EBRD converts loan to Kyrgyz brewer Bear Beer into local currency
November 30, 2016
New approach allows leading drinks producer to repay in Kyrgyz som
The European Bank for Reconstruction and Development (EBRD) is making a new step in supporting the private sector in the Kyrgyz Republic by converting an existing loan to a client company, provided in hard currency, into the local currency som.
Bear Beer, a leading Kyrgyz beer and bottled water producer, borrowed €7 million under the EBRD’s FINTECC programme, supported by the Global Environment Facility, in 2013 to expand its production of beer and soft drinks and to replace an old plant with a modern, energy-efficient factory.
Now, thanks to the first such currency conversion for a corporate loan in the Kyrgyz Republic, Bear Beer will be able to repay in local currency the remaining €3.8 million of the loan.
Since the original loan was provided, Bear Beer has successfully expanded and remains a market leader with its popular brands, such as Ala-Archa water and the newly introduced Bomond beer.
However, the company’s success only partially insulated it from the effects of the economic slowdown and currency depreciations in Central Asia. The cost of debt rose sharply for firms and households that had borrowed in foreign currency, but earned in local currency.
The EBRD, like other financial institutions, needs to access local currency funds first in order to on-lend them to its clients, including private companies. Affordable local currency funding is rarely available in the Kyrgyz Republic. However, the EBRD is prioritising not only the development of local currency and local capital markets in general, but also the discovery of ways to support its existing clients in challenging economic times.
Ben Leikis, EBRD Associate Director in the Treasury Department, said: “The recent financial crisis has shown the real risks that many borrowers in EBRD countries of operations face in servicing loans when they borrow in hard currency but their revenues are in local currency. This conversion will help Bear Beer to mitigate foreign exchange risk in future.”
Nurlan Abdrazakov, CEO of Bear Beer, said: “The EBRD is a strategic partner for us and has helped us to become a leading drinks producer in the Kyrgyz Republic, thanks not only to their funding but also to their support in helping us adopt international industry standards for quality. Kyrgyz enterprises need local currency financing, and we are very pleased to have become the first recipient of a corporate loan in som. This will help us become more resilient and more competitive.”
While this is the first currency conversion for a corporate loan, the EBRD is already active in wider efforts to develop the local capital market in the Kyrgyz Republic. The Bank has provided a number of local-currency credit lines to local partner banks, which are now on-lending funds in som to small and medium-sized private businesses across the country, the vast majority of which do not have revenues in hard currency. The EBRD also acted as an anchor investor for the issue of the first-ever corporate bond in Kyrgyz som, by KICB bank in 2013.
Lending in local currency in the Kyrgyz Republic has become possible thanks to the EBRD’s donor-supported SME Local Currency Programme.
To date, the EBRD has invested over €650 million (over US$ 686 million equivalent) in the country.
Company — Kyrgyzstan
Full nameRepublic of Kyrgyzstan