IBobserver 7

An Expert's View about Banking and Finance in Ukraine

Posted on: 26 Jun 2012

The new issue of IBobserver newspaper, the first specialized edition in Ukraine and the CIS region devoted to the international trade development, has been released.

About additional ways of World trends: London, IBcontacts innovation What is the secret to Danish insuring international trade corporate trainings pig breeding? Moscow, Warsaw deals 2 3 5 6 International Trade Development IBobserver №7 / ibcontacts.com.ua Unveiling Secrets: 2012 – Directly to International Webinar Webinar is not a new concept for the Western world. Meanwhile, in CIS countries only a few are aware of Diversication it, to say nothing about participation. As IBcontacts keeps up with the times, we couldn’t fall behind the world’s tendencies, and so held an online-seminar. Oleg Dorofeev, head of IBcontacts legal department, of Financial launched the tradition of holding webinars by IBcontacts professionals. e rst of a series of webinars was held on February 14-15, 2012 regarding “Doing Business in Ukraine”. Since IBcontacts is the Sources member of FCIB, the participants were executives in nance, credit and international business, providing critical export credit and collections insight, practical advice and 2 Number One Last year was signicant for Ukrainian confectionary in the context of attracting foreign nance. by the Dutch state export credit ese companies have always been agency (ECA) Atradius Dutch State considered to be reliable borrowers, Business NV. immune to the inuence of country e deal appears to be a challenging risks. Other middle-size companies one given current Ukrainian economic had to involve a local bank as a and political circumstances (grade borrower on a L/C basis or simply 7 according to OECD country risk obtain a loan from a Ukrainian bank. classication), as a domestic company at was very expensive as banks in Anna Dzhenkova attracting long-term export nance Ukraine include quite a high margin Head of communications department, This year, regional borrowers will seek to diversify funding sources and focus their search on the international without involving a Ukrainian bank and require highly liquid collateral. capital markets. IBcontacts is a dicult task. Finance resources erefore, direct export nance is in Ukraine are expensive and quite nancially advantageous for Ukrainian A limited. It all makes direct trade nance borrowers as the eective loan rates t the end of 2011 IBcontacts Ukrainian corporate lending sector: And despite all the sceptics, it is an ecient instrument for domestic are signicantly lower, a pledge is not successfully closed a ve-year Buyer’s interest rates reached 30% per quite possible for steadily developing Cr producers, because with its help they required, and terms of nancing are edit export nance deal for ZhL annum in UAH and requirements for and nancially stable companies only ALC, o can upgrade production facilities and better than local ones.ne of the top ve companies in collateral came close to 200-300% of marginally exposed to country risk. attract investment into capital funds. is helps buyers to develop their the Ukrainian confectionery market. total funding. In the mass media, one can nd such i Let us call your attention to the business activities and increase trade s deal was nominated for the Deal Long-term (investment) credit companies as Metinvest or Milkiland fact that before this deal, direct buyer’s volume with foreign countries. of the Year 2011 annual award by itself has become a pure ction: oen mentioned in this context. m credit schemes were only available e deal opens doors for numerous agazines such as Trade & Forfaiting domestic and foreign-owned banks Other smaller companies are normally Kateryna Barabash to huge industries and country R Ukrainian companies. eview (London), Global Trade in Ukraine were mainly focused on oered foreign export (trade) nance Managing director, IBcontacts leaders in Ukraine with sales Review (London), and Trade Finance short-term loans (up to 1 year). is under the guarantees of a national 2 M over one billion. agazine (London). trend is likely to spread in 2012. bank (on the basis of interbank World press also paid attention Finance is always a burning issue agreements) by the national nancial to the deal. ereby, the relevant for developing domestic enterprises institutions. Nothing is impossible articles appeared on the sites of and is usually crucial when choosing a But in the implementation of Given all the above mentioned popular magazines dedicated foreign producer or general contractor similar projects, long-term nance reasons, Ukrainian enterprises to matters of international trade for a project. attracted directly from foreign banks continue to look for alternative nance such as GTR, published by It is no secret that in 2011 there (without involving a Ukrainian 2 sources of direct nancing abroad. Exporta Publishing & Events Ltd, and were few positive trends in the TFR. In addition, the world business community had an opportunity to learn about this from special issues Prospects for the pig breeding sector in of Trade & Forfaiting Review called ‘Diamond Deals’, as well as Trade Finance Magazine, dedicated to the Ukraine: traditions, investment, technology most important agreements on trade nance in 2011. IBcontacts was in charge of Pork is the most consumed meat in the wor structuring the project, preparing ld. UN experts forecast that by 2015 consumption of pork will analytical documentation (nancial, increase by 29% in 2015 and by 57% in 2030. What is the current situation in Ukrainian pig breeding and what are the perspectives? marketing and legal analysis of the borrowing company’s business activity/project) and providing legal advice. e loan for the purchase of a new confectionary production line was granted to ZhL, one of Ukraine’s leading confectionary companies, by the international nancing Rabobank, the Netherlands. e deal was insured production compared to specialized water to the complex, as well as other why attracting nancing is a burning large cattle-breeding complexes. technological innovations will allow point for each of these companies. domestic pig breeding to shi from Financing in Ukraine today is rather an extensive, inecient and money- expensive, its volume is poor and its The basics of pig breeding losing business scheme to the new repayment period is not even close Pig breeding is a costly, complex, standard of quality and become a to satisfactory. at is why regional capital-intensive and innovation- more protable sector of the domestic companies apply for professional demanding business. Eective pig livestock industry. support and supervision of the breeding is based on three main Pig breeding is rather capital- process for entering the international For a long time livestock was not years not only the number of pigs, Pig as an indicator of wealth principles: a fodder base, genetic intensive industry. e amount of borrowing market. For example, considered important. According to but also the production of the pork in factors and technological conditions In Ukraine, as in every agrarian investment can reach dozens of Demis-Agro has developed a project our research, the number of livestock Ukraine has decreased almost three for keeping animals. Today one of the state, pig breeding has long been one of millions of dollars, while the payback establishing a complex for breeding steadily decreased and pork turned times. key factors is technology. Considering the main sources of income, especially period is quite long, up to 5-10 years, highly productive young pedigree into a marginal and non-competitive Specialists attribute the low the shortage of nancial resources, for rural families. ere was a time in depending on the size, type of farm, pig stock. e estimated cost of the product both because of quality and competitiveness