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Denmark’s export credit agency is gearing up to sign several “large” transactions in Ukraine after securing a significant funding injection from the Danish state to support Kyiv’s rebuild efforts.

This month, the Danish government said it would allocate an additional DKr800mn (€108mn) to the Export and Investment Fund of Denmark (EIFO) for medium to long-term deals in Ukraine, nearly doubling its existing capacity.

The government also indicated it will likely increase EIFO’s capacity by a further €130mn in its state budget next year. All in all, EIFO’s capacity in the market is set to rise from DKr1bn to DKr2.8bn (€375mn).

The funding injection offers a boost to Danish exporters keen to secure contracts in the war-torn country, as well as Ukraine’s reconstruction efforts, estimated by the World Bank to cost US$486bn over the next decade. Though vast sums of public and private capital will be needed, insurers and banks remain wary of the Ukrainian market due to war risks and longstanding concerns over issues such as corruption. 

“Export credit agencies are very important in Ukraine as international commercial banks are still hesitant about getting involved,” says Kaare Stamer Andreasen, a finance director at EIFO.

“The multilateral development banks are also very important and have a lot of monetary power, though their focus is more so on public buyers… that leaves an empty space for financing of private companies in Ukraine and for foreign companies wanting to invest in Ukraine.”

“Here, I believe, is the biggest role for the export credit agencies to play,” says Andreasen, who also works as a counsellor at Denmark’s embassy in Ukraine and plays a vital role in vetting and choosing projects to finance.

Having maxed out its initial spending pot earlier this year, EIFO has continued to strike deals in Ukraine in anticipation of future funding.

So far in 2024, EIFO has issued loans and guarantees worth €18.8mn for sectors such as agriculture, food processing equipment, water treatment, textiles and electronics, and energy.

But this figure is expected to grow in the near future as EIFO is working on a “big and growing pipeline”, Andreasen says.

“EIFO was initially allocated €140mn for Ukraine, and we were grateful to the Danish government and citizens,” he tells GTR. “But the need for financing is so strong down here, so we started working on projects for a bigger amount than we were previously allocated.”

Andreasen is conducting due diligence on “four big projects” worth between €60mn and €100mn which will soon be proposed to the screening committee, he says. By year end, EIFO hopes to allocate the full amount of €375mn.

The transactions so far have been a mix of direct loans, investment guarantees and contract guarantees covering Danish firms for risks such as war damages, nationalisation and expropriation.

Andreasen says the agency is open to supporting deals across the length and breadth of Ukraine, and he is “constantly driving east and west, north and south” to review projects, even those close to the fighting.

“We try to keep at least 30km from the frontline,” he says.

 

Shifting focus

In the first phase of Russia’s full-scale invasion, EIFO paused cover in the Ukrainian market due to significant war risks.

But in March 2023, the ECA resumed business after the Danish government established a special Ukraine reconstruction scheme that would compensate the agency for losses. EIFO has since become one of the more active backers of Ukraine’s rebuild by taking a flexible approach to credit risk and environmental assessments.

EIFO initially sought to strike an even balance of private and public projects in Ukraine but is now concentrating its energy in the commercial sector as “we can move faster and our money goes further”, Andreasen says.

With public buyers, the Danish agency provides a 40% grant which absorbs “a lot” of its budget, he says.

“Here is the biggest demand and the biggest vacuum for export credit agencies. When this war is won and the private market takes over, then we hope that we have nothing more to do down here. EIFO’s approach is that we always ask the exporters and [buyer] companies whether they have talked to the private banks and insurance companies. If they want to get involved, we pull out immediately.”

For now, commercial insurers remain reluctant to issue even short-tenor cover without state support and EIFO is using its “own books” to backstop commercial underwriters in Ukraine, Andreasen says.

“We have allocated about €16mn, but it is constantly renewed as this is short-term credit for goods such as food or medicine. Given [the] credit period is generally between 30 days and six months, we can frequently issue new policies. We do this in partnership with private insurance companies, covering their risk 100%.”

EIFO is also in dialogue with international banks about a large wind farm in Ukraine, with the Danish government having ringfenced €380mn for the project earlier this year. The deal would back Danish technology exports.

Like insurers, commercial banks remain hugely wary of the Ukrainian market, Andreasen says.

“This is the main issue right now; there is concern from the banks. Normally we only cover 95% of the deal’s value as we need banks to have their hand on the cooking plate… to stay and help resolve issues, if something goes wrong. But that is not possible in Ukraine. They simply will not take 5% risk here, so we had to offer them 100%.”

Despite EIFO being able to offer cover for non-payment and war damage risks, banks still “have some hesitations”, Andreasen says.

“The banks have to assume some of the documentation risk. This means they have to make sure the loan agreement is upheld in court, before we can pay out any damages. Perhaps most essential for the banks is the KYC risk. They have to ensure they’re not working with criminals and there’s no corruption involved.”

 

Rural scheme 

In the coming years, European, Asian and North American ECAs are set to play a key role in Ukraine’s long-term reconstruction, helping rebuild factories, hospitals and vital infrastructure such as roads and bridges.

Denmark’s ECA is also mulling a scheme to boost financing in rural parts of Ukraine.

“We have an idea for a cooperation scheme involving Ukrainian banks or international banks with branches here, where EIFO could share the risk 50/50 on small projects, let’s say below €2mn or €3mn, and where the bank wouldn’t have to ask for permission first,” says Andreasen.

The idea is that EIFO would cover banks for losses so long as they fulfil the agreed conditions of a loan agreement.

“This would allow us to get outside the big cities and major companies, and strike deals more locally. I travel constantly to the north, south, east, west of Ukraine, but I can simply not cover, for example, the rural areas and smaller cities near Kharkiv,” Andreasen notes.

EIFO is in early talks with two banks and has identified a few more that would be well-suited for the scheme.

“The local banks have affiliations in these regions and have knowledge of the local customers, and so, we would be able to reach more of the small and medium-sized companies in Ukraine,” he tells GTR.