which is unusual for a bank group. How much does the development and structured export finance overlap?

Cécile Camilli (CC): Thank you for spotting that. We changed the name of the department nearly three years ago. It used to be simply ‘export finance’ but in recent years our strategy evolved to focus more on financing sustainable economic development, supporting both emerging and developed countries. We had a strong push on the United Nations Sustainable Development Goals (SDGs) while ECAs were primarily quite engaged with emerging markets. Over the last two to three years, there has been a shift to embrace the energy transition in high income countries. I want to emphasise though that it does not come at the expense of our support for emerging markets [Societe Generale topped TXF export finance league tables in emerging markets and Africa in 2023]. The word ‘development’ was part of our strategy of focusing on enhancing development in emerging countries, focusing on sustainable development, whether that be on the social or on the climate front, but also supporting and accelerating theenergy transition globally.

We also set up a desk covering DFIs and multilaterals. We saw a lot of potential by cooperating and coordinating more closely with them, as they can bring complementary solutions to those of ECAs. That was initially more in emerging markets with multilaterals and regional development financial institutions, but we also see European institutions, such as the European Investment Bank (EIB), EBRD, KfW, SEK (some of whom are closer to the ECAs), engaging in European mega projects around the energy transition.

I wanted to call it ‘structured’ export finance too because we do a lot of project and asset finance. We closely cooperate with financing and advisory teams within Societe Generale across different sectors including mining, clean mobility, batteries, shipping, renewable energy and hydrogen. ECAs have shifted themselves and are today firmly engaged in all sectors accelerating green technologies and climate change mitigation. They are proving essential to mitigate new risks associated with these sectors – whether they be counterparty, technology or market risks.

In our team we also have the capacity to structure more innovative financing solutions, whether it's to finance exporters or borrowers, which can be through receivables financing, or leasing structures. We work as one team with our sectoral project and asset finance colleagues on transactions whenever there is an ECA involved. We start the journey from the advisory mandates into the arranging mandates, really working alongside to make sure that the ECA approach and advisory is completely integrated.

Proximo: Can I unpick this a bit. Are you involved in initiating/originating deals?

CC: In terms of origination, we have sectoral teams at Societe Generale, which we call financing and advisory teams. For instance, there is one dedicated to the batteries metal industry, one to energy, one to the maritime industry, etc. They have a primary focus on their sectors, value chain, and the stakeholders gravitating around that sector. We are integrated at the origination stage, bringing our expertise on what the ECAs and public institutions can bring in terms of capacity and advisory. It is a combination of a market, product and sectoral approach.

When I joined this market four years ago, we had a content/product driven approach. For instance, if there was a power project, turbines would come from a certain country, and the ECA of that country would guarantee/insure based on that content. Today, we have such a large panel of solutions and products that are on offer by the ECAs which are driven by sovereignty. That sovereignty can be export, but also reindustrialisation, employment, securing offtakes, securing supply.

That gives us a lot of possibilities to maximise the bankability and the economic terms of the transactions. The advisory culture of export finance is key to promote business and support clients whether they be exporters, contractors, sponsors or borrowers. When we approach a new project, whether it relates to social or energy infrastructure, [a] gigafactory, hydrogen, or renewable energy project, you can map out all the potential ECAs and DFIs to extract not only the content and exports, but also all the sovereignty angles that the ECAs can promote. One is never comparable to the other.

For instance, you could extract something from CESCE based on an industrial interest to export technologies, or Spanish sponsorship. But then Euler Hermes could be interested in offtaking and securing strategic products such as batteries, and France could look at how to reindustrialise and support strategic projects in the country. The variety of capacities gives more importance to the advisory or pre-arrangement phase. This is a spirit and a culture that has changed and is more embedded in the export finance teams.

Proximo: How do you see the competitive environment in 2024?

CC: First of all, we’ve seen overall volumes of export financing doubling between 2022-2023, reaching almost $200 billion [in 2023]. That's really impressive. That’s a result of a shift, but not at the expense of emerging markets, towards a whole new market that has really accelerated, which comes from the energy transition in high income countries, and of course, other sovereign matters around defence that is bringing a lot of large transactions.

At the same time there has been an expansion in the number of banks with an appetite and interest for and in export finance. That goes beyond banks because we have started to see more institutional investors ready to buy assets, whether directly under a loan format or sometimes under a repack format. Export and development finance offer value in its long-term cash flow secured with very limited, or sovereign, risk at least, but also you can dedicate the proceeds towards given assets, most of the time with generating positive impacts.

This suits financial institutional strategy and ESG commitments compared to general corporate purposes that the bond markets would normally serve. Here you are driving proceeds towards, say, a hospital or a renewable project. That has a lot of impact, not only in terms of ESG strategy and allocations of balance sheets, but also communications.

