Finnvera: Funding enables export companies’ foreign trade

Finnvera, a state-owned, specialised financing company, has used capital market bonds to acquire funding for export credits since 2012.

Its outstanding bonds, issued under a state-guaranteed debt programme, amount to just under 10 billion euros. The latest 1 billion US dollar benchmark bond was issued in October. This year’s first benchmark issue was a 1 billion euro-denominated bond and took place in April.

“We aim to issue benchmark bonds annually, both in euros and US dollars. It is a strategic decision. Self-sustainability, a goal set for Finnvera, means that Finnvera must manage its financial risks. In the long-term, the income from our operations must exceed our expenses and potential losses. At the same time, we must also provide companies with competitive financing that increases trade and creates new jobs. This is our way of boosting the impact of our financing operations,” says Jukka-Pekka Holopainen, Head of Treasury at Finnvera.

Finnvera’s annual funding needs amount to some two billion euros. The demand for financing exports is mainly influenced by the banks’ ability to provide loans to businesses and by developments in the global capital markets. Uncertainty has plagued the capital markets for some time.

“We make rough funding plans for at least a year into the future. Our plans are based on estimates of clients’ needs for financing and our maturing debt. Some of the funds are set aside in a liquidity reserve for later investment. Ideally, the buffer should amount to a few billion,” Holopainen says.

Timing and price are crucial to demand - The goal is to obtain funding at as low a cost as possible without jeopardising Finnvera’s liquidity

International institutional bond investors mainly come from Europe, Asia and North America. Most of them are financial institutions, such as banks, central banks, insurance companies and asset managers.

You would expect a guarantee by the Republic of Finland to signal a low-risk bond.

“There is demand for safe investment options, but we are still relatively new on the market. It is important to meet with investors regularly to make our bond issues attractive. One basis point in either direction amounts to a large sum of money when talking about billion-euro debt,” Holopainen points out.

For a bond issue to be successful, there must be adequate demand and the price must be right. The goal is to obtain funding at as low a cost as possible with a healthy maturity structure of the debt.

“It is always difficult to estimate the timing, or the maturity, of future issues. Bonds usually have a maturity of five to fifteen years. Ideally, an issue is oversubscribed, and a well-functioning secondary market is in place for the bonds,” says Holopainen.

For example, the one-billion-euro benchmark bond issued in April attracted over 90 investors, and the subscriptions totaled 2.8 billion euros. The target for attractiveness was met. The USD-denominated October issue was also a success, the final order book closed twice oversubscribed, with 50 investors.

“This signals a growing demand. Our previous issues, coupled with our recent active work in investor relations, has improved Finnvera’s name recognition on international capital markets. Such awareness has a big impact on demand. It improves the accessibility of cost-effective funding,” Holopainen explains.