Index for August 2022

Volume 21, Issue 8

  • (Bloomberg, London, 23 August 2022) Through their little-known trade finance agencies, Germany, Italy and France have been among the biggest backers of Russian oil, gas and petrochemical development in the last several years, helping to enrich and insulate the country as it prepared to invade Ukraine. Since Russia’s annexation of Crimea in 2014 through late 2021, German, Italian and French export-credit agencies guaranteed almost $13 billion in financing for projects in Russia, according to exclusive data compiled by the Global Strategic Communications Council, a nonprofit, worldwide network of climate experts. German and Italian state-owned banks lent a further $425 million. Many of the projects that received funding have ties to sanctioned individuals, including Leonid Mikhelson, Russia’s second-richest person, and Gennady Timchenko, a close associate of Vladimir Putin. Germany and Italy arranged $4 billion in guarantees tied to Russia’s largest natural-gas processing plant, run by Gazprom PJSC, which was sanctioned in February. The five institutions — Euler Hermes, SACE, Bpifrance Assurance Export, KfW-IPEX Bank and Cassa Depositi e Prestititi — told Bloomberg they stopped new cover for or loans to Russian projects after the invasion of Ukraine, and said they were in compliance with applicable sanctions. Many export-credit agencies operate without much public scrutiny. They typically provide credit guarantees, loans and insurance to domestic companies doing business in riskier parts of the world. French, Italian and German firms probably would have stayed out of Russia over the past decade without that backing, said Marcos Alvarez, head of insurance for global financial institutions at DBRS Morningstar, a credit-ratings agency. “These public finance institutions have made their governments complicit in Putin’s war crimes, filling Russia’s war chest and helping the Kremlin secure new export routes for its blood oil and gas,” Oleg Ustenko, Ukraine’s chief economic adviser said.

  • (Sky News, London, 3 August 2022) The UKEF credit facilities comprise up to £2.3bn for the financing of military contracts identified by the Ukrainian government, with the remaining £700m earmarked for reconstruction projects. Insiders speculated that companies such as BAE Systems and Babcock International were likely to be among those signing individual contracts with UKEF. Chancellor Nadhim Zahawi's backing for the deal is contingent upon the resolution of legal questions relating to "the compatibility of these facilities with our international subsidy control obligations". "Clearly Ukraine is a high-risk market in which to operate commercially, and we must acknowledge the risk of losses is significant," he wrote. "UKEF must also therefore continue to mitigate against Exchequer losses as far as is reasonably possible." The chancellor added that all individual contracts would also require Treasury approval. In March, International Trade Secretary Anne-Marie Trevelyan wrote to Louis Taylor, UKEF chief executive, instructing the agency to maintain its £3.5bn "market limit" for the country. Although the £3bn support is modest in the context of Ukraine's military and reconstruction needs, it underlines Britain's central role in providing internationally support to the country. A source close to UKEF said it had so far provided £23m in financial guarantees to Ukraine, including support for a commercial shipment of COVID-19 tests to the country's Ministry of Health before the Russian invasion. The Treasury and UKEF both declined to comment on the new credit facilities. The Council of the European Union, which represents the bloc's 27 individual member states, has agreed to send €1 billion ($1 billion) in financial aid to Ukraine as Russia's invasion intensifies. On August 28, Josep Borrell, Vice-President of the European Commission, noted that the E.U. has financed the delivery of military support to Ukraine to enable Ukraine to fight back, providing humanitarian support and macro-financial assistance, to keep the Ukrainian state afloat. In total, € 9.5 billion have been mobilised by Team Europe so far, with up to €8 billion in additional macro-financial assistance in the pipeline. The Biden administration is set to announce it will give Ukraine an additional $3bn worth of arms on the country’s independence day. The US has so provided $10.6bn in military help for Ukraine since the Russian invasion. It is not known if the U.S. Exim has been involved in any of these arms deals. Reuters notes that, per Ukrinform, Sweden will provide another $46.75 million in military aid to Ukraine.