of the domestic pig farmers have to keep animals in the history of the Ukrainian livestock workers’ skills and other individual project is around 113 million UAH. price. So, as of February 1, 2012 the breeding industry to the fact that the obsolete complexes unrenovated since sector when the share of pork in total characteristics of the project. In 2012, agricultural holding KSG number of pigs in Ukraine amounted majority of livestock originates from the Soviet era. meat production was about 55-60%. Today few Ukrainian livestock Agro plans to invest $40 million for to 7.2 million head, which is 6.8% private farms, the main features of Overcoming technological stagnation However, in recent years, the state enterprises can boast of modern the reconstruction of a pig breeding less than at the same point last year. which are high labour and feed costs, is a real dilemma. A well-organized of domestic pig breeding is far from technologies and an innovative complex in the Dnipropetrovsk region. It is necessary to notice that in recent lack of technology and low animal fodder base access of fresh air and lucrative. approach to pork production. at is e project is planned for 2012- 4 2 7 / IBobserver / www.ibcontacts.com.ua InternAtIonAL fInAncIng InnovAtIons Number One (from page 1) bank conrmed their readiness to depreciation level is high; some increase cooperation with Ukrainian factories haven’t been upgraded commercial and industrial importing since the Soviet era, and many companies. e representatives enterprises are technically backward. of Atradius and Rabobank shared us, investment in production is information about the successful an important factor for our country. application of key aspects of e agreement on attracting direct international nancing instruments, long-term nancing for the purposes and, as a result, eectively closing of upgrading ZhL factory production trade deals between Ukrainian facilities allowed to improve the companies and their foreign quality and competitiveness of partners. e ZhL deal is evidence domestic products and the level of of such successful international trade export support. cooperation. Another important factor is that “e main criteria that made the the deal signicantly inuenced deal possible were the transparency the strategic development of ZhL of the borrowing company, its well- ALC, since the purchase of new It also shows that attracting direct structured corporate organization, confectionery equipment will increase foreign nancing for a Ukrainian excellent credit history, and the the company’s production capacities. corporate borrower with 100 million correspondence of the loan amount In addition, this deal opens new USD annual turnover is not only to the borrower’s turnover”, Mr. Han possibilities for the company that is possible, but also turns out to be Bartelds, vice-president of Rabobank now going to build one more factory a good and reliable alternative to summarized. supplied with imported confectionary standard means of nancing by local While structuring the deal equipment. is project will be banks. implemented by IBcontacts in 2012 using a structured export nance tool (with project nance features). This deal was nominated for the Deal of the us, the agreement shows that, Webinar for FCIB members conducted by the head of IBcontacts legal department nally, direct export nance has February 14-15, 2012, Kyiv Year 2011 annual award by magazines such become available for a wide range of companies from CIS countries as trade & forfaiting review (London), global (including medium-size) which Unveiling Secrets: How to trade review (London), and trade finance will be able to upgrade production capacities and improve the quality Magazine (London) of their products. In addition, a Conduct Business in Ukraine? large number of foreign nancing (from page 1) banks not represented in Ukraine and CIS have a chance to get reliable intelligence to companies of all sizes— typical mistakes made by foreign to be taken, current practice of between ZhL and Rabobank, the clients and promote their services “e main success of the present from Fortune 500 multinationals to contractors. e main topics of the amicable and court debt collection, experts from IBcontacts company directly. At the same time, for export deal is that it has opened the market medium and small private companies. lecture were as follows: and the applicability of mediation in gave special emphasis to legal credit agencies this transaction is a of international nance to Ukrainian e topic was of great interest, • matters of checking the status of Ukraine. appraisal. “On this stage we faced good example for attracting direct companies that are not among the top since many foreign companies Ukrainian partners; anks to the online seminar’s many challenging aspects, including investment to Ukraine, which is 100, including ZhL, a confectionary face problems in their commercial • how to conclude contracts with interactive mode, the participants the consideration of all legislative unique and demonstrates the positive factory with an annual turnover of 100 transactions with Ukrainian partners. Ukrainian buyers, and which legal could ask questions as well as intents regarding credit agreements trends of the whole CIS region. million dollars. Our project, supported is is due to the fact that contracts features should be obeyed; participate in polls. e audience was conducted between Ukrainian by export nancing market specialists Reference: ZhL confectionary are oen not concluded properly. • how import procedures in Ukraine mostly interested in features of import residents and their foreign partners, from IBcontacts company, has become factory is one of the top ve leaders During the webinar, Mr. Dorofeev are conducted, which things are to and export operations of Ukraine as and its registration in the National an important achievement for us and in Ukraine’s confectionery market. provided the participants with be taken into consideration, and well as the legal aspects of concluding Bank. But this experience helped us started a new stage in the development useful tips on eective business with basic practical aspects; contracts with Ukrainian partners. of our company”, Mr. Yevgen Ukraine, as well as warned of the • debt collection in Ukraine: steps Gamov, managing director of ZhL To be continued! confectionary factory, said of the deal. “is proves that deals of this Direct export finance has become kind are much more advantageous for and services, varying from tailor-made InnovAtIons available for a wide range of companies Ukrainian companies than obtaining credit insurance and global solutions to a loan from a Ukrainian nancial international debt collection and online from CIS countries institution, as the eective loan services. amount rate is signicantly lower than ones provided by Ukrainian banks, We Know How and there is no need for a pledge, and terms ere are eight workshops functioning to develop an ecient mechanism With the help of are more acceptable for Ukrainian at the factory that produce all groups for concluding such agreements. It borrowers. e realization of such export finance Are Ready to Tell You will allow us to close similar deals for of confectionery products; the product investment projects is strategically Ukrainian companies in a shorter important for national companies range includes more than 250 items. companies can period of time”, underlined Mr. Oleg as it helps to increase the production ZhL products are exported to Germany, Dorofeev, head of legal department of capacity of the company and its long- upgrade production the US, Israel, Russia, Moldova, IBcontacts company. You can nd out term competitiveness”, Ms. Kateryna Estonia, Latvia, Azerbaijan, and other more about business cooperation with Ba facilities and rabash, managing director of countries. Ukrainian companies, and especially IBcontacts company, said of the deal. IBcontacts company specializes improve the quality i about drawing up contracts from s was also conrmed by the in developing trade relations between Mr. Dorofeev’s 2-hour-long webinar respective representatives of Atradius of products for professionals in nance, credit, Ukrainian companies and their foreign and Rabobank. During the Second and international business from International Seminar on Trade partners. e company works in the FCIB international association (read and Project Finance, organized by elds of export, project and structured Rabobank Group is an international more in “Unveiling Secrets: How to IBcontacts with the support of the nance, credit management and trade nancial services provider. It oers M Conduct Business in Ukraine?’’ in this inistry of Economic Development facilitation, providing full range of banking, asset management, leasing, issue of the IBobserver). and Trade of Ukraine and the nancial, market research and legal e deal also is highly supported insurance and real estate services. Embassy of the Kingdom of the services. by the Zhytomyr City Council Netherlands on November 8, 2011 in Rabobank International has activities Atradius is one of the world’s because of its positive impact on Kyiv, Ukraine, the deal was presented in the Netherlands, Europe, North further development of the region, leading credit insurers, with total to the Ukrainian business audience and South America, Australia/New as ZhL ALC is the biggest investor as part of a case-study session. is income of more than EUR 1.5 billion. Zealand and Asia. It has a worldwide in Zhytomyr, according to 2011 data. Seminar became a signicant event Atradius insures trade receivables network of oces, with branches in 30 e question of production facilities for Ukraine’s external trade relations against non-payment and oers a wide countries. renewal at Ukrainian factories is as both one of the world’s biggest range of credit management products critical due to the fact that their ECAs and an inuential nancing Training on attracting short-term nance for top-management of one of the largest Ukrainian confectionery factories February 21, 2012, Kyiv 2012 – Directly to Diversication In IBobserver we already wrote on attracting short-term nance, about innovations from IBcontacts - in particular, the application of training sessions on attracting short- instruments of export insurance. term nance (see issue #6). During the theoretical part, e successful launch of the the participants got acquainted of Financial Sources new service for Ukrainian and CIS with the history, principles and (from page 1) companies took place in February specic features of the activities of 2012. Experts from IBcontacts foreign export insurance agencies. bank as guarantor) is available for which may have a positive impact on prepared a special training session IBcontacts sta shared their unique regional corporate borrowers with the borrower’s credit rating and the for one of the largest confectionery knowledge and experience, which much less turnover than Metinvest whole group of companies as well. factories in Ukraine. An important will help company management or Milkiland. e main requirement However, this scenario will of component of the training was a understand the types of short-term is corresponding to the criteria of course raise the cost of funding by case study based on an analysis of export insurance products, eciently the foreign nancing bank, which is adding the domestic bank’s margin company’s history of cooperation organize the preparation of relevant quite achievable with proper business and will once again make it necessary with suppliers and their customer documentation and build a strategy preparation. (Read more about for the borrower to provide collateral. company’s request concerning for negotiations with suppliers. relevant projects in this issue) At the same time, such schemes can desired conditions of payment and, As a result, the trainees received be the rst step towards involving last but not least, the peculiarities of information which will help to direct nance and gives the debtor What’s the benet for both the market in which the company eciently organize their enterprise’s time for business preparation. buyer and seller? operates. cooperation with foreign suppliers. It is crucial to determine the IBcontacts specialists prepared a But moreover, it is vital for the External nance can signicantly stage of the borrowing company: presentation and training materials, company’s consistent and steady reduce interest rates (up to 10-11% whether it is ready to attract direct developed practical techniques and heading on the market of international overall in €), but more importantly, foreign debt capital or requires a portfolios of recommendations nance. no collateral is needed. e terms of specic preparatory work involving such nancing may vary from 5 to 20 a regional guarantor bank, which placement of at least ve Ukrainian years. Moreover, this type of project Healthy ambitions is only possible aer conducting an Wha companies and preparation has t if... implementation allows a company to projects (€100 million and above) initial credit analysis and negotiating In conclusion, it should be noted already begun. create an international credit history which are attractive investments and At the same time, engaging with potential foreign creditors and that a growing number of regional Our state cannot remain and therefore gain access to more still of interest to foreign creditors, a regional bank to undertake a insurers. Naturally, the results of the enterprises are strategically focused indierent to world tendencies. In protable nancial conditions. And it the dominant market tendency in borrower’s risks is in some cases the preliminary credit conclusion must on being placed on foreign stock 2012 we expect the beginning of a is even more important that attracting 2012 shall be following: the creation only possible option to involve nance. be conrmed during the second exchanges and consider an IPO as project on domestic IPO instrument direct export and project nancing of foreign bank and insurance is situation is quite common when stage, which includes a deep analysis an attractive way of nancing. ese implementation as well as the becomes part of a company’s strategic company pools which will allow risk a company has a low credit rating or of the project and the Due Diligence are companies operating in the establishment of our own export development abroad and can be seen distribution and make the project a brief history (exisiting less than 2 of the borrowing company and metallurgical and agricultural sectors credit agency designed to support as a preparatory stage for an IPO. feasible even in Ukraine’s unstable years), or also the absence of aliated aliated enterprises during project as well as in retail. In the next year, the regional exporters. For prospective large-scale economic conditions. companies, the nancial stability of implementation. Warsaw stock exchange predicts the gLoBAL trenDs www.ibcontacts.com.ua / IBobserver / 7 3 Moscow Believes in Guarantees About the newest trends of trade and export nance in Russia and Eurasia global currency settlements, 2013 the introduction of services to • project nance collaborations, cover investment and provide for • capital goods trade between small and medium-sized enterprises Russia and the Mena region, is planned. e statutory fund of • facilitating trade through Foxtrot-Plus amounts to $1 billion. institutional partnerships, • the changing attitude to trade credit insurance. Andriy Zavalko • the current risk appetite for Head of commercial development Russian trade nance. department, IBcontacts e current Euro zone crisis was a topical issue at the conference. e For the second time, IBcontacts largest market players, such as Coca- has become an ocial media partner