It’s interesting to see a larger number of banks, US, Asian and European, active in the market. It’s good as it gives more visibility to this market, on a comparable level with other types of products, and it demonstrates its strategic importance in the ability to transform the world. 

There is great momentum around export finance, and this broader universe of stakeholders and banks/investors has been accompanied by dynamism from ECAs. ECAs have been able to reinvent themselves and make sharp moves away from fossil fuels to concentrate resources on social ESG, climate and green projects. 

Not only have they shifted mandates, but they have also come up with new products and solutions. They’ve demonstrated high levels of agility, flexibility. And the pace of innovation means you frequently get new products and solutions that we can engage and educate clients with, advising them on what’s possible by leveraging on export and development finance.

Proximo: Is it now vital for an ECA or a DFI to be involved in any of in these mega projects before the bank has comfort to get involved?

CC: We will have to see how those new industries mature and how the technologies get accepted by the market and where the risk is perceived as being more limited. But today, whether we are talking about batteries, such as Verkor or AESC gigafactories in France, industrial decarbonisation, such as H2 Green Steel plant in Sweden or renewable energy such as the large offshore wind field that we have recently financed in Poland, Baltic Power, ECAs are proving instrumental in the bankability of large debt raising plans.

Those projects carry new technologies and challenging contracting coordination on which we haven’t yet built a track record and long term tested financing models. Counterparties’ risk can also be challenging with entrepreneurial sponsors and emerging leaders which can be closer to startup models.

There are some markets too where offtake contracts are shorter than the maturity of the financing. For instance, we recently financed wind turbine installation vessels where you need to finance new vessels on very short term contracts. That means taking a view as well on market perspectives to ensure you will have the cash flow to service the debt. In sum, combining markets, new counterparties, technologies, and very large financing, it really calls for ECAs to be involved, joining stakeholders’ collective efforts from investors, banks and governments, and spur the green revolution. That's what we are currently witnessing with the deals Societe Generale has signed and closed over the last year or so.

Proximo: And, coming back to the ‘development word’, what about trends working with DFIs?

CC: Another development we’re witnessing is supporting transactions with DFIs. I would like to highlight two deals that we have signed this year, which is one [in May] for Turk Eximbank with the Asian Infrastructure Investment Bank (AIIB). It was an interesting transaction because it's the first one covered under the partial debt guarantee of AIIB as part of its private capital mobilisation programme, it is perfectly aligned with our strategy to serve green investments in energy and water efficiency.

Similarly, we signed a deal with the African Development Bank (AdDB) for the Republic of Senegal. This is the first dual currency transaction for AfDB (both in CFA Francs and euros) under the country’s sustainable financing framework, supporting Senegal in the achievement of its sustainable development objectives across strategic sectors.

Proximo: Turning to pricing trends. We’ve had inflation, geopolitics, lots of developments in new markets, all sorts of things that need an imaginative approach to pricing deals. What trends are you seeing?

CC: I don’t think there is a one specific trend because you see different pricing dynamics depending on deal nature, size and structure, whether you are dealing with certain sectors, project finance, emerging market sovereign or corporate risk, etc.

You could say there is now a broader, active bank universe which is deploying a lot of appetite, that is creating some price tension. At the same time, export finance transactions are by nature already quite tightly priced, given the strong risk mitigation. While ECA and DFI transactions are not immune from market volatility you can’t have too aggressive price tensions, though.

Proximo: At Exile Global your main discussion points were around the role of sustainability in export finance, and you highlighted a number of deals such as the AESC Douai gigafactory and a Green Mobility project in Kazakhstan, and you were involved in award winning deals such as Northvolt Ett and H2 Green Steel. How are sustainable mega projects progressing this year and what is your pipeline looking like?

CC: We have signed several deals in batteries and renewable energy, and we’re continuing to be active on those. We have a healthy pipeline, and we’re still looking at a few transactions on a selective basis. In May we signed the Verkor Gigafactory in France and EcoPro in Hungary [in June, a deal supported by Kexim and K-Sure]. We also signed a large copper mining transaction in Chile, Centinella, a strategic project to support renewable energy supply chain.
The pipeline looks good with projects very much aligned with global decarbonisation targets, including renewable energy, clean mobility, but also large social infrastructure projects with sustainable impact.

Proximo: In Asia, or is this Europe?
CC: Both. Accelerating the energy transition and green energy production remain a priority in both regions.

Proximo: Do you think export finance volumes are going to be more than last year?
CC: I was asked that [on stage] at TXF Athens, where we were each asked to predict the volume for 2024. I said around $210 billion, so around the same level as 2023.