China Eximbank reschedules $1.5 billion buyer’s credit loan via interest rate reduction, grace period and maturity extension (Linked to Record ID#42559 and ID#67803)

Project narrative

On June 28, 2012, the Export-Import Bank of China and the Government of Ukraine’s Ministry of Agriculture and Food signed a Memorandum of Understanding (MoU) regarding a $3 billion line of credit (as captured via Record ID#42559). This agreement, which is popularly known as the loan-for-corn deal (or loan-for-grain deal), specified that China Eximbank would provide a $3 billion line of credit to PJSC “State Food Grain Corporation of Ukraine” (SFGCU or PJSC DPZKU) — a Ukrainian state-owned enterprise — in two loan tranches: the first $1.5 billion tranche would be for the purchase of grain (through forward and spot contracts) and the export of grain to China, and the second $1.5 billion tranche would be for the acquisition of Chinese goods (plant protection products, machinery, elevator equipment) and potentially also the construction of biodiesel and corn processing production plants. Then, on October 24, 2012, SFGCU and China National Complete Engineering Corporation (CCEC) signed a “General Contract for Cooperation.” The contract specified that the $3 billion China Eximbank loan was to be repaid within 15 years with the proceeds from grain supply contracts between SFGCU and CCEC. Grain supply was to begin in 2012 (or 2013) and continue until 2027 (or 2028). The supply/sale of maize and other grains from SFGCU to CCEC was not to be less than 80 million metric ton over the 15-year period. SFGCU agreed to supply/sell 4 million tons in the first year, 4.5 million tons in the second year, and 5.2 million tons in the third year. Grain prices were tethered to futures contracts for the relevant period of time on the Dalian Commodity Exchange of China. The contract also stipulated that, in the event that SFGCU did not meet its annual grain supply commitments, CCEC had the right to notify China Eximbank so that it could in turn adjust loan disbursements in proportion to the annual supply of grain. SFGCU also granted CCEC the right to re-export grain to other countries for their legal resale. Additionally, under the terms of the contract, SFGCU agreed to buy various goods (including fuel, mineral fertilizers, plant protection products, seeds, agricultural machinery) and services from CCEC. The contract further stipulated that CCEC would be the main EPC contractor for any turnkey project financed by the $3 billion loan agreement. The contract identified $1.5 billion worth of goods, services, and turnkey projects that CCEC would supply to SFGCU between 2013 and 2017: $275 million for the purchase of Chinese plant protection products; $305 million for the purchase of mineral fertilizers; $55 million for the purchase of agricultural machinery; $350 million for the purchase of seeds; $70 million for the construction of a plant for organic and mineral fertilizers; $70 million for the construction of a plant for the production of plant protection products; $195 million for the construction of an agricultural market center; $15 million for agricultural waste as alternative energy sources (pellets); and $165 million for the construction of a port elevator. Then, on December 26, 2012, China Eximbank and SFGCU signed a $1.5 billion buyer’s credit loan agreement [№ BLA 201209], which represented the first tranche described in the June 28, 2012 MOU. This loan agreement is captured via Record ID#67803. It carried the following terms: an interest rate of 6-month LIBOR (0.515% in December 2012) plus a 4.5% margin, a maturity of 15 years, and a 5 year grace period. The final maturity date of the loan was December 28, 2027. The Government of Ukraine issued a sovereign guarantee in support of the loan. In the event that SFGCU did not meet its repayment obligations, the guarantor (the Ministry of Finance o the Government of Ukraine) agreed to pay the amount of debt that is outstanding within 20 working days of receiving a written request from China Eximbank. The full amount of the first tranche was reportedly disbursed by China Eximbank and deposited in an account controlled by Ukraine Export-Import Bank (Ukreximbank) on February 6, 2013. The loan's principal amount outstanding was $1.5 billion as of December 31, 2017, $1.35 billion as of