Lots of financing options, yet modest results

How to successfully develop and finance more quality projects in emerging markets?  (Part 1)

Problem:

Last week, at a financing round-table organized by the US-Ukraine Business Council (USUBC) – representatives from the IFC, EBRD, OPIC and US EXIM bank reaffirmed their commitment to financing projects and trade with Ukraine.  They also demonstrated a whole host of very effective financing and insurance tools, available for use in Ukraine and other emerging markets.

At the same event, these esteemed organizations mentioned multiple success stories and yet each only named half a dozen, or so, of the largest Ukrainian companies (a few were the same names repeated by several institutions).  They also addressed fairly effective wholesale funding arrangements with local banks to serve local small and midsize businesses (SMEs).

Yet, each of representatives has acknowledged a serious problem, which acutely manifests itself in Ukraine and in other emerging markets: lack of strong bankable projects in the $10-75 mil. range, a segment widely considered the main economic driver and job generator in emerging market countries such as Ukraine.

Also noted were lack well-developed and bankable public sector projects in segments such as healthcare.

Thus given widespread availability of interested project sponsors, along with multiple public financing tools and risk mitigation products, what can be done to bridge the gap and convert more deal concepts into real deals with realistic financing and true economic impact?

Solution:

It is all about proper packaging.   Although the institutions are willing and able to lend,  they each have very specific goals and requirements.  Yet, the project sponsors/borrowers, oftentimes are not able to conform to those requirements, despite the fact that their financials and business plans are often sound.   (To Be Continued)

Financing projects in Ukraine – USUBC round-table announcement

INVITE:  “FINANCING FOR BUSINESS” – US EXIM OPEN FOR UKRAINE, EBRD, OPIC ROUND-TABLE

               Tuesday, March 12, 2019, 3 p.m to 5 p.m. Law Offices of McCarter & English,   
1301 K St., NW, Suite 1000 West Tower, Washington DC 20005

INVITATION: The U.S.-Ukraine Business Council (USUBC), www.USUBC.org, invites you to attend a “FINANCING FOR BUSINESS – US EXIM OPEN FOR UKRAINE, EBRD, OPIC ROUND-TABLE, on Tuesday, March 12, 2019, from 3 p.m. to 5 p.m., with a light reception, in the offices of USUBC member, McCarter & English, 1301 K St., NW, Suite 1000 West (10th Floor), Washington, DC 20005.  The following panel of experts will make presentations followed by a discussion/Q&A session.

PROGRAM: PANELISTS FOR THE ‘FINANCING FOR BUSINESS’ ROUND-TABLE INCLUDE:

(1)  Douglas Frye, Senior Business Development and Loan Officer, Global Infrastructure, Export-Import Bank of the United States (EXIM)
          (2)  Alexander Gordin, Managing Director, Broad Street Capital Group, merchant bankers, specialist in US EXIM & OPIC type project transactions
(3)  Bruce Drossman, Senior Vice President, Global ECA Advisory and Execution, General Electric, GE Energy Financial Services/Global Capital Advisory (with US EXIM for four years)
(4)  Michelle Small, Head of North American Representative Office, European Bank for Reconstruction and Development (EBRD)
          (5)  Kenneth Angell, Managing Director, Project Finance & Tara Blake, Director, International Project Finance, Overseas Private Investment Corporation (OPIC) 
          (6)  John Strayhorn, President, Global Insurance Services, EXIM approved insurance broker
(7)  Morgan Williams, President, U.S.-Ukraine Business Council (USUBC), Moderator

RSVP:  Registration is required for attendance at the USUBC Financing for Business Roundtable. Please register by sending an e-mail to mwilliams@usubc.org. There is no charge for the meeting. Photo ID is required. USUBC thanks McCarter & English law firm, a new member of USUBC, for hosting the USUBC Business Luncheon in Washington.

