US EXIM PROGRAM EXPANDED ALLOWING U.S. EXPORTERS TO INCREASE EXPORTS TO UKRAINE
By Alexander M. Gordin, Managing Director, Broad Street Capital Group, New York, NY, June, 2019
Published by USUBC on Tue, June 4, 2019
NEW YORK-- Since the original Fluent In EXIM post was published on February 11, 2019, an important event took place regarding the US EXIM BANK and the financing of U.S. exports to Ukraine.
- The U.S. Congress, on May 8, 2019, confirmed three new US EXIM Board members thus opening the way for US EXIM to finance projects over $10 million with a duration of financing longer than seven years. (https://www.exim.gov/news/senate-confirms-three-members-for-exim-board-directors-restoring-full-financing-capacity)
In this post, we (Broad Street Capital Group, a member of USUBC) will examine what, if any, effect this change shall have on the US EXIM’s programs currently in place for Ukraine. We will also look at the ways Ukrainian importers and US exporters can best take advantage of these programs.
Currently, US EXIM is only open in Ukraine for short (financing of trade up to one year) and medium-term (financing of $10 million per project up to seven years) programs. Thus reopening the US EXIM for the long-term programs will not have any effect on Ukrainian export transactions.
US EXIM BANK IS AN EFFECTIVE TOOL FOR US EXPORTERS ---
Yet despite the absence of the long-term programs, US EXIM bank remains an effective tool for US exporters wishing to export goods and services to Ukraine. Under its short-term program, the Bank will insure against buyer non-payment and political risks up to 95 percent of the foreign receivables’ invoice value, thus allowing exporters to safely extend open account terms to foreign buyers (both private and government) for periods up to one year, with 90-day, 120-day terms being most prevalent.
This is done by putting in place either a Single Buyer, or Multi-Buyer credit insurance by the exporter and then qualifying and insuring individual importers under these policies. Depending on the policy limits sought, EXIM employs different underwriting standards and requires increasingly deeper credit checks and financial documentation.
Most qualified US exports, other than sales to of alcohol, tobacco and adult content, as well as sales to foreign military, may be insured; even equipment and services related to nuclear industry. In Ukraine, larger private transactions will require a repayment guarantee from one of the five or so top banks and on the government side a sovereign guarantee is needed.
Since it is almost impossible to obtain a UA government’s guarantee for smaller transaction amounts, the US exporters should focus selling their wares to the private sector. The credit insurance may be obtained either from the Bank directly, or at no additional cost, through a cadre of US EXIM approved insurance brokers whose list is found on the exim.gov site.
US EXIM MEDIUM TERM PROGRAMS ----
Under its medium term programs, US EXIM can cover up to 85 percent of qualified US exports, including eligible freight and duty costs. As mentioned above, financing limit is $10 million per distinct transaction, and repayment terms of up to seven years apply. For projects, which require local construction or installation (ex solar farms, grain silos), up to 30 percent of the financed amount maybe used to cover local costs performed by Ukrainian companies.
In the picture left to right: Alexander M. Gordin, Managing Director, Broad Street Capital Group; Morgan Williams, President, U.S.-Ukraine Business Council (USUBC)
Depending on the project, repayment of the financing may be structured as interest only for up to two years, with the balance of principal and interest paid out evenly over the remainder of the loan term. Services such as engineering, architecture, design, legal and financial, all may be financed under this program.
Although US EXIM can lend funds directly at what is commonly known as a CIRR rate, more often it issues a its AAA rated guarantee and the exporters then approach an approved bank to secure financing rates, which are usually more advantageous, as they are based on LIBOR and can either be variable, or fixed depending on the borrower’s preference.
Underwriting requirements of bank guarantee for the private transactions, or sovereign guarantee for government purchases also apply. Many borrowers choose to finance the remaining 15% percent through those same local banks thus effectively securing 100% financing for their projects.
Since the process of securing financing and insurance coverage through any government agency, or an international financial institution is quite complex, we always recommend that clients engage a qualified and experienced financial adviser and a very competent law firm with extensive experience working with the US EXIM Ban
NOTE: The Broad Street Capital Group is a member of the U.S.-Ukraine Business Council (USUBC), www.USUBC.org.