  • (Global Compliance News, London, 7 August 2022) On 22 July 2022, the UK government published a policy paper entitled “Resilience for the future: The UK’s critical minerals strategy” (UKCMS). The UKCMS outlines how the UK will secure critical mineral supply chains to ensure the energy transition. It also sets out the UK state support for domestic production of critical minerals as well as enabling the supply from third-party nations. Global transition to energy systems powered by clean energy technologies is one of the biggest transformational changes that the world is undergoing right now and is driving demand for minerals that are vital in the manufacturing of such technologies. A significant amount of state support and private investment into the critical minerals sector is required to match the demand with the supply. State support will focus on enabling the supply from third-party nations by making funding or other types of support available, with export credit agencies playing a key role. UKCMS also highlights the importance of the UKEF for funding critical minerals and expressly states that UKEF products can support eligible critical mineral projects, including UK-based projects with potential to export or overseas projects that present opportunities for export of UK goods and services.

  • (Tehran Times, Tehran, 26 August 2022) The Head of Iran’s Trade Promotion Organization (TPO) has urged Russia to take the necessary measures for signing an agreement between Export Guarantee Fund of Iran and the Russian Agency for Export Credit and Investment Insurance (EXIAR) in the coming weeks. He also announced Iran's readiness to establish banking relations with Eximbank of Russia and emphasized that Iran is ready to use all the banking capacities of the two countries in order to facilitate the financial transactions between the two sides in a meeting with Director-General of Russian Export Center Veronika Nikishina in Moscow. Nikishina for her part welcomed the Iranian side’s proposals, saying: “We gladly join the actions and decisions that are being made because we want to create acceptable conditions for expanding business in a competitive financial environment.”  Meanwhile, the Washington Post reported on August 29 that Russian cargo planes quietly picked up the first of scores of Iranian-made combat drones for use against Ukraine, in a move that underscores deepening ties between Moscow and Tehran while also highlighting Russia’s struggles to supply its overstretched military. The Financial Tribune of Iran reported on August 30 that a 125-strong business delegation from Russia made up of representatives of 78 companies are scheduled to visit Tehran from Sept. 19-21 to meet their Iranian counterparts and survey ways of expanding bilateral cooperation.

  • (CableFree TV, London, 25 August 2022) Under a special program for loans to exporters, banks have provided 14 loans for an amount of 33.2 million UAH.(US$895,000) supported by the Export Credit Agency of Ukraine. Another 12 agreements worth US$1.47 M are awaiting signature. The ECA’s partner banks have supported the issuance of an additional 8 loans under simplified collateral requirements under a special exporter loan program under martial law. It is noted that entrepreneurs from the regions of Ivano-Frankivsk, Rivne, Kiev, Odessa, Dnepropetrovsk, Zaporozhye and Chernivtsi have received loans. They export paper bags, wooden products, solid fuel boilers, parquet boards, furniture parts, furniture, rubber products and foodstuffs. According to the ECA, the export contracts received for the implementation of: loansthe total amount of supported exports will exceed US$5,5 M. As reported, in March the Verkhovna Rada generally passed a law to ensure a large-scale expansion of the export of goods (works, services) of Ukrainian origin through insurance, guarantees and cheaper loans. The document provides for ensuring the effective functioning of the export credit institution.

  • (JD Supra, Sausalito, 23 August 2022) In July 2022, the Equator Principles Association published a Guidance Note on how to apply the latest iteration of the Equator Principles (EP), EP4, during the Environmental and Social Due Diligence (ESDD) process. The Guidance Note is significant because it addresses the changes to the pre-financial close ESDD required to be undertaken by Independent Environmental and Social Consultants (IESCs) under EP4, including with respect to projects located in Designated Countries that are no longer “deemed in compliance” with the Equator Principles solely by virtue of satisfying host country law. The E&S standards applied by export credit agencies (ECAs) and development finance institutions (DFI) do not generally distinguish between Designated Countries and Non-Designated Countries. As such, if ECAs or DFIs are involved in the financing of a project, then the scope of the IESC’s ESDD should be the same regardless of whether the project is located in a Designated Country or a Non-Designated Country.