Cola, Lukoil, Nokia, CNH, and DHL At the same time, the Ministry of for the Annual Russia & Eurasia shared information about methods of nance for the Russian Federation Trade & Export Finance Conference, synchronizing their strategies with and the state corporation «Bank for organized by the UK’s largest news the current situation in the market. development and foreign economic agency, Exporta. is year the e representatives of aairs (Vnesheconombank)» will international banks outlined three support agency development with main trends that have recently state guarantees amounting to $10 inuenced trade nance: development billion and $3 billion respectively. Mr. 5 th Annual Russia & Eurasia Trade & Export Finance Conference of cooperation with local companies; Karyakin emphasized that the main February 7, 2012, Moscow Asian economies no longer being key objective for the establishment of Has developed a new premium same for the last few years (7th which political will in Ukraine and a desire markets; and the high concentration Foxtrot-Plus, which was determined system in which international ratings is very low). In an exclusive interview to foster economic growth. Mr. of SME in developing countries. by the Government of the Russian Moscow event was attended by Ms. are taken into deeper consideration. with IBobserver, Rudolf Putz, head Putz advised paying attention to the It is peculiar that the role of export Federation, will be state support Anna Dzhenkova, Head of IBcontacts us, the «good» risks are getting of e Trade facilitation Programme opinions of local and international credit agencies in international for long-term projects in Russian Communications Department, cheaper and «bad» ones are becoming of EBRD, was asked about the economic experts, increasing the trade has been the keynote of the export (look for more details about and Mr. Andriy Zavalko, Head of more expensive. possibilities of Ukraine changing degree of transparency, and creating a conference in 2012. Even the need the experience of the public ECA IBcontacts Commercial Development its position in the forementioned favourable investment climate in the for their very existence has been establishment in Russia in the next Department. e conference rating in the near future. Mr.Putz country under which foreign investors questioned. is year such issues issue of IBobserver). gathered leading experts on trade and responded that such a possibility is could be condent in the security of were not discussed; on the contrary, An interesting trend is that export nance from Russia, Ukraine, always available. According to Mr. their investments and operate within the family of export credit agencies companies no longer resort to the Kazakhstan, Belarus, and Azerbaijan the Ukrainian market under clear welcomed another member recently classical banking instruments of trade as well as European countries, in rules. In fact, foreign investment as the export insurance agency and export nance. At the same time order to discuss the region’s economic All the participants agreed that creates jobs and will help Ukraine Foxtrot-Plus (Russia) was registered innovative schemes have come into problems and evaluate the inuence the investment climate has become to export not only raw materials, but in October 2011. According to force designed to reduce the total of world markets on the region. more favourable in the CIS region and also end products. Export is the best Mikhail Karyakin, the General level of expenditure on projects. But More than forty participants in Europe as well. e best marker of stimulator for the economy because it Director deputy of Foxtrot-Plus, by the head of the nancial sector and shared their views on modern market the investment climate in Ukraine is attracts foreign currency that can be mid-2012 the agency is planning to key risks of Germany’s state ECA development. e main topics of the country’s position in the OECD used to cover existing loans or fund introduce short-, medium- and long- Euler Hermes Kreditversicherungs, discussion were as follows: ranking, which has remained the Putz, everything depends on the existing investment projects. term export credit products and by Jens Heitmann, said that the agency • the changing attitudes towards 22nd Annual Insuring Export Credit & Political Closer to Risk Convention February - March 2012, London What will 2012 bring to the world community and Ukraine & CIS in the eld of international nancing. insurance premium amount. Poland What is Ukraine’s image among the community of international banks IBcontacts expands a network of aliate banks in Poland, which actively and ECAs? develop the portfolio of products for export operations support in CIS. According to Mr. Yves Zlotowski, Chief Economist, Coface, forecasts are quite disappointing: Ukraine has a lot to think over in both the business and state areas, as the level of insurance cases involving Ukrainian importers is one of the highest in the world gives the country one of the highest risk ratings (see diagram 1). is does not mean that Ukrainian companies and banks are to be avoided, but it certainly will not help reduce the cost of nance. What should Ukrainian business strive for in order to acquire reliable buyer status in the future? From the point of view of the market’s main players, the rst thing is boundaries and oered their own a transparent business structure. Risks visions on the way out of the situation should be clear in order to be insured. with all frankness. For example, is is what banks and insurance ICISA executive director Mr. Robert companies require. Nijhout defended private insurers, discussed issues: EXIAR, the new Russian ECA, also which should provide services in the 1) the shi from a «national marked the event with its appearance «market» short-term risks insurance component» to a «national interest» and was warmly welcomed by the Anna Pobedymska eld and have the opportunity to concept, which means that the market “elder brothers”, who now eagerly insure themselves using a state ECA. demands soer project requirements. Strategic development department, await news about the agency’s But the state ECA will not abandon During the conference this issue senior advisor, IBcontacts development, functioning specics, this market, oering their products attracted the special attention of such product oerings and the peculiar to exporters along with private «sharks» of project nance as SACE e world community of export features of export insurance in Russia. companies, either directly or through (Italy), and NEXI (Japan); credit agencies, private insurance It’s high time for Ukraine to their private branches. 2) introduction of both new and corporations, banks, and exporters think seriously about supporting Emerging trends in the long- updated insurance products, such as as well as international organizations its exporters. A number of auent term projects risks insurance market, non-cancellable policies, single-risk such as Berne Union and ICISA foreign ECAs and the Berne Union are especially those related to project policies, and long-term policies (for gathered for 22nd time in London in willing to oer expert and nancial nance, are also attentionworthy. Mr. short-term nance); order to discuss the latest emerging assistance in this matter. Last things Johan Schrijver, President of Berne 3) maximal conformity between trends on the constantly changing le to do are to gain the political will Union, distinguishes such widely the level of project risk and the market of commercial and political of the state and to set priorities. export risks. e event was attended by IBcontacts representatives, Ms. Kateryna Barabash, Managing Director, and Ms. Anna Pobedymska, Senior Advisor, Department of Strategic Development. Since the intervention of state export credit agencies into the eld of “market” risks insurance, many market players consider that the inequitable