Freshfields Bruckhaus Deringer (‘Freshfields’) has advised Kreditanstalt für Wiederaufbau (KfW) on the conclusion of guarantee agreements with the European Commission and TCX (The Currency Exchange Fund, Netherlands). The guarantee agreements will enable TCX to access €165 million in funding from the European Fund for Sustainable Development (EFSD), which will provide financing for African borrowers in local currencies through financing partners.
The EFSD liquidity will increase TCX’s hedging capacity for exchange rate risks in local currency lending by financing partners. Local currency lending provides significant advantages or lenders, in that it avoids the exchange rate fluctuations of many African currencies in relation to hard currencies such as the US dollar or the euro. This enables local borrowers to repay their debts in the local currency. As a result, lending and investment in the target countries are greatly facilitated.
Through the guarantees for TCX, KfW is supporting the European Commission in implementing the Sustainable Development Goals in accordance with the United Nations’ 2030 Agenda. The importance of TCX for the development of the financial systems of African countries is also considerable: TCX helps to strengthen African financial markets and meet the increased demand for hedging of exchange rate risks – especially against the backdrop of the Covid-19 pandemic.
KfW, in turn, has covered its exposure under the TCX guarantees through counter-guarantees with the EU under the European Fund for Sustainable Development (EFSD).
Freshfields advised KfW primarily on the legal aspects and the structuring of the guarantees with TCX and the Commission.
The Freshfields team included partner Robin Helmke and counsel Alexander Ruschkowski (both Finance).
