UK Export Finance (UKEF) is backing a £26.3mn loan from Citi to the Ukrainian government to enable it to reopen vital supply routes near Kyiv, marking one of the first commercial bank financings delivered to support the reconstruction of the war-torn country.

The buyer credit loan guarantee, which UKEF says is the first of its kind from any export credit agency (ECA) to Ukraine, supports a loan to cover the rebuilding of six bridges damaged as a direct result of the illegal Russian invasion.

UKEF says this financial backing also enables UK manufacturers to supply steel components, critical materials and design services to Turkish companies Onur Group and Doğuş – the principal contractors for the works, which were put out to tender on Ukraine’s online public procurement platform ProZorro in October last year.

According to a December cabinet ministerial decree from the Ukrainian government, the Citi loan has a tenor of 12 years, with a 30-month repayment deferment period. The margin on the loan is Euribor +0.45% per annum, with interest to be paid every six months.

The transaction was announced at the Ukraine Recovery Conference (URC), an event held in London on June 21-22 aimed at unlocking the potential of the private sector to support Ukraine’s immediate and longer-term recovery needs.

Speaking at the event via video link, Ukraine’s President Volodymyr Zelenskyy appealed to attendees – among them foreign ministers, bankers and development experts – to “move from vision to agreements and from agreements to real projects”, adding “every new day of Russian aggression brings new ruins”.

According to a joint assessment by the government of Ukraine, the World Bank Group, the European Commission and the United Nations in March, Ukraine’s devastated infrastructure will cost US$411bn to rebuild – a figure far beyond the capacity of governments and development finance institutions alone.

However, the private sector is understandably cautious about sending billions of dollars to a country at war – as well as the risks inherent in investing in a nation that is second only to Russia in Transparency International’s ranking of Europe’s most corrupt countries.

Despite the risks involved in the provision of UKEF support in Ukraine no longer meeting the ECA’s normal underwriting criteria, the UK government last year instructed it to continue to support UK exports to Ukraine on the basis of national interest. Tom Longmuir, partner at law firm Ashurst, which advised Citi and UKEF on this latest deal, says the transaction will “lead the way for future UKEF-guaranteed and other ECA-backed financings to Ukraine as part of the reconstruction effort”.

“The transaction is highly innovative and deploys a number of unique features to ensure that commercial bank funding continues to be committed to Ukraine, despite the impacts of the war. This strategically important project will restore vital trade links for facilitating Ukraine’s national recovery,” he adds.

The deal announcement comes a month after Ukraine’s central bank lifted a wide-ranging ban on cross-border currency transfers, including the repayment of principal and interest on loans extended by foreign lenders that resulted in most ECAs suspending coverage of the country.

Speaking during the URC event, Sergii Marchenko, Ukraine’s minister of finance, voiced his optimism that deals such as this could encourage greater participation by the private sector in rebuilding his country.

Aside from the UKEF guarantee, the URC also saw further commitments by Ukraine’s western supporters, including £17mn from the UK government to strengthen Ukraine’s governance and fiscal capacity, through improved transparency, accountability and anti-corruption measures.

Ursula von der Leyen, president of the European Commission, presented a proposal for a new facility that, if adopted by the European Parliament and Council of the EU, will mobilise up to €50bn over four years in the form of both grants and loans.

British International Investment (BII), the UK’s development finance institution, committed US$25mn to support the International Finance Corporation’s (IFC) Global Trade Finance Programme (GTFP) to help keep cross-border trade lines open.

Meanwhile, the World Bank’s Multilateral Investment Guarantee Agency (Miga) agreed a raft of new actions, including a €23.75mn increase to a 2020 guarantee issued to German bank ProCredit to support finance for Ukraine’s small and medium-sized businesses and agricultural sector. Miga is also providing US$20mn of support to the GTFP for trade transactions with Ukrainian state-owned banks, covering 99% of the IFC’s risk to boost its ability to issue guarantees.

For its part, the United States International Development Finance Corporation (DFC) set up a consultative group with Miga, focusing on the availability of political risk insurance to promote private sector investment in Ukraine.

“Trade is vital for any country, but for Ukraine it is a lifeline,” says Makhtar Diop, managing director of the IFC. “With the support from BII, DFC and Miga, IFC will be able to provide access to financing for as much as US$1bn of imports and exports over the next three years. By working together, we can accomplish so much more for the businesses and people of Ukraine.”