competition between public and private insurance IBobserver has already written growing rapidly. e interest of companies has tended to become (see issue #6, article «Reputation is the Polish banking sector in the sharper. Sister of Recognition») about the medium- and long-term nancing Because of the market’s recovery, common risks and challenges faced of trade operations between Polish in various countries state crisis by Polish exporters conducting exporters and Ukrainian importers intervention may seem like water trade operations with Ukrainian is increasing. IBcontacts constantly under the bridge. But in fact, all of partners. But can we add to the set makes partnerships with such these “who,” “how” and “how much” of such barriers the lack of eective progressive organizations, thus questions in “market” (up to 2 years) nancial solutions in modern crisis enriching its advisory tools by adding risks insurance remain unanswered realities or the concern of nancial eective new solutions for Ukrainian as well as question of ensuring fair institutions over providing long-term importers. competition. loans? While the respected business What kinds of programs in Polish Participants brought these community thinks over this question, banks in medium- and long-term and many other aspects of market let us remember that new times nance are open today for Ukraine? functioning to the agenda, outlined bring new challenges as well as new What new instruments of Polish solutions. We mean the decision on export support are most favourable granting nance for trade operations for Ukrainian importers? ese by foreign banks and insuring the and other questions will be covered risks of nancing banks. in future issues of IBobserver and e list of banks in Poland actively information activities provided by developing portfolios of products IBcontacts. Diagram1 for export operations support is 4 MArkets AnD 7 / IBobserver / www.ibcontacts.com.ua trenDs EXPERT OPINION: Prospects for the Pig and services. The fund’s activities are focused mainly on providing finance and insuring financial or political risks to Danish exporters trading with Lesya Logvinenko, commercial other countries. This is the Breeding Sector in Ukraine: advisor, Royal Danish Embassy in only organization in Denmark Ukraine ready to cover these risks which banks do not cover and offering solutions adapted to the needs of an export company. Traditions, Investment, Credit guarantees provided by the Fund mean that the export supplies of a Danish company will be paid in case a foreign customer will not or the political situation in a payer Technology country makes the transaction impossible. If necessary, the Fund conducts a transaction (from page 1) - How does Denmark support asessing all possible risks from its exporters’ pig breeding the very beginning. When risks borrowed funds. e reconstruction plant; advanced equipment and feeding technologies, especially in the are confirmed the Fund reaffirms of the pig breeding complex will be - Construction of a dairy plant. technologies. French and Danish context of export nance? carried out in several stages: Experts distinguish three ma- technologies have already managed to its guarantees to the bank, which - During the last 10 years 1. Launch of the rst part of the prove their eciency and productivity can transfer to the exporter full industrial complex for 1800 sows: and are widespread among Ukrainian Denmark and Ukraine have payment for the technology - in - Reconstruction of the cattle agricultural enterprises. e established close cooperation case the customer can not make breeding complex as a dairy- Canadian technology is still not that in the agricultural sector. the prepayment himself. Anna Baida commodity farm for 2500 head of well-recognized. It is based the so- According to the State Statistics This support scheme for Market research specialist, dairy cattle; called cold keeping of pigs. Even in Service of Ukraine, in 2010 the Danish companies has been IBcontacts - Construction of a feed plant with case of a dramatic fall in prices, pork volume of Danish investment applied since 1922, when EKF a capacity near 90 thousand tons of production based on the Canadian amounted to more than 190 2014 and aer reconstruction the fodder per year; jor imported technologies used by technology remains protable. e was founded, and it contributes million and the majority of it capacity of the complex will amount to - Reconstruction of the breeding pig breeding complexes in Ukraine: Ukrainian «Agro-Soyuz» corporation significantly to the commercial 240 thousand head plant for 1200 sows to provide the French, Danish and Canadian (to has chosen the Canadian keeping for slaughter per has been directed to agriculture. opportunities of Denmark. year (19-20 thousand tons of pork per industrial complex with replacement know more about implementation technology. e method of cold Today in Ukraine there are 12 - How can Ukrainian year). According to Sergey Mazin, the livestock. of Danish technologies in pig breed- keeping has helped the company large pig breeding complexes importers take advantage of general director of the holding KSG 2. Launch of the second part of the ing, read chapter “Danish Miracle. to reduce the costs of construction, with Danish investment. this support? Agro industrial complex for 6700 sows: Opportunities for Ukraine”). eir heating and lighting; improve the , the nancing for the project The Ukrainian agricultural - Danish companies in will be composed of their own and - Construction of a meat-packing key dierences are use of hybrids, health of the animals, reduce the enterprises develop their Ukraine choose companies complexes using Danish with transparent activities equipment and import Danish as partners. Today business original stock. In the field of realities in Ukraine make Danish pig breeding, Denmark has the companies apply to law firms for highest results in Europe, and verification of registration data, that’s why its technologies for business legality and solvency pig farming are so popular in of their potential partners in Ukraine. Ukraine. If a Danish exporter There is an organization in decides to request guarantees Denmark called EKF (Export from the EKF, the Ukrainian Credit Fund), which is in fact importer must be ready for an the state export credit agency. audit of its activities, and as The EKF fund assists Danish a result, the Fund may decide national exporters in attracting either that cooperation is customers from abroad who possible or warn against it. would buy Danish technologies • Innovative technologies and equipment; • Advanced selection and genetics; • Balanced nutrition; • Well organized management. At the same time Danish Va farmers are open and do not keep leriy Tiseyko, director, AgroClimat Ukraine LLC their techniques to themselves, but frequently meet to exchange experiences. Soware is uniform for each complex, so information can be analyzed and compared easily. Constant feedback between farmers and equipment producers assures permanent upgrade of technologies and facilities. - Mr. Tiseyko, why do - How can you describe you recommend Danish pig the implementation of Danish breeding technologies as most experience in pig breeding efficient? complexes in Ukraine? What - Today, in our globalized prospects do they have? world people no longer try to - ere is a range of complexes invent a wheel, but mostly rely on in Ukraine today established using the knowledge and experience of the Danish approach – in Kyiv, the most innovative and highly Lviv, Khmelnitskiy, Zhytomyr, and developed producers in any eld. Ivano-Frankivsk regions as well the Ukrainian pig breeding industry. And if we’re speaking about as in many others. Figures equal Many players have already announced cutting-edge highly productive average in Denmark, some are effective pig breeding is based reconstruction projects or are