Allen & Overy acted for Citibank, N.A. and Deutsche Bank AG as mandated lead arrangers, Citibank Europe plc, UK Branch as facility agent, and Citibank, N.A., London Branch as offshore accounts bank on the World Bank-guaranteed Gas Supply Security Facility for Naftogaz, the state energy company of Ukraine, in the euro equivalent of $500m.
The deal achieved effectiveness on 16 February 2017, and meets an urgent development need, with Ukrainian finance minister Oleksandr Danyliuk stating that the World Bank guarantee will enable Ukraine “to get safely through the cold season”.
The Naftogaz transaction is the largest-ever World Bank guaranteed L/C transaction, and is a significant first for the International Bank for Reconstruction and Development (IBRD) in trade finance. IBRD provided a guarantee in the euro equivalent of $500m for the lenders, covering L/C and standby interest facilities, backed by a sovereign counter-indemnity treaty entered into with the Ministry of Finance of Ukraine.
The transaction is directly tied to the IMF-led bailout of Ukraine, and is intended to ensure the security of gas supply for Ukraine through the winter. The World Bank’s objective is to improve the terms on which Naftogaz purchases gas, and to help Ukraine to move away from the prepayment model which its suppliers have required to date, to a post-delivery payment model backed up by L/Cs from leading international banks.
The lenders believe that this is the first large scale deployment of the syndicated non-fronted L/C, a novel form of trade instrument which was negotiated with a large group of European gas suppliers.
Partner Tim Scales commented: “This is a strategically important transaction for Naftogaz and Ukraine, which enhances Ukraine’s ability to access the European and Russian gas markets. While the World Bank PRG product has become a recognised feature in long-tenor project financing in emerging markets, the MLAs and IBRD developed an innovative structure on this transaction to deploy the product for short-term trade financing. The transaction played to A&O’s strengths in structured trade finance and working with multilaterals and other stakeholders in emerging markets, as well as the expertise of our agency teams”.
Tim added: “The deal also proves the continued liquidity and appetite of major commercial banks, even in the most challenging emerging markets jurisdictions, where there is substantive multilateral support and political risk mitigation.”
Negotiations for the lenders and documentation were led by Tom Longmuir out of Paris, working with Tim Scales.
Senior associate Lulama Selele, associate Alicia Ayton and trainee solicitor Hannah Savill assisted as part of the lender team. A separate team comprised of Luke Lewis and Louise Hennessey acted for Citibank Europe plc, UK Branch as facility agent, and a team led by Morgan Krone and assisted by Louisa Ingham and Alex Cook acted for Citibank, N.A., London Branch as offshore accounts bank. Lenders’ Ukrainian counsel were Sayenko Kharenko, led by Anton Korobeynikov.
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