The manner in which a lending transaction is structured is critical to the overall deal success because it has an impact on:

  • the deal risk assessment;
  • security package reliability;
  • the total cost of financing (e.g., interest rate, commission/fees, taxes/duties payable);
  • deal execution speed; and
  • post-closing matters (e.g., manageability of reporting requirements, covenant compliance, debt servicing, etc.).

On-Shore Lending vs. Offshore Lending

Pros and Cons of On-Shore Lending (i.e., direct lending by a foreign bank to a Ukrainian borrower)


  • more simple and straightforward from structuring standpoint and in terms of transaction documentation;
  • more robust Ukrainian security coverage from the enforcement perspective due to a less restrictive currency control regime, in particular, based on the current position of the National Bank of Ukraine (the NBU) which is supported by applicable NBU regulations:
  1. no individual license of the NBU (NBU License) is required for cross-border foreign currency payments under guarantee (suretyship) from Ukrainian guarantors (surety providers) and for repatriation of the proceeds received from the enforcement of Ukrainian security; and
  2. no restrictions on purchase of foreign currency for making cross-border payments (as discussed above) apply to conversion of local (UAH) currency into foreign currency.
  • possibility of participation of Ukrainian banks, e.g., through funded/unfunded sub-participation; and
  • full tax deductibility of interest payments.


  • need to register a loan agreement with the NBU;
  • the loan agreement is subject to the maximum interest rate limitation established by the NBU (the Statutory Maximum Interest Rate) as follows:
  1. for fixed interest rate loans:
  • with maturities less than 1 year - 9.8% per annum;
  • with maturities from 1 to 3 years - 10% per annum; and
  • with maturities over 3 years - 11% per annum.
  1. for floating interest rate loans:
  • LIBOR for three months USD deposits plus 750 basis points.

N.B. " for purposes of verification of compliance with the Statutory Maximum Interest Rate limitation, the NBU reviews total borrowing costs which represent the nominal interest rate under the loan agreement increased to take into account any and all commissions/fees, default interest and other charges (which may include any payments other than the repayment of principal) that may be payable by the borrower pursuant to the loan agreement.

  • certain LMA standard provisions of the loan agreement may need to be adjusted to comply with mandatory provisions of applicable NBU regulations, including:
  1. a need to include provisions limiting the aggregate amount of payments under the loan agreement by applying the Statutory Maximum Interest Rate;
  2. a need to include effectiveness clause providing that the loan agreement becomes effective on the date of its registration with the NBU; and
  3. a standard LMA tax gross-up clause may not be acceptable to the NBU resulting in the risk of refusal in the NBU registration of the loan agreement. Therefore, standard tax gross-up provisions in finance documents may need to be drafted so that they are interpreted as rules for the determination and calculation of tax payable rather than tax payment obligations to avoid the risk of challenge by the Ukrainian tax authorities or the risk of refusal by the NBU to register the loan agreement.
  • application of the Ukrainian language requirement " the loan agreement must be signed in the Ukrainian language (in addition to the foreign language chosen by the parties).

Pros and Cons of Off-Shore Lending (i.e., lending by a foreign bank to a foreign holding company for further on-lending of loan proceeds to its Ukrainian operating companies)


  • Ukrainian law regulatory and currency control restrictions will not be directly applicable; and
  • possibility to achieve greater tax efficiency.


  • potential difficulties with enforcement of the Ukrainian security due to applicable currency control restrictions, including:
  1. requirement to obtain the NBU License prior to making cross-border foreign currency payments under guarantee (suretyship) or transferring from Ukraine abroad the proceeds received from the realization of the Ukrainian security; and
  2. prohibition to purchase or borrow foreign currency for purposes of making cross-border foreign currency payments under upstream guarantees (suretyships); in other words, Ukrainian guarantor (surety provider) is not permitted to convert local (UAH) currency into foreign currency for that purpose and would have to use its own foreign currency funds generated from its business activity.
  • limitation on tax deductibility of interest payments under on-lending intercompany loan agreement due to applicable thin capitalization rules; and
  • participation of Ukrainian banks in the syndicate (including through funded or unfunded sub-participation) may be problematic.

N.B. " Applicable NBU regulations restrict Ukrainian banks" ability to lend to foreign corporate borrowers. This restriction is broadly interpreted as prohibiting Ukrainian banks to hold a credit risk exposure to foreign companies other than banks. As a result, in the event of a syndicated loan structured via Offshore Lending, foreign lenders may face difficulties with selling participation in such loan to Ukrainian banks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.