opening pig breeding, we cannot but admit even higher. e protability of on three main principles: a new cattle breeding complexes. In the next 5 years pig that Denmark is the indisputable such enterprises is very high at the fodder base, genetic factors breeding will be one world leader in every aspect of the moment, so now many Ukrainian and technological conditions Long live domestic pig of the most profitable industry: technology, facilities, farmers have good teachers and for keeping animals breeding Lubomir Kudron, genetics, and management. branches of cattle good examples. member of the Bank Board; According to export credit agency With a population of 5 million, New projects are really breeding and farming o Deputy CEO, Eximbanka SRf Slovakia Eximbanka SR, the most Denmark’s pig stock is 15 million promising because of opportunities costs of breeding, nourishing and promising sector for implementing (by comparison: Ukraine has a provided by export nancing ensures the quick growth of pigs. projects in Ukraine is agriculture, population of 48 million, and 8 instruments as well. As a together with waste management According to the Ministry of million pig stock). Pork exports representative of Danis suppliers, and infrastructure development. e We got it! Agrarian Policy and Food, the account for 7% of Denmark’s promising outlook and protability AgroClimat Ukraine LLC According to our research data, program for developing pig breeding gross national prot. Yearly of domestic pig breeding is obvious, pork consumed in Europe per year, works in close collaboration in Ukraine will be adopted soon. in 2011 many Ukrainian companies production is 23 million head, rst of all, due to the high fertility today’s production must be tripled. with IBcontacts, so AgroClimat started to invest in p It will be based on the principle of ig breeding. So, and relatively short reproductive cycle Comp 4/5 of which are being exported. lex actions will enable Ukraine LLC can oer advanced here are the four most act public-private partnership where ive players of pigs. Experts say that in the next 5 a triple increase in production: a eir production eciency is the the state should create conditions for pig breeding technologies together in the pork market during last year: years pig breeding will be one of the state programme for the support highest in the world. Agroprodserv farmers to be able to lease necessary ice, Kremenchukmyaso, with opportunities to nance their most protable branches of cattle and development of the pig - What is the secret of APK-Invest and KSG Agro equipment, purchase pigs, fodder . implementation. breeding and farming. breeding sector, an intensification Internat and other elements necessary for ional companies have also “Danish miracle”? Today, in order to maintain pork of investment in domestic pork, the been interested in Ukra the development of pig breeding inian pig - ere is complex of factors: breeding complexes. In fact, this is the rst . However, legal restrictions on land acquisit practical project to include rural ion for fodder to succeed in the Ukrainian livestock cu households in the development of ltivation appeared to be a signicant Information: AgroClimat Ukraine LLC officially represents a obstac the agrarian-industrial complex. I le on their way to enter the number of Danish producers of hi tech modern equipment (such as sector, a participant needs high Ukra would like to believe that having all inian market. To succeed in Skov, etc.) for pig and poultry breeding complexes in Ukraine. The the Ukra the prerequisites for the development inian livestock sector, a information awareness main course of the company’s activity is to develop complex project part and establishment of a strong pig icipant needs high information solutions for the construction and reconstruction of pig and poultry awareness (i breeding industry, Ukraine will .e. an understanding o breeding complexes together with their Danish partners as well as to f the market, the regu accept the challenge of the global latory consumption in Ukraine at the level active state support of agricultural env community and will become a world ironment, the peculiarities of supply modern Danish equipment, provide necessary consultations, of 26-27 kg a year per person it takes holdings, an introduction of new companies leader in pig livestock and volume of ’ performance in Ukraine, supervise installation and guarantee support service. about 23 million pigs and 1 million technologies and the experience of pork exports. legal aspects of their activity and so sows per year to be sold. But in order developing livestock industries in on). Challenge accepted! to produce at least half the volume of other countries. 2012 promises to be eventful for www.ibcontacts.com.ua / IBobserver / 7 MArkets AnD trenDs 5 EXPERT OPINION: and other foreign companies lack of raw materials and farmers DANISH MIRACLE. follow the Danish example as the are confident in the marketing of OPPORTUNITIES Ukrainian pork market is still their products. get their money, even if a buyer far from saturated and domestic Today in Danish pig breeding is unable or unwilling to pay, and FOR UKRAINE today in Danish production is insufficient to meet there are about 7,000 farms even if the political situation in Denmark has achieved demand, so the market can be employing approximately 60,000 a country makes doing business pig breeding there great success in pig breeding, considered as highly prospective. people. The industry’s main trends impossible. If something goes transforming the industry into are growth of production volume w are about 7,000 rong, EKF pays. a powerful engine of economic together with a reduction in the is extra security makes a lot Ukrainian realities growth and stable export. This farms employing number of farms and merging of export business deals possible The high cost of Ukrainian country with an area a little more cooperatives (in the last 40 years that might not otherwise have products remains the biggest than two Kyiv regions occupies approximately the number of cooperatives has Grethe Beck, associate director, been concluded successfully. problem for Ukrainian pig 8th place in the world in pork decreased from over 50 to 2). The Royal Danish ECA EKF - How can Ukrainian/CIS breeding because it limits the 60,000 people production and exports as much largest one, Danish Crown, is the importers benet from this opportunities for growth in of these products as the US and third company of the country on support? domestic market consumption as Brazil combined. annual turnover. - EKF’s involvement can be a well as export potential. Moreover, What is the secret to the The integration of the signicant benet for importers a significant barrier to export “Danish miracle”? The answer production cycle through a in Ukraine/CIS. activity is outdated equipment company’s capacity by 30 thousand to this question can be found cooperative structure allowed Most Danish companies are and the non-conformity to EU head per year. in innovative and efficient Danish pig breeders to become not able to oer their foreign production requirements. technologies applied by Danish one of the most effective and customers long term credit, but But the opportunity for cost compet The Danish solutionitive producers in the with a guarantee from EKF, a reduction exists, mainly due to the world. A significant role in this Danish or international bank may The main obstacle on the way introduction of new technological process was played by investment - How does Denmark be interested in oering the credit to wide introduction of modern Innovative and efficient approaches that optimize labour in innovations and development support domestic exporters instead. technologies by Ukrainian pig per unit of production and of all its components: genetic technologies as well of pig breeding technologies is means that the