“FINANCING FOR BUSINESS” – US EXIM OPEN FOR UKRAINE, EBRD, OPIC ROUNDTABLE
Tuesday, March 12, 2019, 3 p.m to 5 p.m. Law Offices of McCarter & English,
1301 K St., NW, Suite 1000 West Tower, Washington DC 20005. followed by a light reception

Fluent In EXIM

(or how to realistically obtain US EXIM financing for emerging markets such as Ukraine)

 Recent re-opening of US EXIM Bank’s programs in Ukraine has caused a stir and a flurry of activity among US exporters, Government Agencies responsible for trade promotion, Ukrainian importers and non-governmental agencies working in that market.  Following more than a five-year hiatus, everyone has been excited to expand US-Ukraine’s trading relationship and to increase the quantities of much-needed US exports with the aid of the Bank’s financing.  After all, US exports support US jobs and help Ukraine obtain advanced goods and services needed to grow its economy.

Yet, the early results of all those efforts thus far been negligible due to a dearth of local buyers able to qualify for the Bank’s financing, or trade credit insurance programs. Similar situation has been observed in a number of Central Asian markets, which have recently experienced economic resurgence and thirst for imported goods and services.

In order to enhance the ability of the US Government’s agencies to assist in export promotion and financing and most importantly in order to maximize the ability of US companies to export goods and services to emerging markets, it is vital to understand what are the services provided by the US EXIM and what external components are needed to help grow the numbers of qualified buyers and therefore real exports.

Export Import Bank of the United States (US EXIM) is the official Export Credit Agency (ECA) of the US Government, whose mission is to support export of US-manufactured goods and services with a set of export financing and trade credit insurance tools.

Open for business in over 120 countries, the bank has been in continuous operation since 1934 and for a good number of years of its existence has been contributing profits to the US Treasury, rather than spending the US Government’s budget funds.  Although over the last several years, the Agency has become a victim of political wrangling and its long-term financing programs, those involving terms over 7 years and single transaction amounts over US$ 10 million have been temporarily crippled, the bank’s short and medium programs have continued and are fully operational.

However, when trying to finance, or insure exports to emerging and frontier market countries using US EXIM’s programs, American exporters often face additional hurdles. One of the most severe of those, is finding sufficient number of qualified, or as we call them “bankable” buyers for US goods and services. The second hurdle is often lack of the so-called “15%”, a minimum amount of funds needed from the buyer to supplement the up to 85% of the qualified export amounts financed through the US EXIM’s support.

Here are a couple of typical export frustration scenarios:

a. A large US manufacturer of agriculture equipment with an established distribution network in Ukraine seeking to supply its distributors with $5-6 million dollars in equipment to be sold to Ukrainian farmers prior to the planting season. The US supplier needs to extend open terms of 6 months to its distributors, but needs to insure its risk of non-payment. The US EXIM offers fantastic trade credit insurance products, which after assessing and accepting the buyers’ financials would insure  the US manufacturer for non-payment of up to 95% of the supplied goods.

Yet, for purchase contracts of over $1mil., US EXIM requires the buyers to present  GAAP/IFRS audited financials and in this case none of the distributors audits their financials and doing so may either be not feasible, or cost prohibitive.  Since the distributors appear very financially and reputationally solid, yet unable to meet EXIM’s cursory requirements, the question becomes how to structure the transaction in order to enhance US EXIM’s product and not lose millions of dollars in sales for the US manufacturer?

b. An established Ukrainian agri company is seeking to replace its fleet of machinery and upgrade its grain storage capacity with US manufactured equipment. Size of the transaction is $15 million. To preserve much needed operational cash, the company would like to arrange 100% financing of the acquisition for a term of six years.  The company does audit its financials to IFRS standards, but due to a fairly small transaction size and lack of knowledge of the Ukrainian market by US banks, the company is having a very difficult time, obtaining the 15% co-financing it needs. Once again, $15 million of US exports are in potential jeopardy, what does one do in a situation such as this?

