The public mandate of the Export Finance and Insurance Corporation is to provide credit to small to medium enterprises to assist them to export.
However, an investigation into its transactions shows the vast bulk of EFIC’s capital is deployed doing deals with multinational mining companies.
More than three-quarters of the $576.7 million worth of transactions signed by EFIC last year went to just three parties: a Chilean company which runs the biggest copper mine in the world, a construction giant listed on the Johannesburg Stock Exchange and a billion-dollar Belgian smelting group whose shares trade on the Dutch market but which is headquartered in Zurich.
In the same year as these deals were struck – the very year when funding was cut to non-commercial enterprises such as the ABC and assorted organisations representing the disabled – the government delivered EFIC $200 million in capital. In the prior year, 2013, the government had taken a $200m dividend.
Among last year’s three big deals, the Chilean company, Minera Escondida Limitada, received a loan of $111.2m. This was the largest loan EFIC made for 2014, representing roughly one-fifth of its entire transaction base. There is little by way of explanation for the decision in the EFIC public materials but Minera Escondida (“escondida” means “hidden” in Spanish) operates two of the world’s biggest open pit copper mines in the Atacama Desert, the lion’s share of whose profits go to BHP (57.5 per cent of mine ownership) and Rio Tinto (30 per cent).
The largest of all the credit facilities provided by EFIC last year was the $291m export finance guarantee (EFG) awarded to smelting giant Nyrstar, a company headquartered in Zurich. This deal was linked to a project by the state government to upgrade the Nyrstar lead smelter at Port Pirie in South Australia.
EFIC’s largest bond transaction was struck with engineering group McConnell Dowell, a corporation owned by the Aveng corporation of Johannesburg.
In previous years, EFIC had provided credit facilities to other large corporations, many listed on the Australian Stock Exchange such as Leighton Holdings, Redflex Traffic Systems and the Clough group; and others subsidiaries of foreign-domiciled multinationals such as Anglo Coal Australia, Brookfield Australian Investments and Asian Development Bank.
Unlike SMEs, these larger corporations have the luxury of access to equity finance via their shareholders on the ASX and other sharemarkets, and to lending from major banks but were, nevertheless, availed of credit at sovereign market prices by EFIC.
In its public disclosure materials, EFIC prefers to describe the portfolio of its transactions with SMEs in terms of volume rather than value.
“The progression of this strategy is evident in this year’s results, with around 90 per cent of all transactions now in support of SMEs, up from 80 per cent last year,” it says, referring to the number of projects.
By project value last year, 78 per cent of its credit facilities were struck with the three multinational companies, Nyrstar, Minera Escondida and McConnell Dowell.
By industry, the largest exposure of EFIC’s $1.87 billion in commercial account facilities is 14 per cent in “mining LNG” ($382 million), followed by 10 per cent in “mining” ($264m). Construction is next with 9 per cent ($252m).
Although in its annual reports, EFIC espouses its commitment to transparency, it is secretive about the most critical details of its credit arrangements. Freedom of Information requests obtained by Fairfax Media were significantly redacted.
According to one FOI response:
There are currently 5 counterparties which EFIC considers to be “Non-Performing” as at 31 December 2013. An allowance for specific events/specific provisions for loan impairment of $18.8 million has been recorded in the interim financial statements at half-year.
The identities of these loan counterparties, despite their borrowings being taxpayer money, was not revealed.
In the “related party” disclosures of the EFIC annual report, the agency notes, “A number of transactions are entered into with Board member related entities in the normal course of business and are on an arm lengths basis. These include normal transactional banking facilities, loans and guarantees. These transactions generate interest and fees between Efic and these Board member related entities.” Yet it fails to detail the transactions.
Interestingly, an inquiry by the Productivity Commission in 2012 found large corporate clients accounted for more than three-quarters of EFIC’s signings in 2010-11:
“EFIC should not continue to provide facilities to large corporate clients or for resource-related projects in Australia,” said the report. It seems EFIC has blithely ignored that advice.