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For the past year, Kaare Stamer Andreasen has been enlisted by Denmark’s export credit agency to carry out a potentially life-threatening venture: conducting due diligence in war-torn Ukraine.

Andreasen, who serves as a finance director at the Export and Investment Fund of Denmark (EIFO), was first deployed in the market in April 2023 to assess the eligibility of projects.

But within weeks of landing, he decided a longer-term presence in Ukraine was necessary to fully understand the risks of prospective deals, he tells GTR.

“I travelled around during the summer and identified some good customers and projects, but also realised that we needed to be there permanently, to have boots on the ground,” he says.

“Some of the projects I had identified from my desk in Copenhagen could simply not work, were bad projects,” he says, citing administrative hurdles and war damage.

EIFO considered extending a loan to Ukraine’s Ministry of Health, yet discovered it would take the government department nearly a year to gain the necessary approvals for the deal, even with 40% consisting of a mixed credit grant.

“This was too slow for us,” Andreasen says. “We want to move very fast.”

During his travels in mid-2023, he also visited Ukrainian factories that had been bombed, with the task of evaluating the scale of the damage and seeing if production could be resumed.

“They do not always tell you, when they ask for a loan, whether a factory is totally bombed,” he tells GTR. They would sometimes try to “paint a nicer picture than in reality”.

By September, he was permanently stationed in Ukraine, and says this approach has been transformative to EIFO’s efforts to strike deals quickly in the market.

As Denmark’s export credit agency (ECA), EIFO is tasked with extending loans, guarantees and insurance to encourage Danish exporters to grow their business globally, often into riskier markets.

Last year, the Danish state gave EIFO a pot worth over €130mn to use in Ukraine, and in recent weeks, has allocated an additional €43mn to boost Danish exports and investments in the country.

EIFO has earmarked all of its initial allocation for 21 projects in a variety of sectors, including agriculture, food processing, water, energy and building construction. These transactions are at varying stages of approval.

The ECA cannot disclose precise details about the transactions it has struck, however, as Russian forces may use such intelligence to target strategic sites, Andreasen says.

For example, in mid-2023, EIFO agreed a €27mn deal for Ukrainian grain producer Nibulon to expand a grain facility in the Odesa oblast. Within months of publicly announcing its support, Russian airstrikes hit the development.

Andreasen had been due to visit the site for environmental checks when the project was bombed, and following calls with EIFO’s chief executive and head of the board, the agency quickly “rearranged the loans so [they] could be used for other projects instead”, he says.

“We want to implement different types of financing solutions, but also in as many sectors as possible. One reason is to spread our risk, so instead of having one factory… we have 21 projects,” he says.

“When it is public buyers, we are focusing on critical infrastructure and can give a 40% grant. When it is the private sector, it must be a deal that helps the economic development of Ukraine. We want to create the possibility for export earnings from Ukraine, in order to generate hard currency and create jobs.”

 

Flexibility needed

In a bid to boost Ukraine’s long-term reconstruction and to help Danish exporters secure contracts in the market, EIFO has loosened its typical credit and environmental risk assessment processes.

In one move, the ECA has introduced greater flexibility to its credit profiling of Ukrainian corporates and uses company data from five years ago, before the Covid-19 pandemic and the war.

“Not all of the companies we are working with are creditworthy,” says Andreasen. “Some of them are, but not all. Even still, we decide to work with these companies, even if they are triple-C rated and are having problems with other bank facilities. We are in a war zone; we need to rebuild the country.”

Ukraine’s economy contracted by nearly a third in 2022 following Russia’s full-scale invasion. While it grew 5.3% last year, the EU estimates the country’s real GDP will not reach pre-war levels until at least 2030.

EIFO is also taking a “more relaxed” attitude to other parts of a project, such as environmental assessments, Andreasen says.

“We take the things that are basic, that need to be in place…. We follow the international rules that we have,” he says.

“But there are aspects of our ESG assessments that are not possible to do right now… [Usually] we need to have all the approvals from the government; to have extraordinary research made. But if we had to check 100% by the book, like we might do in Sweden, for example, then we could not do very much here.”

 

An open field

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.

According to the World Bank, Kyiv will need US$486bn over the next decade to reconstruct the country.

However, there are risks that extend beyond war damages and non-payment. In one case, EIFO was forced to withdraw from a project due to corruption concerns, which have historically plagued the market.

“One we had to stop because the owner was involved in something we did not want to become attached with,” Andreasen says.

“There was bribery going on, not involving EIFO, but in another transaction the company was doing. We said: ‘Okay, if you are involved in any kind of bribery, we cannot do business with you.’”

Still, he argues Ukraine’s corruption issues are improving and points to Transparency International’s latest Corruption Perceptions Index – published in January – in which Ukraine’s score rose from 33 to 36 out of a possible 100.

“Ukraine’s growth by three points is one of the best results over the past year in the world,” Transparency International said in the report. Weeding out corrupt practices is a key element within Kyiv’s push to join the EU.

Despite these risks, Andreasen says there are enormous long-term opportunities in Ukraine and the agency is positioning Denmark as a key supplier to the country’s rebuild plan.

“Now there is an oversupply of good projects and a lack of financing, but when the war is over, it will be the reverse,” he says.

“We want all export credit agencies down here, because we need to rebuild Ukraine. Right now, it is an open field; we can take the best projects, do the financing with the best buyers and position Danish exporters on the market.

“Remember, this is not money out the window. It is not charity.”