To answer the above questions and to realistically address the issues, which hamper successful export financing in markets such as Ukraine, a task force consisting of a US merchant bank, international law firms, local banks, non-profits and insurance brokers has been created and effective tools developed to truly assist US exporters convert potential opportunities into real exports. Starting later this month in Washington DC, these tools will be presented in a series of workshops called “Fluent In EXIM”. The workshops also will take place both in key Ukrainian and US cities. Given the importance of the US exports to jobs creation and since US EXIM bank is operated under the the supervision of the US Congress, the workshops, in addition to expert panels, will feature members of Congress, as guest speakers. US Ukraine Business Council, a leading non-profit involved in promoting US-Ukraine economic cooperation, will be coordinating these workshops and helping to make US companies trying to export to Ukraine – Fluent In Exim(tm).

 

 

 

 

Grey2White Initiative – the journey continues (parts I and II)

™

(Part I of the article reprinted from the June 2017 issue)

Hypothesis:

Given Ukraine’s current economic and geopolitical situation, one of the most beneficial  steps the US government, business and NGO community can take, is to encourage significant external and internal direct investment into the country’s economy.

Although the US Government has had some success in attracting and supporting American direct investment into Ukraine, those investment amounts are far from sufficient. US investors new to the Ukrainian market are wary of the country’s reputation for corruption, difficulty in doing business, threats from Russia and lack of financing options.

A second and much more viable economic development option, would be to support and enable direct investment by the successful Ukrainian business people who have amassed sufficient capital and are much more comfortable and adept in investing in their home market.

One problem with pursuing that option are high Western standards, which often preclude US government development agencies and public US investors from working with this potential class of investors.  This is due to the fact that for the last twenty-five years, practically all business people in Ukraine had to operate under a certain set of conditions widely considered “grey” and in many cases “black” in the West.

Some of these “grey” conditions are lack of financial transparency, inadequate corporate governance, use of yellow press, use of cash, as well as offshore accounts to conduct operations, bribery and use of adverse political influence.

In their attempts to succeed, some folks in Ukraine went beyond previously acceptable business norms and crossed the proverbial line even further by engaging in criminal “black” behavior – graft, extortion, corruption, tender rigging and illicit drug trade.

To date, these grey conditions have presented significant challenges for the IFIs, development agencies and regulated financial US investors. Yet, it is vital to recognize the necessity to find an acceptable solution that allows Ukraine’s economy to reap significant benefits from the anticipated increase in direct investment and low-cost, long-term financing.

It is also very important to understand that the proposed Grey2White (G2W)™ initiative aims to broaden and scale up very important development and capacity building work already undertaken over the last quarter century by IFIs, such as IFC and EBRD, USAID; development agencies such as OPIC and USTDA and financial investment communities. Those initial efforts, although quite effective, focused on a relatively small sample of Ukrainian companies and were undertaken during a different stage of the country’s development.

Initiative

The G2W™ initiative will only work with those companies and individuals, who will be able to create meaningful economic impact in Ukraine, after undergoing the conversion process.  G2W™ will not in any way target those convicted of the “black” behavior, as their reputation gap is un-bridgeable within the scope of the project.

Thus the question becomes, is it possible for US stakeholders to create an environment and a broad platform from which so-called “grey” Ukrainian businessmen seeking to utilize US financing, equipment, services and franchises, as part of their major investment programs, become “bankable” under Western standards? If the answer is “Yes.”This type of conversion will provide hundreds of millions, if not billions of dollars in direct economic benefit and enhanced geopolitical security to Ukraine and to the US.

If the answer is “No,” these businessmen will either be forced to forgo the planned capital investments, or seek alliances with other grey, or black global actors in countries like Russia, China, Brazil, Iran, etc.

It is the fundamental belief by the creators of the proposed initiative that given a concerted effort by the US and Ukrainian stakeholders to develop and implement realistic procedures to increase corporate transparency, introduce financial standards, address any existing reputation issues head-on and provide reputable outside management and board oversight, it is possible within short to medium time-frames to bring these so called “grey” businessmen and their respective projects up to elevated western standards, mitigate investment and reputation risks and affect substantial economic growth in Ukraine.