  • (Trade Finance Global, London, 26 August 2022) The Berne Union released its latest Business Confidence Survey this week amid mounting geopolitical uncertainty. This latest rendition of the quarterly report shows that demand for export credit insurance is growing. This phenomenon appears to stem from heightened geopolitical risk around the world and the overall bleak economic outlook. Paul Heaney, Acting Secretary General at Berne Union, said, “Right now, geopolitical risk is pushing up demand, while the fragile economic environment ultimately means more expensive finance and less underlying trade and investment activity.”

  • (Reuters, Seoul 19 August 2022) South Korea's SK On battery maker has raised about 2 trillion won ($1.51 billion) from private equity firms, pushing the electric vehicle (EV) battery maker's valuation to around 20 trillion won as it works to expand production abroad, local media reported on Thursday. The battery unit of energy group SK Innovation Co Ltd (096770.KS) has been in talks with a local private equity consortium the Korea Economic Daily Newspaper said, citing unidentified investment banking sources. Last month, SK On secured a $2 billion loan from three export credit agencies to finance its factory in Hungary. In other news, Hyundai Mobis announced on Aug. 22 that Hyundai Motor Group (HMG) and LG Energy Solution have secured US$710 million to finance the construction of a battery cell joint venture plant in Indonesia. Hyundai Motor Co., Kia Corp., Hyundai Mobis and LG Energy Solution provided debt guarantees according to their stake, and the Korea Trade Insurance Corp., a state-run export credit institution, provided credit guarantees.

  • (Pumps Africa, Nairobi, 16 August 2022) The government of Nigeria and Sun Africa have inked a deal to reduce the gap in access to electricity between the country’s urban and rural areas through the extension of the national electricity grid in underserved states. The two are set to partner and install solar energy production systems in a dozen localities poorly served by the national electricity network. As part of this energy policy, the authorities of this West African country have obtained a loan of US $1.5bn from the American export credit agency Exim Bank. With a gross domestic product (GDP) of 432.3 billion dollars in 2020 according to the World Bank, Nigeria, as the largest economy in Africa, has an electricity access rate of 60%, of which only 34% is in rural areas. 85 million people do not have access to electricity.

  • (Trade Arabia, Jeddah, 30 July 2022) The Islamic Development Bank (IsDB) Group has endorsed a $10.54 billion comprehensive Food Security Response Program (FSRP) package that will support member countries in addressing the ongoing food crisis. The package was approved during an extraordinary joint meeting of the IsDB Board of Executive Directors, the Board of Directors of the Islamic Solidarity Fund for Development (ISFD), and the Board of Directors of the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC). The primary focus of the programme and the bulk of the financing envelope of the remaining $7.3 billion, which will span over the next three years, will be on developing innovative medium- and long-term interventions to address structural weaknesses and root causes of food insecurity in the member states. These include low productivity, rural poverty, climate change, and weak resilience of regional and national agricultural and food systems through six (6) key initiatives: (i) building agricultural resilience to climate change; (ii) food and input value-chains; (iii) smallholders' productivity and market access; (iv) rural livelihood support; (v) livestock and fisheries development; and (vi) building resilient food supply systems. The total IsDB Group's financing support for agriculture and food security currently stands at $20.6 billion, comprising 1,538 operations.

  • (Kalkine Media, Sidney, 9 August 2022) One of the leading Australian resource and mineral processing technology companies, TNG Limited (ASX:TNG) has secured a major cornerstone component of the multi-source, global funding package for its Mount Peake Vanadium-Titanium-Iron Project in the Northern Territory. In the latest development, TNG has received a conditional debt funding of AU$200 million (US$138 M) from the Korea Trade Insurance Corporation (K-Sure), which is the official export credit agency of South Korea under the Ministry of Trade, Industry and Energy. This debt funding is for TNG’s flagship Mount Peake Project, as per the terms of a conditional Letter of Support.

  • (East Africa Monitor, Kampala, 29 July 2022) Banks are in advanced stages of launching a Shs1 trillion export credit facility to support manufacturers involved in export within East Africa. The move, which is being championed by Uganda Bankers Association (UBA), seeks to finance manufacturers increase Ugandan products in regional markets. The export credit facility seeks to plug existing gaps, facilitate production and provide funding to power the entrepreneurial ecosystem through fostering growth and harnessing attendant trickle down benefits.