Japan Bank for International Cooperation (JBIC) has signed a bank-to-bank loan agreement totaling up to US$32mn with the Bank for Foreign Economic Affairs of the USSR (VEB). The loan is cofinanced with Sumitomo Mitsui Banking Corporation.

This will finance, via VEB, the procurement of a manufacturing plant of compressors used for refrigerators by ZAO Orsk Compressor Plant, located in Orsk city close to Kazakhstan, from Toyo Engineering Corporation, Aida Engineering, and others.

The loan is provided based on a memorandum of understanding bank-to-bank loans signed by JBIC and VEB to strengthen economic ties between Japan and Russia, when President Putin made an official visit to Japan in November 2005.

Russia has sustained high economic growth in recent years, registering a 6.4% GDP growth in 2005 driven by the resurging domestic industry and high oil prices. The country is now in the spotlight as one of the emerging market economies constituting BRICs.

However, recent growth has been driven by exports of oil, natural gas, and other energy sources. If Russia is to achieve stable and long-term economic growth, claims JBIC, it needs to address the challenge of developing domestic industries. Under these circumstances, this loan is expected to contribute to the promotion of the country’s manufacturing industry through the construction of a compressor plant for refrigerators.

The ‘Japan-Russia Action Plan’, signed between Japan and Russia in January 2003 pledged the promotion of bilateral trade and investment. Since then, Japanese firms have been increasingly engaging in trade transactions with Russia.

Taking into account these situations, JBIC is determined to support Japanese firms’ trade and investment activities in Russia by utilising financing modalities, including loans in which JBIC will directly assume the credit risk of Russian firms and two-step loans in which loans are provided by way of Russian banks, in accordance with individual clients’ credit standing.