Thus we hereby propose the following:

Select three-four financially viable projects sponsored  the “grey” Ukrainian actors and use them as a pilot to develop, refine and implement an effective conversion strategy to bring that project up to acceptable Western standards.

From the government side, we propose to involve the US Commercial Service, USTR, US Embassy, Ukrainian Embassy, Cabinet of Ministers of UA, members of the US Congress focused on UA issues, OPIC, regional Governors and local administrations in Ukraine, IFC, USTDA and the US EXIM Bank (when that Agency resumes its activities in Ukraine).

Among the NGO stakeholders we would like to see US-Ukraine Business Council (USBC), AMCHAM, Transparency International, Freedom House, Atlantic Council and US Ukraine Foundation. Additionally, reputable international law firms, audit firms, press, appropriate private individuals, corporate off-takers, financial market regulators, as well as relevant providers of US goods and services should be involved.

The framework of the proposed initiative shall be as follows:

• Initial Sponsor/Project assessment and preliminary due diligence
• Project selection and stakeholder awareness and involvement
• Project G2W™ Team building (attys., directors, advisers, auditors, suppliers, investors etc.)
• Full due diligence and implementation plan for the Western financial, FCPA and governance standards
• Investor cultivation and underwriting of the financing package
• Project development and implementation
• Monitoring and compliance

To kick off the proposed initiative, we propose an intensive education and awareness-building campaign designed to simultaneously involve all the stakeholders.

After the initial buy-in into the initiative is secured, work will begin on developing the pilot projects.

During the pilot project phase, the G2W pilot project team will be seeking to achieve specific and tangible goals:

• Fully assess the existing reputation risks, possible political influence issues, suitability for OPIC/IFC financing and Political Risk Insurance for the US project participants
• Prepare a legal due diligence report by a world-class law firm
• Recruit highly reputable and competent outside board members to the Project’s Board
• Design a comprehensive PR/IR strategy to inform stakeholders of the project and its ongoing developments
• Design and implement transparent financial audit, reporting and management accountability standards
• Develop ways to tangibly measure economic effect of the pilot project
• Continue to promote the initiative and seek to move it from the pilot project phase to full-blown implementation.

(to be continued)

                                                    ^{*********************************************************}

Part II  (April 2, 2018)

In the nine months since the above article was first published, a number of events took place, which not only validated the concept behind the Grey2White™ initiation, but also expanded its scope and attracted top notch global professionals to the program.

Although initial premise of the program to convert grey actors in Ukraine to white bankable actors, whose economic contribution will greatly outweigh any possible transgressions they may have committed up to this point remains intact, the program has been expanded to include other emerging market countries of Eastern Europe and Central Asia. The program also grew to allow so-called grey companies to unlock their value through financial and legal transformation in order and become more bankable in the Western capital and financial markets. Part of this transformation involves tools, which on one hand provide increased political protection to the current management and to foreign investors, and on the other hand allow western companies to lock up predictable valuations and to observe the transformation process first hand.

A first rate international “scrub team” has been assembled as a multidisciplinary team consisting of former US Government prosecutors, forensic accountants, legal and financial experts and last but not least, former high-level grey operator with deep expertise in shadowy government and business dealings in Ukraine and several other  post-Soviet countries.

A pilot company and its owner have been selected, as the first of four pilots companies to undergo Grey2White™ transformation in order to make them bankable by US Development Agencies for a $150 million project slated to create over 200 new jobs and to generate significant economic impact in Southern Ukraine.

In the next 60 days. key members of the G2W™ Team are expected to travel to Latvia, Kazakhstan, Azerbaijan, Uzbekistan and Ukraine to conduct additional screening and selection of the pilot companies and individuals.

In the subsequent parts of this article, we will examine the different case studies and watch the pilot candidates undergo the first steps of the Grey2White™ transformation.

(to be continued…)

 

IS YOUR BUSINESS FLUENT IN FOREIGN? – Release of my new book

…”Essential reading for any U.S business looking to expand into foreign markets.
Informative and entertaining – personal insight and experiences make this a must-read if (and you should be) expanding into new territories…”Industry Today Magazine. 

