Finnish finesse

Who: Topi Vesteri What: Executive Vice President Where: Finnvera Background: Joined Finnvera as director of its export-credit-guarantees department in December 1998 following 16 years at Finland’s Postipankki Bank. Appointed deputy managing director in 2000, he is currently the Finnish ECA’s executive vice president and deputy president in charge of export-credit guarantees. Vesteri has a Masters degree in Law from the University of Helsinki, and is married with two children.

Topi Vesteri is a respected figure in the export-credit world. Here the 49-year-old executive vice president of Finnvera talks to Michele Martensen about ECA business and the exceptional development of Finnvera.

Q: Could you talk us through your career history?

A: I joined Finnvera as its second employee in December 1998. My boss, Finnvera’s president and CEO Markku Mäkinen, had joined a few months earlier from the ministry of trade and industry, where he was director general. Now I’m in charge of running Finland’s entire officially supported export-credit and guarantee scheme. Before that, I had a 16-year banking career at Postipankki Bank [one of Finland’s leading commercial banks], which took me through numerous demanding positions in capital markets, corporate and international banking, supervising head-office units, foreign branches and representative offices. Five and a half years of my career at Postipankki were spent working out of Tokyo and then London. I also headed the bank’s largest subsidiary – a leasing company.

Finnvera started its operations in January 1999 as a result of the merger between the Finnish Guarantee Board and KERA Corporation [formerly the regional development fund of Finland]. We are the official ECA of Finland and also a domestic risk financier of small and medium-sized companies (SMEs). We currently have 400 employees, 16 regional offices and some 26,000 corporate clients.

Q: Finnvera recently underwent a structural re-organisation. What was the rationale behind it?

A: After the merger, we felt the organisation was a little top-heavy, especially in our domestic SME-financing side and in head-office support functions. So we decided to change from a matrix type of management structure to a line-management one. This has given us greater efficiency and enables us to give better guidance to our 16 regional offices. It’s the second time in six years we’ve streamlined our management structure.

On the export-credit side, we’ve merged our subsidiary, Fide, into Finnish Export Credit (FEC), which also became Finnvera’s wholly owned subsidiary last year. The merged FEC now reports directly to me, which allows us to make better use of our limited resources. After the Easter weekend, Finnvera and FEC will move to our new premises – the ‘Export House’ – in central Helsinki. Being under the same roof will allow us to work together more efficiently. FEC will continue to administer Finland’s interest-equalisation system [previously administered by Fide]. It will also continue its OECD-term lending activities.

Q: What do you think have been the most significant trends in export-finance business over recent years?

A: Shift to corporate risks; new products such as local-currency financing (LCF), although this did not take off as well as we’d expected. Local banking supervisors do not necessarily understand the value of ECA cover, are not willing to relax legal lending limits, and so forth. ECAs, on the other hand, may be too scared of post-default devaluation risk, which makes their LCF guarantees less attractive, as they require a conversion to hard currency upon default. Political risks have decreased – as an example, outright expropriations are very rare nowadays as most governments understand the value of foreign investment into their economies.

The most likely risk scenario nowadays is that of macroeconomic risks. This is what we saw in Asia and in Argentina: a chronic current-account deficit, coupled with high levels of foreign debt, which at worst is relatively short term and owed by companies that have no natural currency hedge. When the foreign lenders finally lose their patience, the country is forced to do a major devaluation. As companies’ debt is in ‘cheaper’ foreign currencies, it becomes a vicious circle. This is commercial risk caused by the realisation of macroeconomic risk.

Also, the number of banks active in trade and export finance has fallen dramatically. Those that remain committed know their business well, which makes our lives easier. Smaller banks no longer get into difficult export-credit deals for relationship reasons. This is a healthy development, even if the exporters now have a smaller group of banks supporting their export transactions.

Q: Finnvera recently provided a 100% guarantee for a portion of the Brazilian Telemar financing (TFR Deals of the Year, February 2005, page 30) – how unusual is this?

A: We do provide 100% comprehensive cover from time to time, when risk sharing takes the form of our guarantee holders having other medium/long-term exposure to the borrower. Buyers that get 100% cover love it. But not all banks are happy because it leaves them with lower margins and forces them to be more transparent in their pricing. Finnvera’s guarantees carry the full faith and credit of Finland [‘AAA’ by S&P & Moody´s], which means 100% Finnvera-guaranteed credits must be very tightly priced.

Q: Has ECA business activity picked up in Latin America?

