Driving through the rain towards brighter economic future of Ukraine

About a month ago, during a Washington round-table on Ukraine hosted by the US-Ukraine Business Council (USUBC), someone asked me what do my colleagues and I expect from the new President of Ukraine and his administration? My answer, which was picked up by the Voice  of America and other publications, was essentially – I have no idea. But since we have been and continue to be bullish on the Ukraine for almost twenty five years, our strategy is to move forward despite the political climates, as we always hope for sunny investment weather, but carry a sturdy umbrella in case it starts to rain. 

Well, it is raining now.  Raining hard and much sooner than expected.

The events of this passed week have created a vicious firestorm with  “Ukraine” being mentioned practically non-stop.  In this post I will not address the politics of the situation, as this has been done by practically every major media outlet in the world ad nauseam. My focus will be on business opportunities and financing tools available to those wishing to invest into the Ukrainian economy, as despite this week’s “torrential downpour” nothing has fundamentally changed to make Ukraine a less attractive place to invest.

First, some basic assumptions under which we have been operating in Ukraine for almost quarter of the century:

• Massive institutionalized corruption exists in Ukraine and it will probably take two-three generations for it to be rooted out;
• Ukraine is a very risky place to do business;
• Many people who accumulated capital in the ’90’s played by the “fast and loose rules” and cut multiple corners;
• As business in the country evolves, most astute business people understand that by playing by the transparent and well-defined rules set out by the western markets they can unlock the value of their holdings, obtain access to low-cost financing and protect their assets for the generational asset transfer;
• Ukraine has fantastic potential for economic growth in multiple sectors;
• Terrific opportunities exist for US, Canadian and European companies to supply goods and services to Ukraine and to bring world-class Ukrainian goods into the Western markets;
• Ukraine has a superb pool of smart and educated labor force;
• Country is of a strategic geopolitical importance and will always be a subject of political pressure and outside influence;

Given the above, it is important to take a long view and not be terribly concerned with current politics, because by definition Presidents, Ministers, Ambassadors and Senators change every few years. Once such long-term philosophy is accepted, then it is necessary to construct one’s proverbial umbrella. Namely, risk mitigation, corruption resistant mechanisms must be incorporated into one’s approach to doing business in the country.  What this means in practice is the following:

• Targeting for investment and financing primarily those sectors where corruption is either low or  non-existent. From our standpoint exports of Ukrainian natural foodstuffs, renewable energy, electro-transport production, IT, nuclear waste containment are some of those.
• Utilizing US Government financing tools, such as those offered by OPIC and US-EXIM  Having these tools part of a business transaction not only provides low-cost, long-term financing, which improves economics of practically any project, but having government-backed financing in a deal, also improves quality of due diligence and acts as fantastic corruption deterrent and protection for investors.
• Obtaining political risk, trade credit, or breach of contract insurance for every significant deal or trade transaction. US  Government and certain well-rated global  insurance companies offer protection to investors from such perils as expropriation, creeping expropriation, currency  inconvertibility, non-payment for goods supplied, or services rendered and for breach of contract.  Such insurance is not terribly expensive, but  de rigueur for anyone looking to invest into the Ukraine, or into any  foreign market, for that matter.
• Creation of a so-called Grey2White® program to allow investment where original capital, or business formation had murky roots, but can be fully re-mediated with application of strict compliance procedures, financial restructuring and accounting oversight.
• Finally, despite of the current rainy weather, we are moving hard to add one more extremely effective tool, which has been missing in Ukraine’s economic development. Creating a safe umbrella for individual American-Ukrainian, Canadian-Ukrainian and members of Ukrainian diasporas in other countries to invest into the future of Ukraine.

What this means is a focused investment platform listed on a stock exchange and subject to a recognized US, or Canadian authority such as Securities Exchange Commission (USA), or Canadian Securities Administration (CSA). Such platform would will further be secured by protection of the political risk insurance and will, for the first time since Ukraine’s independence, allow individual investors with as little as $500! to invest,  to participate in Ukraine’s economic development, while having the umbrella of protection of the western laws, rules and regulations.  We call this platform “Develop UA”™ and expect to formally roll it out to the world in the middle of October, 2019 regardless of whether it is raining, or sunshine in Kyiv and Washington, DC.

relevant links

http://www.usubc.org/site/recent-news/doing-business-in-ukraine-now–usubc-roundtable-in-washington

https://ukrainian.voanews.com/a/amerykanksy-biznes-ukrayina/5051657.html

 

Getting Ukraine to become Fluent in EXIM.

How can US Exporters increase their exports to Ukraine and what do the latest developments mean for US EXIM programs there?

  Since the original Fluent In EXIM post was published on February 11th, several important events took place, which potentially may have an effect on how exports to Ukraine are financed by the Export Import Bank of the United States (US EXIM).

• New President of Ukraine was inaugurated a few days ago, potentially putting the country on a different political course.
• New, closer, date has been set for the elections of People’s Deputies into Ukrainian Rada
• US Congress confirmed three new Board members thus opening the  way for US EXIM to finance  projects over $10 million with a duration of financing  longer than seven years

Although not on the same level of importance as the above events, in March, in partnership with the US Ukraine Business Council (USUBC), our Firm held a financing workshop in Washington DC to help participants learn about available government financing programs, with the US EXIM  representative and its authorized broker prominently prominently featured on the agenda.  We have also received numerous EXIM financing inquiries from Ukraine, particularly in the areas of agriculture, renewable energy, transportation and healthcare. A second workshop for USUBC members and invited guests will take  place in Lviv later this month.

In this post, we will examine what, if any, effect these changes shall have on the US EXIM’s programs currently in place for that country. We will  also look at the ways Ukrainian importers and US exporters can best take advantage of these programs.