 

Today is a very special day for me.  After 23 months in the making, my book Fluent in Foreign Business  has finally been released.  In today’s post I would like to talk about the factors that led me to write this book and the benefits that I hope will accrue to its readers.  I’ll also discuss the role played by the Princeton Council on World Affairs in producing this book and the entire business educational program that is aimed at those wishing to grow or start a business abroad or simply learn more about international business.

What is the book about?  Fluent In Foreign Business is a candid account of my personal stories gathered during more than two plus decades of doing business overseas, with proven business concepts, risk management techniques and practical guidance.  It covers a number of questions that will benefit any reader wishing to consider developing or growing their international business. The book will help readers avoid costly mistakes and save them valuable time and money.  Furthermore, it puts the reader on the path of self-discovery and introspection  and will help them understand how committed they really are in their quest.  Students and those simply exploring the path of international business will find a number of stories that illustrate the dangers and the hardships, along with personal and professional rewards. Those already exporting to one country will learn how to evaluate and grow their operations into different markets.

Some of the questions answered in this book are:

•Why do I want to take my business abroad?

• Am I ready?

• Who will help?

• How do I pay for it all?

• They WILL be asking me to pay bribes; what should I do?

• What pitfalls await me?

•What happens when the proverbial s!&* hits the fan?

In writing this book, there were three things I wanted to avoid – a technical textbook product, reader intimidation and boredom.  Instead, I have tried to paint intensely practical and candid pictures of what it takes to do business abroad, what tools are needed, what support mechanisms are available, what dangers lurk and finally, what rewards await those who decide to go on the adventure.

To help reduce the intimidation factor, I introduced an avatar named Global Felix™. Every chapter includes a situational illustration of Felix, making it friendlier and more accessible to the reader. Those of you who regularly read this weekly blog, or publications such as “Industry Today,” “Industry Week,” “Business Finance,” “The NY Enterprise Report” and the Wharton Magazine blog have had a chance to read excerpted chapters from the book over the past six months.

Why did I decide to write this book? I truly believe that in today’s world, international business must be a component of every business (sans little mom and pop local enterprises). Regardless of whether it is export, direct investment or import, having an international strategy is key to long-term survival.

I also believe that to succeed in doing business abroad, a special state of mind is required along with proper coaching, deep cultural understanding, a superb information network and a sober risk/reward assessment framework. This state of mind can be achieved through education, information and empowerment of business owners, managers and entrepreneurs. Thus, along with my like-minded colleagues, we have undertaken a quest to enable as many people as possible to succeed in international business.

I also wrote this book to share my personal experiences and those of some of my colleagues. I believe these experiences serve as valid illustrations of what one can expect when doing business abroad. I have been fortunate to do business in more than 30-countries and I’ve encountered a wide variety of cultural and business situations, which I hope will benefit the reader.

Despite the fact that the U.S. has consistently been one of the largest global exporters, a vast majority of American businesses remain focused only on domestic business. Such a myopic vision makes them susceptible to economic downturns like the one we are now experiencing, and it precludes them from taking part in the breathtaking growth of some of the world’s emerging markets.  It also insulates them and undermines our country’s long-term competitive position.

Enter the Princeton Council on World Affairs ( www.princetoncouncil.org ), a non-profit organization whose mission is to Educate, Inform and Empower its members, helping them succeed in their international business and economic development efforts. It is a young organization, which is part of the 90-year old foreign affairs monolith – World Affairs Councils of America.  Led by a diverse and experienced group of Trustees and a very competent international Advisory Board, the Princeton Council has been an effective tool for its U.S. members who wish to enter various foreign markets and participate in complex multidisciplinary business opportunities. Over the last six months, the Princeton Council’s leadership has witnessed a very strong increase in cross-member activities where members and prospective members seek assistance within the Council’s membership roster to take advantage of opportunities in markets such as China, Africa, South America, Bangladesh, Jamaica and countries of Central Asia. Many foreign companies seeking to enter the U.S. markets have turned to the Princeton Council for guidance. Providing its members unparalleled access to government officials, corporate and civic leaders in multiple markets, along with numerous other education, business development advisory and cost-saving benefits, the Princeton Council has rapidly emerged as one of the most effective platforms for international business expansion, economic development and education.

