IFC is working on financing in local currency at affordable rates

IFC is working on financing in local currency at affordable rates

Jason Pellmar, IFC Regional Manager for Ukraine, Belarus, and Moldova: "We are working on financing in local currency at affordable rates"

In early April, IFC announced $3 billion to support clients in infrastructure, industrial manufacture, agriculture and services. What part of these funds has already been deployed? What are the loan terms?

In an aggressive reform scenario, IFC has line of sight on a $3 billion pipeline through 2024. This presumes further liberalization of the land reform and progressing the banking sector reforms, among others.

The current economic crisis, precipitated by the pandemic, has made the need for reform all the more critical so as to attract more domestic and foreign investment.

Together with the World Bank, we will continue to progress these reforms and sand to improve Ukraine’s investment climate.

Let me name a few of our key engagements this year. IFC is supporting the Government of Ukraine to privatize its state-owned banks via both advisory projects and financing. IFC is in the final stages of negotiations with Ukrgasbank for the signing of a pre-privatization loan agreement, which aims to facilitate the country’s first large-scale privatization in nearly a decade and to boost financing of sustainable energy and energy-efficient projects in Ukraine.

We are actively extending trade finance and working capital to Ukraine’s financial intermediaries and to the real sector, offering long-term funding and risk-sharing facilties to local banks so they can continue to finance SMEs.

Also, we are actively working on the creation of an infrastructure investment pipeline to support post-pandemic recovery and to create jobs. As you know, IFC supported the construction of a new high-capacity grain terminal, Neptune, at the Black Sea port near Odesa that started operation just a few months ago.

Additionally, IFC structured and helped tender two port concessions for the state-owned Olvia Stevedoring Company and the Kherson Sea Trade Port, and we are already seeing early successes in mobilizing additional foreign strategic investment into Ukraine’s port sector. We are actively engaged in various initiatives to attract more investments into Ukraine’s road, rail, health, and energy sectors via the concession model

- IFC also mentioned the accelerated procedure of crediting. What processes did you exclude, how does it work?

We are working as quickly as possible to help companies in need. IFC has come up with the Fast-Track COVID-19 Facility that provides simplified procedures for the deployment of funds. Our experience from past shocks, including the global financial crisis in 2008, has taught us that keeping companies solvent is key to saving jobs and limiting economic damage. Speed is of the essence. IFC’s
phase-one response will use instruments for which our Executive Board has already delegated authority to our management. At the same time, IFC will maintain high standards of accountability. IFC management will approve projects based on credit, environmental and social governance, and compliance criteria, as were applied in past crisis responses. The package includes exposure limits by country and borrower.

- In general, how has the crisis affected the products offered by IFC?

The COVID-19 pandemic has adversely affected Ukraine through a slowdown in export markets, domestic supply chain disruptions, a decline in remittances and domestic consumption. IFC has prepared the Real Sector Crisis Response and Financial Institutions Response packages as part of the Fast Track COVID-19 Facility to help our private-sector clients to sustain economies and protect jobs.

In addition to our standard products— loans, equity, quasi-equity, and trade finance—under this Facility, we are working on local-currency funding at viable rates to support banks’ lending to MSMEs.

Also we are looking at opportunities to offer risk-sharing facilities under the Small Loan Guarantee Program to help expand lending to SMEs in those markets that are not well served by the financial sector, including, for example, very small enterprises, women-owned SMEs, early-stage SMEs, SMEs involved in climate activities, agricultural SMEs. and high-growth SMEs.

Jason Pellmar - IFC

- How has the quality of IFC’s loan portfolio changed? How many non-performing loans are you experiencing?

IFC’s portfolio is standing up well. Agri commodity and logistics clients, in particular, are proving to be resilient. This is reinforced given Ukraine’s role in ensuring global food security.

As concerns NPLs more broadly, the World Bank has supported the National Bank of Ukraine and the Ministry of Finance in developing an NPL-resolution framework, which includes prudential regulations for write-offs and criteria for restructuring with haircut and sale through electronic auctions. A functioning NPL-resolution framework would also allow IFC to further support the Government with the cleanup of NPLs in select banks and promote private investment in distressed-asset workout vehicles.

Have you had cases of loans restructuring recently? If yes, what is the share of such loans?

We have not had such cases in Ukraine recently.

- Does IFC plan to introduce new products to support the economy after the pandemic?

