Friday, June 4 2010 18:51

What are the lending conditions of EurAsEC Anti-Crisis Fund?

The EurAsEC Anti-Crisis Fund was founded to help the Eurasian Economic Community member-countries manage the crisis through funding economic programs. Lending depends on a number of components. Specifically, it is Libor plus the margin calculated as difference between the fund costs of the Russian Federation and the Republic of Kazakhstan at international market and the Libor. These two countries are the largest investors of the Fund and unlike others they raise funds from international stock exchanges. Other countries do not have government securities available for sale at foreign markets. For instance, this ratio of Russian securities is nearly 4.5% art present.

The above conditions apply both to investment and financial loans. There are factors related to investment programs only, i.e. loans provided to private companies. One of them is the loan risk premium calculated for specific projects and at specific interest rate not exceeding 1%. In addition, there is a 0.5% of annual reservation fee. The loan maturity is up to 10 years for commercial enterprises and up to 15 years to countries. The grace period is 5 years for both. The final recipient of the loan is required to provide at least 20% co-financing. In average, given the current interest rate components, the loan may be provided at 5%-6% annual interest rate. The conditions may be changed in future, but such interest rate is already quite favorable for business.

As regards non-financial requirements for lending, the projects subject to funding must have certain effect on economies of the EurAsEC member-countries and not just the national economy of one country. This may be communication integration, delivery of raw-materials of finished products to other countries, etc. Another requirement is that a loan provided by the EurAsEC Anti-Crisis Fund must be the “final instance” for the recipient company i.e. the company cannot raise a loan on market terms or such fund raising will make the project unprofitable. There is also the minimum threshold of credit application. For Armenia it is US$10 million. There is no ceiling as such. It is adequate to a country’s quota in the Anti-Crisis Fund.

How do Armenian companies apply for the loans of the EurAsEC Anti-Crisis Fund?

There is an inter-department working group at the Armenian Government that coordinates these projects. We select the projects from the sectoral ministries which, in their turn, select the programs of enterprises meeting the funding criteria and submit them to the Finance Ministry.


What about the Armenian programs under consideration at EurAsEC Anti-Crisis Fund?

Nairit CJSC and Armeclectromash CJSC have applied to EuroAsEC Anti-Crisis Fund for investment the loans worth $300mln and $10.1mln, respectively. Both projects have the integration components we have mentioned above. A processing shop may be established on the basis of the products manufactured under the two companies’ programs. Nairit produces rubber, latex and other chemical products. Armelectromash produces electric engines. Nairit's program consists of several components and can be financed stage by stage. The total cost of the program is $300mln, the
co-financing - $200mln. Both projects are still to be discussed and their parameters may be changed.


In Soviet period of time Armelectromash was known for its finished products such as transformers, generators and not for raw materials…

Armelectromash is going to launch a power-saving production of glass mixture. The glass will be sold both in Armenia and abroad. The total cost of the project, including Armelectromash's co-financing, is $14.4mln. The company expects a US$10.1 million loan, as I have already mentioned.

Armenia’s quota in EurAsEC Anti-Crisis Fund is 13%. Considering that the Fund is US$10 billion, Armenia will have access to US$1.3 billion of cheap and long money, won’t it?

At present the Fund is a little more than US$8.5 billion but not 10. Therefore, the given 13% must be calculated from the given amount. The quota may be changed depending on the gross national income per capita. The higher is the income the higher the quota. Tajikistan and Kyrghyzstan like Armenia invested by US$1 million but their quotas are 2% and 3%, respectively depending on the gross national income of these countries. This indicator was taken as a basis in 2009 when the Fund was established for the countries to be able to receive funds proportional to the scales and activeness of their economies.
Thank you.

By Aram Gareginyan, ArmInfo, June 2, 2010