Fluent In Foreign Business is the first book to be published by the Princeton Council on World Affairs. It is part of the Fluent In Foreign Academy™  – a collection of webinars and seminars dealing with topics on foreign expansion (“Fluent In Foreign™” workshops levels I-III), financing (“Fluent In OPIC™” and “Fluent In EXIM™”), “Foreign Corrupt Practices Act “(called, what else – “Fluent In FCPA™”) and project development (“Fluent In USTDA™”).  The Council is an open non-partisan foreign affairs organization that has four types of memberships available –  Student (free with .edu email), Individual, Professional and Corporate. (for more info or to join visit http://www.princetoncouncil.org/members/receive-membership-benefits.html )

On June 30th, July 7th and July 21st between 5 and 8pm, the Council will host three “Is Your Business Fluent In Foreign?” receptions in New York, Washington D.C. and Princeton, N.J., respectively. These receptions will feature important speakers from Ambassadors and U.S. Government officials to international corporate practitioners and industry leading lawyers and journalists. The presentations will offer high-level networking opportunities, surprise performances and the chance to learn about how to grow their business through exports, insure against political risks, participate in international infrastructure projects and contribute to international economic development.  Please Save the Dates and watch your email for upcoming announcements and for your personal invitation.

For the remainder of May and the entire month of June, the Princeton Council is having its annual Membership Drive. All those who purchase Fluent In Foreign Business, either on Amazon.com  http://tinyurl.com/3gf4oeq or through the Princeton Council website (www.princetoncouncil.org) between May 21st and July 1st, will receive a 90-day complimentary corporate membership, a $625 value and a 20% discount on all corporate training and advisory offerings for the duration of the membership. As part of the birthday celebration, the Council is upgrading its Websiste to be unveiled June 1st.

Princeton Council members can enjoy exclusive access to diplomatic hotel rates at some of the leading hotel chains throughout the U.S. and in many foreign countries, with discounts up to 40% off the regular rates. Members also enjoy weekly geopolitical  intelligence briefings from Stratfor, access to exclusive international business opportunities and industry alliances, deeply discounted publication subscriptions including “Foreign Affairs” magazine, reduced rates on language training and translation courses, as well as Berlitz’ proprietary Cultural Navigator ® system.

Additional benefits, of course, include  proprietary educational offerings from the Fluent In Foreign Academy™,  member only business &  foreign affairs networking events as well as  high-level market entry access and advisory services.  Every book purchased through the Princeton Council during the membership drive will be autographed by me. As a way of giving back, I will be donating 20% of the proceeds of every purchase via the Council to the U.S. Tornado Disaster Relief Fund to help the victims of the tornadoes in our Southern states.  To arrange for corporate purchases or any service issues please contact kgigineishvili@princetoncouncil.org .

My colleagues at the Princeton Council on World Affairs and I are deeply committed to international economic development and foreign affairs issues.  We will continue to  do all we can to help facilitate economic development and seek out international business opportunities for our members.  I hope you enjoy the book and I welcome your comments, reviews and suggestions.  Also, I look forward to meeting all of you at the upcoming Princeton Council events and during my promotional book tour.

For event sponsorship information, conference or corporate function speaking engagements, to arrange a private book signing or advisory assignment, please contact Bambe Levine or David Reich at 212 490-6500.  I can be reached  at agordin@broadstreetcap.com or agordin@princetoncouncil.org .

http://www.amazon.com/FLUENT-FOREIGN-Business-Company-Expanding/dp/1462862780/ref=sr_1_5?s=books&ie=UTF8&qid=1305859807&sr=1-5l .