Currently, US EXIM is only open in Ukraine for short (financing of trade up to one year) and medium-term (financing of $10 million per project up  to seven years)  programs. Thus reopening the US EXIM for the long-term programs will not have any effect on Ukrainian export transactions.

Election of  the new President and upcoming Rada elections also are  not expected to  affect the US EXIM programs for the foreseeable future.

Yet despite the absence of the long-term programs, US EXIM bank remains an effective tool for US exporters wishing to export goods and services to Ukraine. Under its short-term program, the Bank will insure against buyer non-payment and political risks up to 95 percent of the foreign receivables’ invoice value, thus allowing exporters to safely extend open account terms to foreign buyers (both private and  government) for periods up to one year, with 90-day, 120-day terms being most prevalent.  This is done by putting in place either a Single Buyer, or Multi-Buyer credit insurance by the exporter and then qualifying and insuring individual importers under these policies. Depending on the policy limits sought, EXIM employs different underwriting standards and requires increasingly deeper credit checks and financial documentation.

Most qualified US exports, other than sales to of alcohol, tobacco and adult content, as well as sales to foreign military, may be insured; even equipment and services related to nuclear industry.  In Ukraine, larger private transactions will require a repayment guarantee from one  of the  five or so top banks and on the government side a sovereign guarantee is needed. Since it is almost impossible to obtain a UA government’s guarantee for smaller transaction amounts, the US exporters should focus selling their wares to the private sector.   The credit insurance may be obtained either from the Bank directly, or at no additional cost, through a cadre of US EXIM approved insurance brokers whose list is found on the exim.gov site.

Under its medium term programs, US EXIM can cover up to 85 percent of qualified US exports, including eligible freight and duty costs. As mentioned above, financing limit is $10 million per distinct transaction, and repayment terms of up to seven years apply.  For projects, which require local construction or installation (ex solar farms, grain silos), up to 30 percent of the financed amount maybe used to cover local costs performed by Ukrainian companies.

Depending on the project, repayment of the financing may be structured as interest only for up to two  years, with the balance of principal and interest paid out evenly over the remainder of the loan term.  Services such as engineering, architecture, design, legal and financial, all may be financed under this program.

Although US EXIM can lend funds directly at what is commonly known as a CIRR  rate, more often it  issues a its AAA rated guarantee and the exporters then approach an approved bank to secure financing rates, which are  usually more advantageous, as they are based on LIBOR and can either be variable, or fixed depending on the borrower’s preference.  Underwriting requirements of bank guarantee  for the private transactions, or sovereign guarantee for government purchases also apply. Many borrowers choose to finance the remaining 15% percent through those same  local banks  thus effectively securing 100% financing for their projects.

Since the process of securing financing and insurance coverage  through any government agency, or an international financial institution is quite complex, we always recommend  that clients engage a qualified and experienced financial adviser and a very competent law firm with extensive experience working with the US EXIM Bank.

To get more information on the upcoming Fluent In EXIM workshop in Ukraine, please  contact MorganWilliams at mwilliams@usubc.org

 

 

 

 

 

 

 

 

 

Broad Street Capital Group to lead an international Trade Mission to Uzbekistan.

For Immediate Release

New York, August 26, 2018. Fresh from its success of developing a pioneering $250 million, 20-year OPIC insured, capital markets financing, Broad Street Capital Group announced today that it will lead an international Trade Mission to Uzbekistan between September 5th and 9th, 2018.

The goal of the Trade Mission is to identify and engage large project development and financing opportunities in the areas of health care, distributed and renewable energy generation, agriculture, ICT and aerospace. 

With its proven ability to develop and structure complex financing solutions ranging from $100 to $500 mil., and utilizing support of Export Credit Agencies (ECAs), such as US EXIM Bank, and of US government development institutions,
such as Overseas Private Investment Corporation (OPIC), Broad Street Capital Group is uniquely positioned to bring low-interest, long-term financing to projects to be developed by the Trade Mission participants and supported by the Government of Uzbekistan.

The mission participants will also introduce an innovative Grey2White™ initiative designed to assist local companies in becoming more bankable and transparent to western partners and international financial institutions.

Joining Broad Street Capital’s team during the upcoming Mission will be representatives of US, UK and Israeli companies, international law firms and professional organizations. The delegation will be led by Mr. Alexander Gordin, Managing Director of the Broad Street Capital Group and will meet with a number of federal and local Government Officials, project sponsors and company owners in Tashkent.

“Uzbekistan represents a tremendous opportunity for international project development and international business cooperation,” said Alexander Gordin. “Policies implemented by President Mirziyoyev have been very effective in attracting foreign investment, supporting technology transfer and focusing on growing key areas of the Uzbekistan’s economy,” added Gordin.

About the Broad Street Capital Group

Based in the heart of New York City’s Financial District, Broad Street Capital Group (www.broadstreetcap.com) is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. Through its member companies, the Group focuses on developing project financing in the $100 million to $1 billion range, providing political risk mitigation, export management services and cross-border market development advisory. The Firm maintains a permanent presence in Astana, Kazakhstan and Kyiv, Ukraine.  Since its founding, Broad Street Capital Group has done business in over 35 countries, spanning the emerging markets landscape from Bangladesh to Ukraine.

The Firm works closely with all trade and development agencies of the U.S. Government and Export Credit Agencies of several European and North American countries. Since its inception, Broad Street Capital Group has been involved in multiple high-profile cross-border transactions in IT/telecom, aerospace, health care, energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory and export management portfolio exceeds $900 million and expected to exceed $1.5 billion by November 15th, 2018.

For more information contact: Rustem Tursyn, Representative for Central Asia

+1 212 705 8765 ext. 707, or via email rtursyn@broadstreetcap.com