Loans guaranteed by French export credit agency (ECA) Coface will become part of the regular collateral of the cover pool of Caffil under a move announced by the French government for Caffil parent SFIL to add export finance to its activities.

Société de Financement Local (SFIL) has since its creation two years ago been charged with refinancing French public sector entities and hospitals, with most of its activities refinanced through the issuance of public sector covered bonds by subsidiary Caisse Française de Financement Local (Caffil). SFIL is 75%-owned by the French government, with Caisse des Dépôts et Consignations (CDC) owning 20% and La Banque Postale 3%.

On Friday SFIL announced that the role of development bank has been added to its mission.

“Banks which work closely with French exporters will be able to rely on the ability of SFIL and its subsidiary CAFFIL to raise funds on international financial markets for amounts and maturities that fit refinancing needs for large export credits and for a price which is comparable to the best French covered bond issuers,” it said.

ECA-guaranteed loans have already been used as collateral in covered bonds, notably in those of France’s BNP Paribas Public Sector SCF. However, whereas BNP Paribas has used its issuer to refinance loans it has originated, SFIL will via Caffil refinance loans made by other banks.

SFIL’s ECA-guaranteed collateral will be confined to that of Coface. The new loans will be 100% guaranteed by Coface on behalf of and with the guarantee of the French state.

“SFIL will thus diversify its business without changing its risk profile while strengthening its close link with the French Government,” it said. “This new assignment will ramp up progressively and come in addition to the current business of lending to the French local public sector.”

The new business is expected to be operational in the second quarter of the year.

“SFIL, through its subsidiary CAFFIL, became the largest European issuer of covered bonds backed by public sector assets, and thus proved in less than two years its ability to provide efficient funding for particularly long maturities and large amounts,” said Philippe Mills, Chairman and CEO of SFIL. “This capacity will be made available to banks active in export credit, in close relationship with Coface, in the framework of the new assignment that SFIL has been entrusted with by its reference shareholder, the French State.”

The French government said that the move will allow exporters to benefit from more advantageous financing of their large contracts and that the refinancing through SFIL will lower the cost of such credits.

Local public sector finance will meanwhile remain the predominant activity of SFIL, according to an official at the institution.

Photo: French president François Hollande at a Franco-African forum where he announced the move on Friday; Source: Patrick Védrune, secrétariat général des ministères économiques et financiers