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U.S. firms fear financing drought as deadline looms for trade bank

WASHINGTON (Reuters) – A battle in Congress that could shut down the U.S. Export-Import (Ex-Im) Bank next week is already causing headaches for small exporters as they try to stop customers from defecting to foreign competitors and as export financing starts to freeze up.

If the 80-year-old export credit-provider loses its operating authority, its proponents argue that thousands of U.S. exporters will suffer and that Washington will lose international economic influence.

Its conservative Republican critics say private enterprise will fill the funding gap, calling the bank a source of “crony capitalism” and “corporate welfare” for big companies such as Boeing and General Electric.

But smaller firms may be the biggest initial victims if the bank has to stop operating.

Newport Beach, California-based Firm Green Inc, for example, fears it may lose its second major Philippines green energy project in a year to the uncertainty over Ex-Im’s future.

After being beaten to a landfill gas deal last year by a South Korean firm with export credit agency financing as Congress debated the same issues, FirmGreen president Steve Wilburn said he is now trying to persuade the developers of the Philippines’ biggest-ever solar power plant to stick with his Ex-Im-backed design and construction proposal.

But he says time is running out to keep the $203 million, 100-megawatt project from going to China’s Trina Solar Ltd as an August construction launch date looms.

“We are promising that Ex-Im will be reauthorized and that financing will be available,” said Wilburn, whose firm has 11 employees and contracts out its manufacturing work. “Foreign ECAs (export credit agencies) and their supported manufacturers are champing at the bit to feast on FirmGreen’s bones.”

The bank will have to stop lending and writing new trade guarantees on June 30 if Congress fails to act. At least a short-term lapse in its activities looks likely.

Wilburn’s predicament is echoed by other small companies that use Ex-Im financing, credit guarantees and insurance to extend their reach into the global market. Trade bankers say they are likely to be the hardest-hit by closure of the 80-year-old institution due to a dearth of private-sector alternatives.

“There are no commercial banks in the U.S. that will make long-term loans to African countries,” said Richard Rogovin, chairman of U.S. Bridge Corp.

Rogovin, whose 140-employee firm makes steel bridge kits in Cambridge, Ohio, said some of his customers in Africa and South America are now talking to Chinese, British and French manufacturers that have unwavering support from their countries’ trade banks.

“It’s almost like the customers sense that this country is withdrawing from international finance,” he added.

Jeb Hensarling, chairman of the House Financial Services Committee and Paul Ryan, chairman of the House Ways and Means committee, argue that U.S. manufacturers will thrive more without Ex-Im bureaucrats “picking winners and losers.”

They dismiss exporters’ concerns that foreign competitors and aggressive export credit agencies will shove them aside.

“The argument that holds the least water with me is ‘other countries do it, so should we,'” Ryan said this month.

“GOOD THING” FOR CHINA

Zhao Changhui, the Export-Import Bank of China’s chief country risk analyst, said he would regret the possible demise of the bank’s U.S. counterpart, but that it would help China’s competitiveness.

“With respect to competition in strategy and policies between the U.S. and China, this is a good thing” for China, Zhao told reporters in Shanghai.

China’s medium- and long-term official export credit support jumped to $58 billion last year from $28.3 billion in 2011, according to a recent U.S. Ex-Im report. It said U.S. support fell to $12.1 billion from $21.4 billion over the same period.

Officials at Trina Solar, now the world’s largest solar panel manufacturer, declined to comment on the Ilagan solar project in the Philippines. The project’s local developer, a unit of Greenergy Solutions Inc., also declined comment.

Trina has previously had support from the China Ex-Im bank, disclosing in Securities and Exchange Commission filings that it repaid a $40 million working capital loan from the bank last year. It also repaid a $180 million China Development Bank loan.

Trade bankers say the U.S. Ex-Im’s demise would leave a gap in trade financing that would be hard for the private sector to fill, and a freeze on new Ex-Im deals is already starting to take hold.

Much of the bank’s financing activity is in the form of providing credit guarantees for commercial bank loans, allowing it to maximize export support while staying well under its total exposure cap of $140 billion.

“The banks aren’t able to bring on new customers essentially,” said Matthew Ekberg, vice president of international policy at the Bankers Association for International Trade in Washington. “They’re just trying to get through the current transactions before June 30.”

New capital rules implemented since the 2007/08 financial crisis make it unattractive for many banks to make long-term loans on infrastructure projects or aircraft in emerging markets because it would tie up too much capital for too long, he said.

A senior trade banker at a major U.S. bank that does business with ECAs around the world said there is often not enough risk appetite to build loan syndicates in “difficult places” such as Africa without a government guarantee.

Another frequent problem voiced by business owners is the reluctance by banks to accept foreign purchase contracts as collateral for working capital loans because of vetting and collection difficulties.

Bankers say large firms such as Boeing are likely to find alternative ways to finance their sales to wealthier countries such as United Arab Emirates but could face problems in emerging markets.

Ex-Im says that while Boeing took up more than half the dollar value of its support last year, more than 90 percent of its over 3,700 transactions were made with small businesses.

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