Investment lending to small and medium-sized businesses under the Guarantee Agreement between Ukraine and IBRD

On June 26, 2017, Ukraine and the International Bank for Reconstruction and Development signed a Guarantee Agreement for the attraction of loans totaling $ 150 million. To complete the procedure for obtaining a loan, it was necessary for the parliament to ratify the agreement. The relevant draft law was filed by People’s Deputy Hopko G.M. The explanatory note to the bill states that the adoption of the law is necessary for the development of cooperation with the International Bank for Reconstruction and Development (IBRD) in the future on the implementation of long-term lending. Also, the explanatory note indicates the expectations of the project, which should increase the production capacity of the real sector of small and medium-sized businesses and increase the number of working months. The bill was adopted by the parliament on April 5 and signed by the President of Ukraine. Due to the conclusion of this agreement, the cooperation between the parties, investments in the economy of Ukraine was regulated by law.
The procedure for lending
The conditions for obtaining a loan are set out in the Loan Agreement and two additional clauses to this agreement. The parties are PJSC “Ukreximbank” and IBRD. The essence of the deal is that “Ukreximbank” will receive from the International Bank a loan in amount of $ 150 million, under state guarantees. Ukraine is fully responsible for failing to pay or late payment of the loan, and not only the guarantor.
The loan is granted for 35 years, of which 4.5 years are a grace period. Dates of payments under the Agreement are March 15 and September 15 of each year.
Ukreximbank is obliged to use borrowed funds only for the purposes defined by the project, that is, the provision of funds to solely small and medium-sized enterprises for the development of their production and other business-related needs. It also indicates the suspension of the agreement, in case of cancellation or abolition of the constituent documents of the bank, or their changes in a way that negatively affects the ability to fulfill obligations under the agreement.
An additional condition for the entry into force of the agreement is the conclusion of at least one subsidiary loan agreement with the subjects of small and medium business.
According to an additional article 1, the project consists of two lines of credit to finance small and medium-sized enterprises. The first line is lending through FI (financial institutions, that is, commercial banks), which already provide sub-funds to business entities. The second line is to provide funds to enterprises directly and to finance the costs of implementing a subproject.
The selection of commercial banks that may be attracted by Ukreximbank as financial institutions for business lending is carried out by Ukreximbank. Banks must meet established criteria, in particular, have total assets, the average amount of which exceeds UAH 1 billion.
As for subsidiary financing, the agreement provides for the accrual of interest on the loan amount for each of these financing. The amount of the loan provided as subsidy financing can not exceed $ 50 million. A prerequisite for such financing is also the borrower’s compliance with the terms of the project, that is, the use of funds in the directions discussed above.
As to the criteria according to which enterprises will be allowed to lend.
The agreement states that financing is only made after the establishment of the compliance of enterprises with the following requirements:
1) Enterprise is small or medium;
2) export-oriented or attracted to local supply chains with volumes of not less than 50% of all deliveries, and also enterprises whose incomes are generated in foreign currency or are attached to it;
3) the enterprise must be private;
4) has a satisfactory financial structure, organization, management, personnel and other resources necessary for the performance of its activities, including the fulfillment of loan conditions;
5) satisfies the requirements of the Framework Document on Environmental and Social Management.
The minimum maturity of each sub-financing is 24 months, and under subprojects for financing the bond capital – 6 months.
As to the project, for which money can be allocated, it must meet the following requirements
1) To be technically feasible, economically, financially and commercially reasonable;
2) comply with the legislative norms of Ukraine on environmental protection and the Framework Document on Environmental and Social Management;
3) Should not include or foresee buying land;
4) Should not include or foresee any prohibited activities;
The prohibited activities, in accordance with the agreement, include, in particular, investments connected with the acquisition of land or forced relocation, the use of international waterways or the discharges into them, relate to natural habitats, indigenous peoples or are carried out in the territory in dispute.
The additional leaflet for the agreement also sets out indicators for achieving the project goal, for which investments are made, as well as indicators of overall credit performance.

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