JPMorgan concluded a landmark EDC financing in support of an important Ukrainian telecommunications project in the middle of last year.

PrivatBank, the largest bank in Ukraine by capital and assets and a valued client of JPMorgan, sought the US bank’s assistance in financing a pioneering US$300mn private sector, code division multiple access (CDMA) telecoms project in Ukraine for its client, Telesystems of Ukraine (TSU).

The historically significant transaction – by far the single largest transaction ever concluded under Export Development Canada (EDC)’s Bank Guarantee Program, and the largest EDC-supported financing ever done in Ukraine – enabled JPMorgan to provide eight-year door-to-door financing for 85% of the total export transaction.

The establishment of system ramp-up related timelines in the agreement enabled the borrower to have the desired drawdown flexibility and long term, and yet ensure that the transaction remained within the constraints imposed by the OECD Consensus guidelines.

A critical component of the financing involved the importation by TSU of telecoms equipment and services of Canadian and Chinese origin from Nortel Networks, Canada, another important client of JPMorgan, who valued the development of a long-term strategic relationship in Ukraine.

The financing involves a two-year commercial loan for downpayment of US$18.5mn, plus an EDC-guaranteed loan for US$113.8mn, with seven years of repayment, 14 semi-annuals, commencing from a weighted mid-point in the shipment period.

To adhere to commercial contractual agreements time was of the essence, and cost-effective bank financing for 100% of the export transaction was required which would provide Nortel with its required 15% downpayment up front and, for the remainder, address the project’s need for drawdown flexibility as multiple deliveries occurred over three years, and extended repayment terms.

This led to consideration of an on-lending structure with PrivatBank doubling as JPMorgan’s borrower and as lender to its client, and to the need for support from EDC.

EDC operates primarily as a direct lender, however it also has a bank guarantee programme and agreed in this case to use its guarantee authority to cover JPMorgan’s loan.

Eric Siegel, president and chief executive officer of the Canadian export credit agency (ECA), says: “Ukraine presents rich opportunities for Canadian exporters and investors in many different industry sectors. As Canadian companies in the highly sophisticated telecom business compete worldwide, EDC will be a partner in paving the way for success.”

EDC required a minimum two-year financing for the 15% downpayment. This was accomplished via a two-year loan from JPMorgan to Privat (for further payment to Nortel).

JPMorgan’s innovative approach to the structuring of this transaction allowed expeditious implementation of the project during a time of considerable market volatility, claims the bank.

Transaction negotiation, approval, documentation and closing were concluded in a record few months, despite the challenges of co-ordinating multiple parties across four countries.

Privatbank, as borrower, was able to on-lend to finance its client on matching terms, thus providing TSU with the desired term and structured financing appropriate to a build out project in a competitive, dynamic industry – and without engaging in time-consuming project finance.

Ludmila Shmalchenko, deputy chairman of the board at PrivatBank, comments: “By working with JPMorgan we were able to offer our client, CJSC Telesystems, the most competitive and complete solution to facilitate this transaction.”

Deal Information:




PrivatBank, Ukraine
Buyer: Telesystems of Ukraine (TSU)
Supplier: Nortel
Amount: US$132mn
MLA and lender: JPMorgan
Law firms: Blake, Cassels & Graydon (for JPMorgan); Baker & McKenzie (for PrivatBank); internal counsel for EDC
Tenor: 2-7 years
Date signed: June 2007