Reputation Is a Sister of Recognition

What Ukrainian companies and their foreign partners need to understand and do in order to reach success in their joint commercial deals

 

“Our cooperation delivery goods necessary credit insurance. Wait confirmation. Please can quick decision”, - this is nearly how translates in broken English reply of one big Ukrainian company to its foreign supplier. Unfortunately, language barrier is not the only one foreign partners have to cope with while dealing with Ukrainian companies. And as long as majority of local companies are rigid in doing business in accordance with Ukrainian “rules”, they may just drop their hopes for advantageous finance conditions, saying nothing about financing of their commercial deals in principle.

 

To understand is to attract

 

Clear understanding of requirements that foreign partners suggest is vital for international finance attraction. And it’s no getting away from that. It’s even more vital today, when direct lending of commercial deals and projects through Ukrainian banks had become far less accessible. On the other hand, instrument of export finance gets more and more popular in the country as cheap, long-term and unsecured.

Obstacles, that company faces while involving international finance, can be relatively divided into three groups – state-level, company-level and entrepreneur-level. “More and more often IBcontacts experts receive requests from top-management of Ukrainian companies concerning finance involvements for new projects. For market players from such spheres as food industry, agriculture, livestock sector and renewable energy it arises most frequently”, - says Ms. Anna Pobedymska, Head of Project Department, IBcontacts.

Even foreign suppliers themselves estimate barriers on the way of international finance involvement as a main source of problems while cooperating with Ukrainian trade and industrial companies. “The absolute majority of issues, addressed to us by Dutch exporters working with Ukraine, are ones regarding different types of difficulties that arise while involvement of investment for bilateral commercial deals”, - Ms. Rihonda Berens, European markets advisor at Ministry of Economic Affairs, Agriculture and Innovation of the Kingdom of the Netherlands shares her experience.

Moreover, today foreign exporters fight hard for opportunity to provide their customers favorable conditions of commercial deals finance. “Before it used to be production quality to compete for, but now it’s opportunity to provide the most advantageous finance conditions that impacts trade volumes drastically”, - confirms Ms. Kateryna Barabash, Managing Director, IBcontacts.

For above mentioned question is highly urgent, on November 8, 2011, IBcontacts organized Second International Seminar: Trade and Project Finance for top-managers of trading and industrial companies (Kyiv, Ukraine). Among speakers during the event were specialists of worlds second biggest Export Credit Agency (ECA) Atradius; financing bank of the Netherlands Rabobank; experts of IBcontacts; representatives of Ukrainian confectionary factory ZhL and Mriya Agro Holding.

 

State – control

 

Sad to say so, but when entering international market of capital local companies can not avoid taking into consideration Ukraine’s low ratings. Ukraine’s position on international market directly impacts prices, timing, and other terms negotiated with foreign finance and insurance institutions (foreign banks and ECA). It is known that nowadaysUkraineis on seventh, the lowest, level according to OECD classification of countries, that all the foreign export credit agencies have to take into consideration.

“First of all, Ukraine occupies this position due to high political risks including frequent change of authorities, corruption, etc. For economic indicators of Ukraine allows it to take fifth place in pursuance to OECD gradation at least, which is where Kazakhstan is, by the way. Let me also note that Russia is on third place, which means more advantageous conditions of export finance for Russian trade companies”, - explains Ms. Barabash.

Bearing in mind such a low rating of the country, international finance costs Ukrainian companies 7-11% (ECA one-time premium) and 3-4% of annual interest rate of financing bank in case of direct financing of Ukrainian borrower company. In order to be fair it’s worth mentioning that even with such costs Ukrainian companies shall find it less expensive and more favorable (better timing, unsecured loans) to attract international financing then to take direct credit in Ukrainian banks.

The perfect scenario would be lobbying the improvement of country’s position on international arena by the state itself, represented by the Ministry of Economic Development and Trade of Ukraine, but de facto government just won’t do it. And it’s Ukrainian companies who pay double price. To go further, inUkrainethere is a whole range of projects deserving state guarantees because of social significance. But they never get any, and the reason is absence in our country of mechanism to achieve and, moreover, implement such guarantees. In this case we are talking not only about letter of support. The state has to undertake financial obligations of credit payment to foreign bank in case anything goes wrong.

There is one more remarkable tendency in international trade market concerning Ukrainian companies: problem of non-transparent and non-reliable financial reporting of our companies has now reached such scale that number of foreign experts regard it among country exposures. And it’s hard to dispute. Foreign partners are used to fact that financial information from our country differs and it makes Ukrainian side less trustworthy. For ECA and foreign financing banks this circumstance usually becomes a reason to reject financing of Ukrainian customers.

 

Author:

Iryna Vasylenko,

Head of Communications Department,

IBcontacts

 

Full article is available in IBobserver (December 2011- February 2012)