?Coface's project finance activities are definitely expanding,? begins Marie-Laure Mazaud at Coface's project finance division in Paris. State export credit work has traditionally taken a back seat to insurance and ratings businesses, but recent years have seen the project profile growing. Since the team was set up in 1995 it has seen the completion of 27 deals.

Coface sponsored projects are increasing in number, but also in size. ?There is a trend towards involvement in increasingly complex projects in riskier climates,? says Mazaud. The $3.5 billion Chad/Cameroon pipeline and the Mozal II $1 billion aluminium smelter project in Mozambique signed in 2001.

Both deals saw the successful syndication of a Coface tranche to international lenders. Developers and lenders alike have demonstrated appetite for large-scale projects in Sub-Saharan Africa. But as with other regions perceived as very high risk, deals must be highly structured. Co-operation, co-financing and reinsurance between ECAs are an integral component. Coface was one of the first to sign up to a co-operation agreement, which it did with ECGD in 1995. Subsequent alliances have included CESE, EKN, Hermes, OKB and NCM. A further agreement with ECGD and Natexis covers interest rate support.

Working with multi- and bilaterals is also crucial and has become more commonplace since the Asian financial crisis of 1998. Many of the large deals in risky areas simply will not get done without them. An increasing tendency to multi-source financing has allowed Coface to broaden its horizons.

Sponsors of the Chad pipeline raised only 15% of project costs in a debt package put together by arrangers IFC, Exim and Coface. The World Bank and EIB also put up equity on behalf of the Chad and Cameroon governments. Mozal attracted participation from IFC, SAECA, Coface, JBIC, EDC, BSA, DBG and Proparco.

Mazaud believes that there are more big projects on the horizon. ?There is a growing LNG market in many regions of the world. China, Turkey and Nigeria are all examples,? she points out. ?The costs of developing these projects are huge. Project financing is inevitable and Coface, along with many other ECAs, will be called into play.?

These trends are shifting the emphasis of Coface's portfolio. A year ago power deals accounted for 44% of Coface credits. Now oil and gas is in the lead, making up 40% of the total, with the energy sector at 20%, industry 15%, telecoms 16%, transport 10%. The remainder have gone to water projects. This pattern is set to continue. The last power deal that Coface completed was the Termoelectrica del Golfo power plant in Mexico, signed at the beginning of 2000. ?There probably won't be any more in this sector on a limited recourse basis,? predicts Mazaud. It is the large transport and oil and gas projects emerging all over the globe that are coming to the fore.

As well as increased co-operation with other financing bodies, forays into new sectors in riskier climates have given rise to new techniques. ?Coface has set up a platform for rating on a state by state basis,? explains Mazaud. ?This is particularly useful now that the control of projects has often become so de-centralised.?

?We are working on the ability to provide local denominated currency,? she continues. ?At the moment it is being investigated in 10 countries with certain market characteristics.? Local currency financing would allow projects that do not generate a foreign currency income stream to overcome the mismatch between currency of income and debt servicing. ?It could only happen in a market with considerable liquidity. It would also be necessary to have a mechanism in place crystallising the exchange rate, guarding against the event of a regional economic crisis.?

Increased technical risk in new regions or sectors is not such an issue for Coface. The agency rarely provides commercial cover pre-completion, having only done so in very specific cases characterised by financial support from shareholders. Unlike other ECAs, such as ECGD, Coface shows little inclination to change this policy, earning it a reputation as one of the less progressive bodies. It does, however, allow it to enter into a project on the basis of merits unconcerned with technical risks. This is particularly useful within sectors characterised by untested technology, such as telecoms. Comprehensive cover post completion is part of the standard mandate.

Mazaud also highlights the restructuring work that Coface carries out. ?We have recently completed a financing package for a Thai telecoms company,? she says. ?Since 1997, when the company was hit by the steep devaluation of the Thai Baht, we have been in intense negotiations to get its back on its feet. The package includes ECAs, Thai banks and vendor financing.? Coface is also engaged in restructuring work in Pakistan. ?Work on long term policies is very capital intensive, so it is unlikely to become a major focus for Coface,? Mazaud concludes. ?But it does provide very good practice for testing due diligence.?

Since 1999 environmental policy has been inherent in the due diligence process. As part of the process of reviewing an exporter's application, the environmental impact of the project in question is investigated. A preliminary assessment is made on the basis of a questionnaire and any falling into Class A, sensitive projects, require a subsequent Environmental Impact Assessment.

Coface states that its environmental procedure is embedded in, ?the principle that environmental risk is an integral part of the financial risk insured by Coface.? The basic requirement is to comply with local environmental standards and regulations, or in the absence of these, internationally recognised standards. The guidelines were refreshed in September 2001 and there are currently sector-specific outlines being drawn up, as Coface strives to promote the French government's policy of fostering sustainable development.