December 31, 2018, $1.2 billion as of December 31, 2019, $1.05 billion as of December 31, 2020, $900 million was of December 31, 2021, $825 million as of December 31, 2023, and $825 million as of December 31, 2023. The proceeds of the loan were reportedly used by the borrower (SFGCU) for forward grain purchases (i.e the purchase of barley, wheat, and corn from Ukrainian farmers intended for export to China). However, the SFGCU did not honor its commitment to sell 4-6 million tons of grain to CCEC each year. The SFGCU’s First Deputy Board Chairman Robert Brovdi said that his company had only exported 1.5 million tons of grain to China as of December 3, 2013. Other sources suggest that grain deliveries ranged between 10% and 23% of the agreed volumes. In March 2013, CCEC filed a complaint against SFGCU at the London Court of International Arbitration for failing to fulfill its grain supply obligations (and thus effectively defaulting on its repayment obligations under its $1.5 billion buyer’s credit loan with China Eximbank). Shortly thereafter, the Ukrainian media reported that the loan had been defrauded, and Ukrainian officials had demanded large bribes in return for declaring to purchase agricultural machines in China. On March 11, 2014, the Ukrainian Ministry of Agricultural Policy and Food relieved Ihor Yakubovych, the Chairman of the SFGCU, of his duties. Then, in April 2014, CCEC and SFGCU performed a comprehensive audit of SFGCU’s implementation of projects associated with the $1.5 billion dollar loan. In 2015, China Eximbank and SFGCU amended the $1.5 billion buyer’s credit loan agreement in an unusual way. The amended agreement specified (in Annex 3) that, for every ton of grain exported by SFGCU to China, SFGCU would be obliged to pay China Eximbank a $5 ‘commission’ (above and beyond its principal and interest repayment obligations). Additional problems arose in 2017. On March 20, 2017, SFGCU was accused of attempting to illegally appropriate a privately-owned grain port terminal to increase its export capacity to China. Several media outlets also reported in 2017 that Ukreximbank froze SFGCU’s bank accounts at the request of China Eximbank. Additional problems and controversies arose in 2019 and 2020. At the end of 2019, the National Anti-Corruption Bureau of Ukraine (NABU) reported the detention of another former SFGCU chairman in Lithuania. In early 2020, the Acting Chairman of the Board of SFGCU, Simon Chernyavsky, announced that law enforcement had opened 150 criminal cases against SFGCU officials. He also announced on March 2, 2020 that SFGCU was ordered by the London Court of International Arbitration to pay $4 million to CCEC. Additionally, to due to loan repayment difficulties, SFGCU and China Eximbank engaged in debt rescheduling negotiations in March 2017. China Eximbank and SFGCU reportedly agreed in principle to reduce the interest rate at the end of 2017. However, Ukraine's Ministry of Finance did not officially request to restructure the loan until October 2022. On December 17, 2022, the Cabinet of Ministers of Ukraine issued Resolution No. 1385, which states that the Government of Ukraine would continue to provide a sovereign guarantee for the loan with more favorable repayment terms. Four days later, on December 21, 2022, China Eximbank and SFGCU signed a debt rescheduling agreement (amended buyer's credit loan agreement), which reduced the loan's annual interest from 6-month LIBOR plus a 4.5% margin to 6-month LIBOR plus a 3.7% margin and extended its maturity by 3 additional years (revised final maturity date: July 21, 2030). The borrower was also granted an additional three-year grace period with 11 equal, consecutive, semi-annual principal repayment starting on July 21, 2025 and ending on the loan's (revised) maturity date (July 21, 2030). Accured interest and default interest (if any) through January 21, 2025 was to be capitalized with the same annual interest rate and grace period. The amended buyer's credit loan agreement entered into force on December 21, 2022. The 2022 debt rescheduling is captured via Record ID#85202. Then, on October 25, 2023, China Eximbank and SFGCU signed another amended buyer's credit loan agreement, which reset the loan's interest rate from 6-month LIBOR plus a 3.7% margin to 6-month SOFR plus 3.7% plus a 0.42826% adjustment spread.