breeders is the difficulty in increase the efficiency of livestock material, forages, equipment for (regarding export nance, in Ukrainian/CIS importer will attracting financing on more as the cooperative feeding. The required quality of keeping and slaughtering animals particular)? be able to buy technology from favourable conditions than can products can be achieved with organisation inside as well as training systems - e EKF can help both a Danish exporter on better be offered by Ukrainian financial high-quality genetic material and for farmers and veterinary Danish exporters of pig breeding nancial terms than might institutions. But in this context the branch itself is the veterinary support, as well as with supervision. technologies and their business otherwise be available, including Ukrainian entrepreneurs have an the modern system of control and secret to the Danish partners in Ukraine/CIS. EKF is a longer pay back period. opportunity to take advantage accounting of all technological the Danish state’s ocial export - What experience do Danish Innovations of technologies imported from miracle processes at the farm. credit agency, and as the name pig breeding suppliers have with Denmark. The secret of the rapid implies, our purpose is to help Ukraine/CIS? Experience shows that the development of Danish pig business get better access to - We cannot speak on behalf export finance instruments breeding technology is the credit. of the Danish exporters, but offered by the Danish export p collaboration between the ig breeders as well as the EKF itself does not lend EKF has a long history and credit agency EKF, Danish coopera Danish Meat Research Institute, tive organisation inside Denmark occupies out money. Instead, we help by good experiences with working and international banks allow cooperatives, and producers of the branch itself. providing guarantees for a loan with companies in Ukraine/CIS. to finance CIS companies for equipment. Before starting a new or a credit facility, usually from As recently as January 2012, equipment deliveries as well 8th place in the research project, all participants Cooperation a bank. we provided a guarantee in a as complex projects for the hold professional discussions With a guarantee from substantial project involving a world in pork Th construction of pig breeding e cooperative system of to determine the value and us, a Danish exporter and the Danish exporter and a very large, objects for a period up to 5 years pig breeding was established in effectiveness of this direction. exporter’s bank can feel secure production CIS-based company in the meat D (and even more) at a lower cost enmark back in the 1880s. Its The result of Danish in the knowledge that they will processing industry. m compared to local banks.ain peculiarity is that farmers/ innovation is unique technology According to the Ukrainian pig producers are at the same of breeding, keeping, veterinary Agrarian Confederation and the time co-founders of cooperatives support and animal transport. A Denmark’s limited land resources business are Poland, Ukraine and w State Customs Service of Ukraine, hich provide for pig slaughtering A striking example of a successful system of full traceability of every and rather rigid system of the Baltic countries because of in 2011 the export of Ukrainian and the sale of pork. The farmer, import of modern production animal from the farm to the meat environmental regulation. their proximity EU and Russian pork has grown more than 20 being member of the cooperative, technologies (Danish, in particular) processing enterprise has been markets as well as their relatively times, mainly due to the demand is obliged to deliver products is Niva Pereyaslavshchini LLC. implemented. cheap labour force and feeds. from CIS markets. This is a only to this enterprise. Likewise, The world is hungry Founded in 2005, the company is Technological developments Today there are about nine positive signal and we hope that the cooperative may not refuse one of the top-10 largest and most and discipline in all stages of the Increase in demand for pork Danish producers of meat and this trend will continue in the year to accept the farmer’s products. eective Ukrainian enterprises: four production process has allowed in Japan, China and South-East milk in Ukraine. Most of them Th 2012, particularly thanks to the us, it creates a closed-loop production sites of the full cycle, Danish specialists to provide Asia as well as increased EU specialize in pig breeding. Danish cooperation between Ukrainian cycle which is considerably 5,000 sows and 120,000 tradable pigs a very high level of quality production costs forced Danish pig breeding companies are large m entrepreneurs and their Danish ore resilient to the negative per year. In the spring of 2012, the and product safety as well as pork producers to develop their complexes with livestock of at partners. impact of external factors: pork company plans the opening of a h competitive prices, despite the business in other countries. The least 1,000 head. German, British producers do not suffer from a production site, which will increase high costs of production due to most favourable regions for such LegAL prActIce 6 7 / IBobserver / www.ibcontacts.com.ua EXPERT OPINION: Stand Surety Han Bartelds, vice-president, Steen Skaar, head of sh & seafood, Rabobank International Norwegian ECA GIEK for Me if You Dare About additional ways of insuring international trade deals. advantages of surety are obvious. in the group by entering into mutual international projects may require Thus, the legislation and the judicial surety agreement. This method is the establishment of a transparent practice of CIS countries are rather applicable if the ultimate owners holding structure. IBcontacts: What is the role of a reputable rm; well-developed in the area of surety do not want to reveal all corporate When speaking about the prepa- guarantee and surety on the part • relationship with the borrower: regulation. An unlimited number of ration of a project’s implementation of a Ukrainian company or group it is highly recommendable that individuals and legal entities may involving suretyship, the inevitable of companies? Can the nancially the guarantor/surety is linked to serve as surety, being joint debtors stage is to conduct at least legal due capable guarantor or surety be main the buyer/borrower and the same In Ukraine there is Valeriy Liubarskyi equally to company-debtor. Thus, diligence and nancial analysis of the argument for covering insurance by industry sector. It is then more Legal counsel, attorney at law, the ultimate owner of a business can no such legal form debtor company and the guarantor. an ECA, if the target company doesn’t likely that they understand the IBcontacts be the surety for company, as well as is analysis is extremely important have enough funds? dynamics of the project that they of an enterprise as any part of the group of companies for the whole process in terms of are guaranteeing; Given the growing interest Han Bartelds: A guarantee (and or the whole group, the third person ‘group of companies’, establishing a relationship of trust • reputation of the company and/or of CIS companies and holdings lately we prefer a surety) has two either individual combination of between the parties. erefore, beneciary: this is a good one… and therefore it is in international funding, there objectives: any of above mentioned elements. managers and owners of companies very obvious. We need to execute a expectedly arises a question of 1) in case of a hybrid At the same time, also surety essential to apply should take this fact for granted due dilligence and we have to be able trust from the side of foreign unclear group structure, a suretyship provides the opportunity to fulfil and respond to the requests of the to rely on information provided. surety between counterparties, banks, export