Export fund expects tenfold increase in defence activities

Denmark’s export and investment fund, EIFO, expects a big increase in defence-related financing for small and medium-sized companies by 2030, as the country accelerates military spending and domestic production capacity.

EIFO expects overall activity in the defence sector to grow from roughly DKK 300 million in 2024 to DKK 3 billion by 2030, according to Henrik Holst Elstrøm, Managing Director and Head of Mid-size & Global Risk at EIFO.

- One of our strategic points looking towards 2030 is Denmark’s security. It is simply a dedicated focus area for us, and that is why we expect this growth, Elstrøm says.

The sharp increase reflects the growing financing needs among Danish defence suppliers following Denmark’s military build-up and rising NATO spending commitments.

According to Elstrøm, many smaller companies are now receiving orders far larger than their existing business can comfortably support.

- We have companies with revenues of 15-20 million kroner suddenly receiving orders worth 100 million, he says.

Fast-track financing

That creates significant risks around production scaling, organisational capacity and quality control; risks commercial banks are often reluctant to absorb alone.

EIFO has therefore increased its risk appetite substantially in defence-related financing. As a result it now offers state-backed guarantees covering up to 80 per cent of the risk.

- That is where we are making the biggest difference right now, Elstrøm says.

EIFO, together with Danske Bank, recently launched a fast-track scheme designed to process defence-related financing cases within 24 hours. 

By using the fast-track companies avoid EIFO screening processes as the fund is willing to rely on the bank's assessment solely - if the guarantee is split 50/50. 

At the moment, only Danske Bank are part of the scheme.

But Elstrøm argued that the fund’s willingness to assume greater risk matters more than speed alone.

- The flexibility we have and the ability to take on greater risk when it comes to defence and Denmark’s security is more important than the fast-track itself, he says.

- We rarely take on just 50 per cent of the risk, it is usually more than that.

Ketchup effect

Despite the ambitious growth targets, Elstrøm said actual demand for defence financing remains at an early stage.

EIFO is currently in dialogue with around 90 Danish SMEs, though only 15-20 cases are considered at this moment. So far this year, the fund has completed roughly 15 transactions worth a combined DKK 300 million.

According to Elstrøm, there is still a gap between political and industry discussions around defence financing and the number of concrete cases reaching banks and lenders.

- Right now people are talking more about the potential than we are seeing actual cases. We are still waiting for the ketchup effect, he said.

EIFO expected a larger volume of guarantees when it launched its fast-track agreement with Danske Bank earlier this year. But Elstrøm acknowledged that the anticipated wave of cases has yet to materialise.

- The idea was good if many cases came in, but they have not appeared yet, he says.

Some banks remain hesitant for the same reason. EIFO has discussed similar arrangements with other lenders, but at least one bank declined because it did not yet see sufficient demand.

Elstrøm expects activity to accelerate later this year as defence contracts begin translating into production and working capital needs among suppliers.