Efic bridges gap for project finance

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Rowan Callick, Asia-Pacific Editor, The Australian

Peter Cusack, the managing director of water treatment and infrastructure company CCB Envico, had been trapped in “Catch 22” deals as the firm expanded into Asia and the Pacific Islands.

Commercial banks were reluctant to extend loans the firm needed to implement contracts it won, because the deals were not based on collateral but chiefly on expertise and performance.

And legislation previously restricted the federal government’s Export Finance and Insurance Corporation to lend only for the export of “capital goods”, resulting in its portfolio leaning lopsidedly towards resource corporations, including some of Australia’s largest companies.

But Efic has now begun providing short-term finance to small and medium-sized businesses that have won contracts to export goods or services, including CCB Envico, after legislative amendments received their final approval three weeks ago.

Its budget was restored to $200 million.

Mr Cusack, whose Melbourne-based company employs about 50 people at home and about the same offshore, told The Australian: “We are exporting contract work, about which the banks tend to take a very traditional view on security.

“We have to provide quite substantial security ourselves for projects we win, often from 10-20 per cent of their value.”

A $4.3m project his firm won in the American-inherited jurisdiction of the Federated States of Micronesia required the total value of the contract to be bonded, an “onerous” impost, Mr Cusack said.

But now Efic is providing that support.

The company, owned by three shareholders that include Mr Cusack, also recently won tenders for work in Sri Lanka and in Kiribati. At times the contracts are aid related.

Usually, Mr Cusack said, such deals required the use of labour, materials and equipment, which had to be exported. “The logistics are often very challenging,” he said.

“It would be extremely difficult to tender for many contracts, especially those that require 100 per cent bonding, for which bank guarantees would not be made available because they want bricks and mortar or cash as securities.

“So we’re most appreciative of this Efic initiative, which has worked very well for us so far.”

Efic managing director Andrew Hunter said the corporation’s previous focus was on medium or long-term financing for capital goods, not for activities that might be completed within six months.

So “we could provide a loan for the export of a dairy cow, but not for consumable exports like butter, milk or cheese”.

He said that he identified, in an early conversation with Andrew Robb when he became Trade and Investment Minister, that Efic’s biggest gap was in meeting the needs of small and medium companies.

“Often, when they had done the hard bit and won a contract, the firm’s bank said it would only lend against collateral, not cash flow,” Mr Hunter said.

After due diligence, Efic would sometimes provide guarantees, which the firm would then take to its bank.

“Now,” Mr Hunter said, “we can lend ourselves — for all goods and services — cutting execution time in half because they only have to negotiate a loan document with one party.”

Of the 44,000 companies listed as exporting from Australia, 37 per cent are SMEs, he said, with a significant number turning over less than $10m a year, and needing $100,000-$500,000, including for working capital — “often too small for banks”.

This financial year, he expects Efic to provide about $120m facilities to SMEs, and is on track towards $200m-$300m a year for 300-400 transactions, “churning the money around”, with the loans being repaid on average within nine months.

“We aim to help them to achieve export success and become bigger,” Mr Hunter said.

“We don’t pick winners, the winners pick themselves by winning the contracts.”

He said Austrade was often a key referral partner for this new service.

“We can bring in a fresh approach for a firm that is outgrowing its balance sheet,” Mr Hunter said. “Customers have said: ‘You are very good, but not that cheap.’ That’s where we want to be, where there’s a gap in the market, providing project financing and export services, especially into jurisdictions that are non-Western.”

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