Denmark has unveiled a DKK1bn (€130mn) guarantee scheme aimed at boosting Danish investments in Ukraine’s defence sector.
Under the initiative, the Export and Investment Fund of Denmark (EIFO) will cover up to 70% of a Danish company’s equity investment in a Ukrainian producer of defence goods.
The guarantees will have tenors of no longer than seven years, after which, the Danish entity has the option to sell its shares to EIFO at an agreed price.
Danish companies must pay an ongoing premium and potentially a performance fee, if their investment is successful.
“Investments are absolutely crucial in the reconstruction of Ukraine. Putin is not going to back down, and therefore Ukraine continues to need all kinds of support,” says Denmark’s minister of business and industry Morten Bødskov.
He says the partnership will also benefit Danish companies that will gain access to Ukraine’s battlefield knowledge.
“This is another strong contribution to the Ukrainian struggle for freedom and at the same time a big step towards a stronger Danish defence industry,” Bødskov adds.
In early 2024, Denmark helped establish a separate financing mechanism for the procurement of Ukrainian equipment by Ukraine’s army.
This “Danish model” of support has since enabled over €530mn in funding for Ukrainian defence manufacturers from various sources including €125mn from Denmark and €20mn from Sweden, says Ukraine’s Ministry of Defence.
“Now we are taking a step further… creating the opportunity for actual investments in building the Ukrainian defense industry”, says Danish minister of foreign affairs Lars Løkke Rasmussen.
When Russia launched its full-scale invasion in early 2022, Kyiv’s defence manufacturing industry was largely inherited from the Soviet era and possessed a “limited ability” to produce advanced equipment at scale, says a September report from the US Congressional Research Service.
“As a result, the UAF [Ukrainian Armed Forces] faced a persistent shortage of materiel, a problem exacerbated by equipment losses sustained in previous fighting as well as by Russian strikes on Ukrainian production facilities,” the report notes.
“This made Ukraine dependent on outside security assistance, the largest amount of which has come from the United States,” it adds.
Ukraine has increasingly sought export finance when purchasing defence equipment from overseas. In recent weeks, UK Export Finance agreed to back a £1.6bn deal for air-defence missiles.
But the latest EIFO initiative highlights how export credit agencies can also be wielded in aid of foreign direct investment, not just export contracts.
Outside of defence, EIFO has relaxed its usual underwriting rules in Ukraine and deployed an official to help strike deals quickly.
Since early 2023, the Danish government has afforded the agency a pot of DKK 2.8bn (€375mn) for the Ukrainian market and the focus has been on export credits, investment guarantees and direct financing.