credit from a guarantor would provide the the future obligations of the authorized provider for nancial and e ECA will also execute a due agencies (ECAs). For example, necessary and additional comfort, company. This provision does not companies affiliated legal information. dilligence and impose requirements taking into account country risks and contradict the norms of Ukrainian When drawing a contract of to this respect on the exporter and or related to each of Ukraine with its accordingly low 2) we understand that Ukrainian legislation and, for example, a suretyship, it is recommended bank. rating, international partners will legislation is more suitable for relevant norm of the Civil Code of other to take into consideration some Steen Skaar: Sound nancial naturally want to have additional a suretyship-based guarantee the Russian Federation. It may be specific features. For example, if the position and business reputation, guarantees that the other party will structure. close relationship with the importer, fulfil its obligations. Steen Skaar: Role of the and, very important, a positive past Historically, businesses in post- guarantee/surety is to give the payment record. Typically, a sound Soviet countries do not always get exporter sucient security in a guarantor/surety will be a company along well with the authorities. situation where the importer is in possession of immovable assets Businessmen are often not happy lacking sucient funds (equity), (land, equipment, real estate). with fiscal authorities and inspectors consequently giving GIEK grounds taking a particular interest in to insure the export credit. ere IBcontacts: What are the main them. In addition, sensible and must be a strong business link risks that are considered by ECAs successful businessmen from CIS between the target company and the and banks when companies/groups countries should take into account guarantor/surety. of companies from Ukraine apply the probability of a hostile takeover. schemes of involving bank guarantee IBcontacts: Can the nancially In order to prevent possible risks, or surety (the third company and/ capable guarantor or surety be the post soviet business has developed or beneciary of the company/group main argument for granting loans by specific methods of protection, companies as the surety)? a bank and covering insurance by an which include, among other things: ECA, if the target company doesn’t Han Bartelds: e main - the registration of part of the have enough funds? risk is that the guarantor denies assets of the company for the owner, responsibility and that we end up his family members and third Han Bartelds: No. Even the in Ukrainian court, uncertain of parties (real estate, production target company having enough the outcome. at is why we need equipment, vehicles, trade marks); funds is not the main argument. e the suretyship as a fall back but that - establishment of a company project/investment also has to make the project/investment makes good that has so-called «gaskets» sense and should present a viable sense, and that the buyer/investor between the business and the real business case with room to absorb is able to obtain or reinforce their owners in the form of intermediate setbacks. market position. (nominal) non-resident owners Steen Skaar: e main risk of IBcontacts: What are the main from favourable jurisdictions; the exporter and GIEK in Ukraine requirements of ECAs and banks to - separation (segmentation) of is the procedural risk, which applies the guarantor or surety (i.e. sound the different aspects one business n to the claim against the importer and ancial position of the guarantor/ into divisions in order to form the guarantor/surety both. If either surety, relationship with the borrower, a group of companies (simple the supply agreement or the surety reputation of the company and/or example: one company buys, agreement have to be called upon, beneciary)? another sells, a third owns the assets the outcome is uncertain. It may and leases them to the first two); Steen Skaar: ese are indeed take a long time to get a Ukrainian - classic division of different the main requirements:  court judgment, and whether the directions of business among • sound nancial position of the claims may be enforced at all, even individual companies. guarantor/surety: 3 years and when valid and against a solvent and All of the above mentioned recent management gures are capable debtor, remains to be seen. methods can be mixed in different required, and preferably audited by proportions depending on business needs. These schemes are more or less effective within the CIS, may establish a provision according and put it in writing? The question but raise a number of questions to which the surety gives full is rhetorical. from contractors and European, consent to any modification of In spite of the fact that the American, and Asian financial the primary obligation without surety is an eective way of securing institutions when attempting to further adjustment. The parties obligations, the very fact of surety obtain different types of finance. should also take into account usually is not the main argument for First of all, businesses in this format that if the debt is transferred nance involvement. For example, are closed and non-transparent. to any other party the surety Mr. Bartelds conrms that the decisive In addition, the current financial stays in force only with the factors will be the nancial status of condition of the company or one consent of the guarantor. If the the parties, proven by independent of the companies of the group carrying party requires additional experts as well as a prospective and may not correspond to the desired guarantees that the surety is a well-developed project. For this volume of finance due to excessive able to fulfil its obligations, it is purpose experts prepare special segmentation. Thereby, the level of worth considering the option to design documentation: credit reports, creditworthiness of the contractor, draw an additional contract of business reports, a business plan, which is the object of interest pledge of the surety’s property. feasibility studies and others. for foreign ECAs and banks, is Also, to obtain confidence that But still we believe that the significantly lower than the level of all parties to the project are existing realities of business the group. Let us also bear in mind that the «group of companies» in the CIS context is quite blurred. Accordingly, there is a problem of a clear definition of concepts and legislative regulation. Taking into account all of the above, here An important advantage of surety arises a need to provide additional obligations such as pledge, hold is the «binding» of companies in back, guarantees, sureties. In accordance with our practice the group by entering into mutual of supporting international trade projects and projects for attracting surety agreement international finance, we consider guarantee to be the most convenient among the above mentioned ways of ensuring. The legislation of most properly acquainted with and organization and conduct in CIS countries has similar definitions agree to all terms and conditions countries will meet international of the main provisions of standard of guarantee, the contract may be standards of accountability surety (in this case, we are not concluded in a multilateral format and transparency. It is only a considering such specific types as links inside the group of companies contract is covered by Ukrainian where the parties are the guarantor, matter of time as all the stable, del credere and aval). It simplifies used for declarative purposes as as well as when the economic ties legislation, the parties should take the lender, and the borrower, progressive companies of the CIS the application of guarantees in wel
Posted: 26 June 2012

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