We bridge the gap

New

slet

ter D

ecem

ber 2

016

The increasing need for export finance From an international trade perspective, the year 2016 has been a memorable year so far for the global economy. Several political events - not least the UK’s referendum to exit the European Union or in Switzerland the non-ending discussion regarding the future definition of its bilateral contractual agreement situation with the European Union - are accompanied by a challenging economic environment, cautious investment activity and rising geopolitical risks. In addition we see an increasing disaffirmation for international trade agreements such as Trans-Pacific Partnership TPP, protectionism, struggling banks, negative interest rates and volatile financial markets. To put it in a nutshell – the uncertainty has been further increased this year and we find ourselves in a world which is rapidly changing. Unfortunately all these global developments pave the way for a further increase in political, transfer and commercial risks in international trade. So it is less a surprise that the latest available figures from the Berne Union do confirm this trend. The Berne Union, also known as the International Union of Credit & Investment Insurers, is the leading organization for the global export credit and investment insurance industry and consists of 82 member companies from around the world. According to those figures, total claims paid by the members reached last year a record high level of almost US$5.9 billion. Over the last decade, only during 2009 and at the height of the financial crisis, the indemnities paid out to exporters and banks were at a similar level. It is almost needless to say that in such a challenging investment environment export credit agencies remain to be key institutions to facilitate international trade. According to the latest statistics, Berne Union members collectively un-derwrote around US$1.84 trillion of new business in the year 2015 and the percentage

Source: www.berneunion.org; Berne Union Yearbook 2016

0

1'000

2'000

3'000

4'000

5'000

6'000

7'000

2008 2009 2010 2011 2012 2013 2014 2015

USD Million

Claims Paid

INV - Investment InsuranceMLT - Medium Long Term Export Credit InsuranceST - Short Term Export Credit Insurance

Source: www.berneunion.org; Berne Union Yearbook 2016

0

400'000

800'000

1'200'000

1'600'000

2'000'000

2'400'000

2008 2009 2010 2011 2012 2013 2014 2015

USD Million

New Business

INV - Investment InsuranceMLT - Medium Long Term Export Credit InsuranceST - Short Term Export Credit Insurance

We bridge the gap

New

slet

ter D

ecem

ber 2

016

of global trade supported by Berne Union members amounted to over 11%. Export Credit Agencies provide support in difficult economic environments and have the power to act in an anti-cyclical manner, to play a stabilizing role and so to foster cross-border trade and investment. In addition they can act with a long-term perspective and are not in a rush to make the quick money. If we have a closer look on the overall exposure of the Berne Union members, we can see that in particular in mid- and long-term financing credit insurance the member’s exposure almost reached an all-time high. Based on our own experience, we strongly believe that without the support of the Berne Union members (e.g. in Switzerland through assistance by the Swiss Export Risk Insurance SERV), many foreign projects and investments or export delivery contracts would not have been realized. However, in line with other changes within the financial industry, the world of export financing has also changed considerably in the last couple of years. Many originally temporary export financing instruments, implemented before the background of the financial crisis in 2009, have become permanent in the meantime. For most of the exporters and investors it is hard to keep its export finance knowledge always up to date and to track the latest developments of the different Export Credit Agency’s finance toolboxes. We remain convinced that exporting companies and investors, which proactively count on support schemes provided by export credit agencies such as SERV, will continue to benefit from (i) a competitive advantage when exporting goods and services and (ii) the mitigation of their commercial risks in export transactions Therefore, exporters and project developers are well advised to carefully analyze their markets and to reassess their financial sales support schemes. Where necessary they should invest in smart customized solutions to mitigate their political and commercial risks in relation to cross-border trade and investment.