A: Yes, in Finnvera’s case this happened as far back as 2002 and 2003, when banks weren’t as keen as they are now to take risks in Brazil. At the moment, Latin America represents about one third of our entire portfolio, and made up a quarter of new business in 2004. So far, our business in this region has been driven by large telecom deals and medium-sized power deals, but this year we’re also seeing a flow of pulp-and-paper-related transactions.

Q: What other transactions have you covered recently?

A: We recently guaranteed $95m worth of political and commercial risks in conjunction with a buyer credit for Bharti Tele-Ventures – one of India’s leading telecom operators. It’s the first ever export-credit guarantee provided for deliveries of Nokia equipment to India. [ABN Amro arranged the $100m credit, which has a ten-year repayment period. The lender is Finnfund (the Finnish Fund for Industrial Cooperation)].

Also, in June 2004 Citibank and ING arranged an export credit of $279.7m for Megafon, covering exports of network equipment from Finland, Germany, Austria, Italy and Sweden. Finnvera was the biggest risk taker on the transaction, providing a $135m export credit. Danish ECA EKN covered $53.5m and Germany’s Euler Hermes covered $75.6m.

We were also involved in the deal that saw the world’s largest cruise ferry, M/S Color Fantasy, delivered by Aker Finnyards to Color Line of Norway last December. Finnvera committed to the financing package in 2002, before the buyer placed an order for the vessel. Export credits worth 80% of the purchase price were arranged by Deutsche Bank London and we guaranteed €172m ($229.96m). The transaction also included a commercial loan of €70m. Both have 12-year tenors with semiannual repayments. Finnvera was also involved in the construction period financing by guaranteeing construction loans and advance payments paid by the buyer.

Q: Can you explain why ECA support is so important?

A: ECAs are willing to commit earlier and for larger amounts – even in very difficult markets. We can be more patient than commercial banks when things don’t go as planned and a restructuring is needed. Those ECAs that are pro-active and solution driven can actually help their exporters to win business.

As an example, Finnvera enabled a diesel-power-plant financing in Honduras – a country where all ECAs, including Finnvera, had been off-cover due to the country’s poor economic standing and the HIPC process – by finding a way to co-operate with CABEI, which was in a different position to banks and ECAs due to its special-creditor status.

Q: How do you source business?

A: In an ideal case, the exporter approaches us early on. This gives us ample time to do our due diligence and, if possible, visit the buyer/borrower with our exporter.

The other extreme – and this is not how we want to get business – is where either the exporter or its bank has already indicated or offered financing terms subject to maximum cover from the ECA that we then feel are not bankable or acceptable to us. Or, even worse, when the borrower/buyer is not an acceptable credit risk, whatever the terms and conditions of the financing may be. Typically in such cases we’re expected to make a quick decision based on incomplete information ‘otherwise the exporter will lose the deal’. Luckily, we see less of this nowadays.

We have a constant dialogue with our exporters in order to understand their needs as early as possible. We’re also willing to visit their customers and take a pro-active role in helping them to find an ideal financing solution.

Q: How competitive is the market at present?

A: Very competitive. Banks are extremely aggressive in taking and pricing risk at the moment. Margins are bottoming out. We need a crisis somewhere to remind the markets we’re not in a risk-free business.

Q: In which markets do you see biggest growth?

A: In Finnvera’s case our biggest growth is going to be in Russia and Latin America, but also in large-scale shipping deals into the OECD markets. I expect our most active industry sectors to be telecoms, shipping and pulp and paper – in this order.

Q: What was business like last year?

A: Very good, both in terms of new business volume and profitability. 2004 was our best year ever.

Q: How do you see things panning out in 2005?

A: Things seem to be going almost too well for us. The fact that we have been paying only minor claims in the past few years puts us under a lot of pressure to take more risk. It is difficult to run an officially supported export-credit programme in a small country with a handful of large capital-goods exporters that are world leaders in their respective industries.

Q: What have been the highlights of your career?

A: One day in 2002 when a colleague walked into my office and said: “Topi, we used to think that we were the worst of the worst but now we’re the best of the best. Thanks for helping us to get our professional pride and motivation back.”

Q: What are your future goals?

A: To continue to motivate the fantastic team we have here at Finnvera. To help our exporters win deals. To break even – that would mean we would be able to afford to pay more claims than we’ve been able to so far.

And on a personal level, I look forward to the next 25 years of marriage with my dear wife Anna-Stina.