RBS and the European Bank for Reconstruction and Development (EBRD) closed a US$90mn transaction, split between a pre-export finance facility and a one-year borrowing base to support the growth of an agri-holding in Kazakhstan.

The deal stands out in the market for being one of the very few transactions to close in Kazakhstan in 2009. Not only that, it was closed in the agri-sector, renowned for being prone to volatility.

The borrower is KazExportAstyk, an agri-holding firm that intends to revolutionise the Kazakh agricultural sector by leading the move away from mono-crop production of wheat, and turning the country into a major producer of cash crops such as rapeseed and sunflower.

In order to implement such changes, high levels of investment in technology and the development of new farming practices is required, hence the company turning to RBS and EBRD for funding. The US$90mn financing will also be used for more general working capital purposes.

The deal was structured to incorporate a pre-export component that can be used against down-payments on agricultural machinery, and a one-year working capital borrowing base facility that can be used against the company’s pre-harvest financing packages to its partner farms.

This working capital component allows the company to draw funds against a borrowing base comprising of commodity receipts, receivables from off-take contracts and land collateral.

In previous borrowing base facilities raised by the Kazakh borrower, the structure matched the company’s draw-downs and repayments to its actual cashflow by reference to a borrowing base founded mainly on inventory at current market value.

However, such a structure was slightly altered for the 2009/2010 season to allow lenders more comfort regarding payment and performance risk.

The deal was modified to include a 75% clean-up over the summer pre-harvest period, when working capital needs are at their most volatile. Such a measure provides reassurance that the company is performing satisfactorily during a volatile time.

EBRD’s involvement in this transaction is particularly significant as it represents the institution’s first direct exposure to a Kazakh agri-holding, and the bank’s decision to step into providing working capital facilities to such firms will be widely welcomed across Central Asia.

Indeed, it was a tough year in which to enter the Kazakh market, with many international banks pulling out of the country due to turmoil in the banking sector.

Commenting on EBRD’s decision to continue supporting the country, Mehmet Ilkin, principal banker and operation leader for the project, at the EBRD, comments: “The bank took an early view that whilst the country’s macro-economic and monetary situation remained vulnerable, the position of grain was relatively stable since grain prices are linked either directly or indirectly to the US dollar.
“As a development bank, the EBRD is accustomed to working at the frontier of such risk, and has the knowledge and experience necessary to mitigate it.”

The EBRD was also impressed by the strength of the company, and therefore felt more comfortable taking on such a risk.

“Furthermore, KazExportAstyk’s professionalism stood out from amongst its regional peers, underlining its ability as a company to drive sustainable profits not just in the easy years like 2007 but also through more challenging periods, such as 2008 and 2009,” Ilkin comments.

KazeEportAstyk was also able to access EBRD financing as it moved early to implement a fully transparent legal structure, international standard accounting and a clear, professional management structure.

As such, this deal demonstrates that for the right risk and right borrower, there is still international appetite to lend to Kazakh entities.
Ilkin elaborates on the future of the Kazakh market: “In the medium-term, as finance availability remains somewhat restricted in the region and sector, companies with attributes besides track record will fill the pipeline.”

Jonathan Joseph-Horne, senior director, head of monetisation, commodity finance, at RBS, says: “RBS was delighted to be able to extend and expand its grain financing facility with KEA in 2009 who are an important client for us in Kazakhstan. We were very pleased to have EBRD join the facility and hope to see this model of cooperation expand into other opportunities.”

Deal information



Borrower: KazExportAstyk
Amount: US$90mn
Mandated lead arranger: RBS
Co-lender: European Bank for Reconstruction and Development (EBRD)
Law firms: White & Case; Allen & Overy
Tenor: 2 years (pre-export facility); 1 year (borrowing base facility)
Date signed: August 2009