Source: www.berneunion.org; Berne Union Yearbook 2016

0

400'000

800'000

1'200'000

1'600'000

2'000'000

2'400'000

2008 2009 2010 2011 2012 2013 2014 2015

USD Million

Exposure (at year end)

INV - Investment InsuranceMLT - Medium Long Term Export Credit InsuranceST - Short Term Export Credit Insurance

We bridge the gap

New

slet

ter D

ecem

ber 2

016

Moscow (Russia) - Closing Aeroexpress transaction - in May 2016, the long awaited financial closing of the Aeroexpress transaction finally was announced. In 2012 Aeroexpress LLC, the operator of the passenger railway service between the airports and the City of Moscow, launched a tender process for the purchase of new rolling stock material. Aeroexpress’ request for proposal also comprised the financing for the trains in question. AIL Structured Finance, as advisor of the Swiss rolling stock manufacturer Stadler Rail, started to structure a limited recourse financing scheme and invited selected banks to provide a financing offer. The Stadler proposal including the financing offer was submitted in late 2012 and the project was awarded to Stadler Rail in early 2013 due to the outstanding quality of the Stadler product combined with the innovative underlying financing scheme. The supply contract was signed in May 2013. The first disbursement under the debt financing was made in December 2013, while negotiations for the main financing tranche were continuing. Due to their complexity and the number of parties involved, negotiations continued during 2014. In the second half of 2014, as a result of a collapse in the price of crude oil and of sanctions imposed by Western countries, the economic situation in Russia rapidly deteriorated. This resulted in a sharp decline of the Russian Ruble, which caused severe economic difficulties to Aeroexpress and which put the entire supply contract from Stadler at risk. As a consequence the delivery contract had to be restructured and all the involved parties had to compromise to complete the transaction. With the strong continuing support of the Swiss Export Risk Insurance (SERV) a consensus could finally be achieved in spring 2016 and the closing announcement could be made in May 2016. Throughout the entire period, from the beginning of the tender process until financial closing, AIL was strongly involved in the structuring and adjustment of the tailor made financing. The financial structure is notable in several respects: It is: (i) the first limited-recourse transaction in the railway sector in Russia; and (ii) the first Ruble denominated SERV insurance. This transaction shows that with committed and dedicated partners a financing can be closed in spite of very severe adverse conditions.

We bridge the gap

New

slet

ter D

ecem

ber 2

016

Carnot Capital Ltd: New Investment Fund in Resource Efficiency Carnot Capital Ltd is an asset management company, established in July 2007, which manages equity investment funds. The funds pursue a value approach and invest in listed companies that enable a more efficient use of natural resources. Carnot Capital Ltd is an associated company of AIL Structured Finance Ltd. For further Information: http://www.carnotcapital.com

Thematic field with structural growth: Economic growth and expanding con-sumption put a strain on natural resources. Availability of drinking water, food and even clean air is diminished all the more. In fact, today’s use of natural resources exceeds the amount our planet can provide on a sustainable basis by a factor of around 2 times. Overexploitation, increasing prices and stricter regulations in order to protect the environment give rise to resource saving technologies. Hence, resource efficiency is a promising subject matter for equity investors. In the outline of the target sectors Carnot Capital adheres to the ancient four-elements-theory, according to which the world is composed of the four basic elements fire, water, earth and air. The element fire corresponds to the portfolio segment “energy”, the element water to the subject of “drinking water” and the element earth is allocated to the subjects agribusiness, food and recycling of mineral resources. Fish farming, too, belongs to earth, because it’s about the resource “fishing grounds”. The resource “clean air” is protected by technologies that clean exhausting gases or by clean fuels. Quality and value metrics in stock selection: Carnot Capital is looking for companies with an attractive ratio of quality and valuation. Companies with a high quality are established companies with a strong balance sheet and resilient cash flows. A crisis-proof profitability can be recognized by a high return on capital employed (ROCE), in our view. For the valuation of the stocks Carnot Capital primarily employs the EV/EBIT ratio. When constructing the portfolio, Carnot Capital pays attention to a good diver-sification by resources, companies, countries, company sizes and business models. Since launch in December 2015 the fund out-performed the MSCI World by some 6%.

Contact AIL Structured Finance Ltd Schaffhauserstr. 418 CH-8050 Zurich / Switzerland www.ailsf.ch Attn: Urs Gerspacher Phone: +41 43 299 62 01 Email: urs.gerspacher@ailsf.ch

Reference to antique ‘four elements theory’