UK Export Finance (UKEF) expresses keen interest in backing numerous projects in Serbia, with a funding pool ranging between four and five billion pounds (equivalent to 4.7 to 5.8 billion euros), as previously covered by Nova Ekonomija. There exist manifold advantages to such a financing approach, notably the provision of more favorable terms akin to having the credit rating of the United Kingdom, emphasized by the regional director of UKEF for Southeast Europe and the Balkans.
“We are essentially trading credit ratings. As an agency equipped with both insurance and financial institution capacities, we levy a premium for the entire process, calculated as a percentage relative to the project or contract size. This premium serves as a form of insurance,” elucidated Duško Krsmanović, Director at UKEF overseeing Southeast Europe and the Balkans.
The premium serves as a safeguard in the event of default by a country or company, with the collected premiums contributing to a fund that covers and mitigates risks.
The gathering of Western Balkans Prime Ministers in London in February resulted in the allocation of a financial capacity of 15 billion pounds by UKEF, designated for a diverse array of projects within the region.
Krsmanović elaborated on UKEF’s role as an export credit agency, drawing parallels with the Export Credit Agency of the Republic of Serbia (AOFI) in operational methodology.
“There are two primary mechanisms through which this operates. Firstly, we offer guarantees to international banks extending credit to governments or private entities. In doing so, we act as a ‘credit enhancer,’ improving the risk profile of the borrower. Alternatively, we enhance the credit profile of the borrower, effectively exchanging their rating for that of the UK government. By providing a 100% guarantee for loan repayment, backed by the UK Treasury, institutions perceive the transaction not as lending to the Government of Serbia or a company but almost as though they are lending to the UK Treasury,” Krsmanović explained.
He added that this arrangement results in lower borrowing costs and more flexible repayment terms.
For a project to materialize, it’s imperative that supply chains have ties to the United Kingdom.
“We function as an export credit agency to support exports from the UK. However, we are also a highly flexible credit agency, requiring a minimum of 20% UK content in a project for us to finance it. In some agencies, the condition is that the financing country must represent 100% of the project. We provide financing up to 85% of the project value, offering micro-guarantees provided that 20% of the project is spent on various goods and services from the UK. In cases where less UK content is present, we adjust our financing accordingly,” noted the regional director of the agency.
Regarding future projects, Krsmanović refrained from commenting on those not yet finalized but affirmed ongoing discussions encompass projects of significance to Serbia, particularly in renewable energy and infrastructure. He underscored that upon finalization, more details would be forthcoming.
UKEF’s entry into the Serbian market was marked in 2021 through an agreement signed by Bechtel and Enka with the Government of Serbia for the Morava Corridor project, representing their inaugural project in the region.
“I cannot comment on projects that have not been signed yet, but we are in discussions regarding projects crucial for Serbia’s renewable energy and infrastructure sectors, among others. When signings occur, more information will be available,” stated Krsmanović, emphasizing that engaging with UKEF enables diversification of funding sources for critical public projects.
The agency also possesses the capability to extend loans in local currencies, supporting over 60 local currencies for borrowing if preferred by the client.
“The option of payment in local currency is often appealing to investors receiving revenue in dinars, enabling them to share currency risk. We can approve financing in dinars if they have consistent dinar revenue streams, but typically, these loans are in euros or dollars, especially for this region, with banks,” Krsmanović explained.
