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The UK’s export credit agency has tapped out its £3.5bn underwriting capacity limit for Ukraine after signing a deal for Thales missile exports to the war-torn country.

Earlier this month, UK Prime Minister Keir Starmer announced a £1.6bn export finance facility for Ukraine and said the UK Export Finance (UKEF) agreement would help protect critical infrastructure in Ukraine and put the country in “the strongest possible position” ahead of future peace talks.

The export financing was made possible after a treaty was signed between the UK and Ukraine in July 2024 that had allowed Kyiv to utilise UKEF’s guarantees to buy military goods and services.

But the deal has also used up UKEF’s remaining risk appetite for Ukraine, according to the UK’s secretary of state for business and trade Jonathan Reynolds.

“UKEF’s underwriting of the financing arrangements for this contract will account for approximately £2.9 billion of the existing £3.5 billion market limit, effectively utilising almost all remaining UKEF capacity,”  Reynolds wrote in a letter to the chair of the UK parliament’s business and trade committee, published on March 18.

“Given the scale and risk of the contingent liability involved in this single transaction, I wanted to bring it to your attention as a matter of courtesy,” he adds.

A UKEF spokesperson confirms to GTR that its cover in Ukraine has “broadly speaking” been fully utilised, though the letter notes the agency and Ukrainian government are still to finalise the terms of the missile loan agreement. Negotiations are expected to conclude by mid-2025.

The underwriting capacity required is nearly double the stated loan value of £1.6bn because UKEF typically calculates the “maximum liability” on any given transaction, the spokesperson says.

“In the case of a loan guarantee for example, this will include an estimation of interest costs over the life of the loan,” they add.

Theoretically, UKEF is still able to sign deals outside of its country risk parameters if it receives a direction to do so from the government.

Last year the agency provided some £9bn in guarantees to help Poland build a missile defence system after securing permission from then-trade secretary Kimi Badenoch to go “significantly beyond” its risk limits.

UKEF says it is still operating under a ministerial direction to remain “open for business in Ukraine”.

“We are focusing our support on projects which are a national priority for Ukraine. We will continue to assess transactions on a case-by-case basis in accordance with normal policy and practice, while also obtaining written consent from Ministers and HM Treasury before providing support for each transaction,” the spokesperson says.

The UK moved quickly to reinstate export finance support for Ukraine just weeks after Russia’s full-scale invasion.

The now-former Conservative government issued a direction to UKEF’s accounting officer in March 2022 instructing the agency to maintain cover for Ukraine, despite the “significant risks of financial loss involved”, Reynolds’ letter says.

When Labour came into power in 2024, Reynolds maintained the policy as it was still in the “national interest” to support Ukraine, he says.

In the initial phase of the Ukraine crisis, many export credit agencies paused coverage in the market amid fears over sizable war risks.

However, at the direction of their governments, several European and Asian countries have since collectively pledged billions of dollars in export credit support for Kyiv.

The Export and Investment Fund of Denmark has been a major backer of long-term infrastructure and clean energy projects after deploying an official to travel the length and breadth of Ukraine, conducting due diligence. The Danish government has afforded it a pot of DKK 2.8bn (€375mn) for deals in Ukraine.

Germany’s Euler Hermes, France’s Bpifrance, Atradius DSB from the Netherlands, Italy’s Sace, Japan’s two export finance institutions, Finland’s Finnvera and Belgium’s Credendo have together made commitments of over €3bn for Ukraine.

Poland’s Kuke has also been a major backer of short-term goods exports into Ukraine since June 2022.

Meanwhile, the European Union is rolling out a €300mn risk-sharing facility aimed at boosting SME exports to the country, with several agencies having expressed interest.

In June 2023, UKEF agreed to guarantee 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.