Globally, IFC has allocated $8 billion in fast-track financing to our private-sector clients to sustain economies and protect jobs during this unprecedented global crisis. This money is going to existing IFC clients—either experiencing or vulnerable to the economic impacts of COVID-19—as medium to long-term loans, mezzanine, equity, and risk-sharing instruments.

As a part of the COVID-19 facility, we are working to enhance the existing Global Trade Finance Program, deploy funds through trade-portfolio solutions, and provide Working Capital Solutions loans. These are not new products, but we are able to realize them via fast-track procedures.
Phase two of our response will also include working “upstream” to create projects that will attract investment back into developing countries, including Ukraine.

Globally, the World Bank Group has the financial capacity to deploy $160 billion from April 2020 through the end of the current fiscal year, ended June 2021. Over the same period, IFC is prepared to provide $47 billion in overall support for the private sector, including $32 billion from our own account and $15 billion mobilized from other investors. Through the end of fiscal 2023, IFC has the capacity to provide $117 billion in total financing, including $79 billion from our own account and in $38 billion in mobilized funds.

- How do you assess the efficiency of the Energy Efficiency Fund?

The Energy Efficiency Fund (EEF) was established in 2019 with IFC’s support as a part of a program between the EU, Germany, and the Government of Ukraine to boost energy efficiency in the residential sector across the country. IFC also manages the EU-Germany’s multi-donor trust fund (MDTF), which provides grants to homeowner associations (HOAs) for energy-efficiency renovations of their buildings in parallel with the EEF. In aggregate, the EEF and the MDTF command over $220 million to be channeled for this purpose. We expect up to 2,000 HOAs to participate in the program in the next three years.

Set up and launched in a record eight months, the EEF has made substantial progress for a greenfield operation. With help from IFC’s network of regional advisors, over 100 HOAs have submitted applications to the EEF so far, of which 85 percent will implement comprehensive EE renovations; another 200 or so buildings are at various stages of applying. For the 107 applications submitted to the EEF thus far, the EEF and IFC have committed $15.1 million in grants to be disbursed to the HOAs on completion of predefined stages of EE renovations.

In parallel with the setting up the novel EEF, IFC supported its partner to roll out the so-called “First Movers” pilot program, which was intended to help the EEF design and test its first program. As of today, 6 of 11 “First Movers” have completed renovations of their buildings and are on track to save up to 50 percent energy consumption this coming winter and help to significantly reduce the homeowners’ utility bills.

It should be noted that IFC also works with banks to help develop loan products and channel grants for energy-efficiency modernization of multi-family buildings. During its first year, the “Warm Loans” program deployed through four banks disbursed UAH 11.6 million in grants to 137 multifamily buildings.

- Last year IFC issued local currency bonds to support its operations in Ukraine. Do you plan to continue?

Helping Ukrainian businesses with access to longer-term finance, particularly in local currency, remains among IFC’s key objectives. The Ukrainian banking sector is facing scarcity of long-term local currency funding for its lending operations, particularly due to the historic tendency of client savings in hard currencies, and now exacerbated by the COVID-19 outbreak. We are exploring opportunities to continue providing local currency funding at viable rates to support banks’ lending to MSMEs and providing direct financing to our real sector clients and municipalities.

- What is the amount of IFC funding in Ukraine in the 2020 financial year, what is the dynamics compared to the past?

Since 2004, IFC has committed over $3.3 billion in long-term financing in Ukraine across a diversified portfolio of projects—of which $1.1 billion was mobilized from partners—and implemented a wide-ranging advisory program. In addition, we have supported more than $1.2 billion of trade through IFC’s Global Trade Finance program. Of course, we would like to do more with our existing and new clients. In this context, IFC has intensified its upstream work to broaden the scope of its engagement in the country beyond traditional sectors.

We expect to finish 2020 strongly and having advanced a number of our strategic engagements.

- What kind of financing do you plan for the 2021?

As already mentioned, we have line-of-sight to deploy $3 billion to respond to the crisis and to enable a swift and sustainable recovery over the next five years. We will continue working to ensure that the essential needs of the country’s private sector are met, extending trade finance and working capital to financial institutions and to the real sector. This will enable banks to continue lending to MSMEs and to allow companies to maintain their operations, keeping their labor force gainfully employed. We will continue to support our current government counterparts to drive economic recovery with fresh investments through our pipeline of investment and advisory projects across key sectors of the economy, including infrastructure, climate-smart agriculture, value-add manufacturing and the financial sector.

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