International Finance Corporation has agreed to provide HVB Bank with $15 million in loan guarantees that could be used to attract an additional $30 million in capital to be loaned to Ukrainian businesses.
The guarantee agreement, signed June 28 is the largest investment that IFC has made in Ukraine’s financial sector, and the first IFC loan guarantee facility in the former Soviet Union.
HVB Ukraine is an affiliate of the German HVB Group, led by HypoVereinsbank.
HVB Bank Chairman Gerd Wriedt said that IFC’s guarantees allow the bank to double the amount of the loans it can provide to a single client, raising the figure from 3 million euros to 6 million euros. He said that it will help the bank meet the growing investment needs of its clients, who require more funding as a result of the country’s continued economic recovery.
“Taking into account that the capital market is still underdeveloped and the demand for investments is high, we started looking for alternative ways to attract financing. Six months ago, we began negotiating with IFC, and worked out a financing method that will enable us to attract long-term investments based on IFC guarantees,” Wriedt said.
IFC’s director for Central and Eastern Europe, Edward Nassim, said the facilities “will enable HVB Bank to provide larger and longer-term financing to a broader base of private enterprises. Ukrainian companies’ growth is constrained by the lack of term financing.”
Dagmar Schulze, HVB Bank’s deputy head of corporate banking, said the bank’s activity is constrained by a 3 million euro cap on the amount it can loan to a single client. The National Bank of Ukraine imposed the limit. The size of a loan depends on the amount of a given bank’s capital, she said.
“To increase loans to Ukrainian borrowers, we needed a partner. But potential partners were reluctant to invest, given the high risks inherent in the Ukrainian market.” The IFC’s 50 percent guarantee will make such investment possible.
HVB Bank plans to disburse a minimum of 30 million euros to Ukrainian companies within a year.
Wriedt said that IFC was encouraged to finance HVB Bank because of its expertise in lending to Ukrainian borrowers.
In order to increase the size of loans, he said, HVB Bank also intends to increase its statutory capital.
“Our shareholders agreed to increase the statutory capital of the bank by 5 million euros and to provide us with an additional 2.5 million euro subordinated loan,” Wriedt said. “We’ll be able to make single transactions of up to 10 million euros.”
Wriedt said the plan would significantly improve HVB Bank’s competitiveness in Ukrainian financial markets.
“We’ll be able to develop our specialty in corporate financing” and “finance the medium- and long-term borrowing needs of private Ukrainian companies. It will help us increase our client base and diversify our lending portfolio.”
He said that loans would be used to fund new investments, such as capacity increases, plant modernization and improvements in the agribusiness, manufacturing and service industries. Ukrainian borrowers will be companies that earn not less than 30 percent of their revenue through export activity.
“We loan in hard currency. If the company doesn’t acquire hard currency through export activities, it could have problems repaying loans,” he said, citing differences in exchange rates between the hryvna and hard currencies.
Wriedt said loans would be made on competitive terms.
He didn’t rule out that the bank would apply to the IFC for an increase in facility after having disbursed the initial amount.
