German investment in Ukraine – Federal Government improves guarantee conditions

The Federal Government has great interest in German companies maintaining and even expanding business relations with Ukraine despite the war. When Federal Minister for Economic Affairs and Climate Action Robert Habeck travelled to Ukraine in April, he announced that the investment guarantee instrument will continue to be available for Ukraine and will even be expanded.

Minister Habeck said: “Rebuilding Ukraine is a task that will take Ukraine and the international community decades to complete. The closer our economic ties with Ukraine are, the sooner this work can start. This is why we want to create the necessary conditions for this and build capacity now, even during wartime. This also sends a signal of optimism and solidarity!”

As of now, we will not only cover damage to property up to the complete loss of the investment: risks related to the conversion and transfer of interest payments on equity-like loans will also be covered. This often concerns long-term loans which are used by German companies in addition to equity investments to finance their Ukrainian subsidiaries.

This expansion of coverage was made possible by the Ukrainian national bank’s recent lifting of certain restrictions on transfers and foreign currency. This had been advocated by Federal Minister Habeck during his trip to Ukraine.
German investors continue to show great interest in the guarantees, including for investments in Ukraine. 14 companies are currently covered by investment guarantees for Ukraine, with a total of €280 million being insured (maximum liability). Several more companies have submitted applications for cover, and these are being processed expeditiously. As a general rule, guarantees will be provided where an investment is deemed worthy of funding and the risk deemed tolerable.

Th investment guarantees provided by the Federal Government to insure German foreign direct investment against political risks are a key instrument for strengthening German companies doing business abroad. Since the beginning of Russia’s war of aggression, the Federal Government has issued a large number of investment guarantees for German projects in Ukraine, taking into account the risk of the respective situation. Investment guarantees as a general rule also cover the risk of war.
The latest decision applies to both existing and future investment guarantees for equity-like loans.

In addition, companies will no longer be required to pay application fees when they apply for guarantees for Ukraine – a rule which will apply temporarily until 2025. They will only have to pay the annual guarantee fee.

The changes to the investment guarantee scheme:

Guarantees can be provided to cover the capital used for new investments and investments to expand (investment cover), and for earnings (earnings cover: mostly dividends and interest). In practice, guarantees are issued most often for investments in new businesses, capital increases or the acquisition of shares and equity-like loans by the shareholder or a third party (most often a bank).

Guarantees are issued only for projects deemed worthy of funding for which sufficient legal protection exists, including in particular the existence of an international investment promotion and protection agreement.
Investment guarantees protect against the loss of shareholders’/creditors’ rights, assets or earnings and against losses which are due to political action or events in the country where the investment is made. These include not only the risk of expropriation and war but also and most importantly risks resulting from the impossibility to convert or transfer money to the Federal Republic of Germany and from statutory bans on payments.

The current changes made to Germany’s approach to issuing guarantees for Ukraine were adopted by the Federal Government’s interministerial committee for investment guarantees. The interministerial committee is the Federal Government body that decides on investment guarantee policy and applications for the provision of investment guarantees. In addition to the Federal Ministry for Economic Affairs and Climate Action as the lead ministry, the Federal Ministry of Finance, the Federal Foreign Office and the Federal Ministry for Economic Cooperation and Development are also represented in the committee.
For more information about investment guarantees, please visit www.investitionsgarantien.de