Porto Franco seeks bridge financing to mitigate impacts of the corona crisis

To ensure continued performance of construction work, Porto Franco has applied for a bridge loan of nearly 40 million euros to be provided by KredEx. The aim is to obtain from the state an amount required for strategic investments, which would be repaid to the state in three years from funds subsequently borrowed from banks.

Porto Franco is the largest ever development project in Estonia with the overall area of 150,000 m2. The total value of the development is nearly 200m euros, of which 100m euros have been contributed by the shareholders, and 102m will be raised from a syndicate of banks. The main loan partner is the European Bank for Reconstruction and Development, EBRD, providing their assistance in Estonia through the initiative for regeneration of former industrial sites into modern urban areas. The local loan partner supporting the project is Luminor Bank. The loan agreement between Porto Franco and the banks was signed on 28 February 2020.

In the current new situation caused by the coronavirus outbreak, where many Estonian construction workers normally employed in Finland are on a temporary leave in Estonia, Porto Franco has found it appropriate to replace all foreign contractors with Estonian service providers. Now all previous construction and supply agreements have been terminated. In order to place orders with local manufacturers, the facade and glass pane suppliers were also replaced with Estonian suppliers. This way we are creating 400 to 500 new local jobs in the construction sector that is now entering into the crisis, and provide work to 150 to 200 workers in Estonian production plants.

Termination of contracts for services, already concluded with foreign providers, and signing new local contracts requires good cooperation with banks providing the funding. In order to mitigate risks related to economic slowdown caused by the corona crisis, EBRD expects shareholders of Porto Franco to invest more funds at the initial stage of the construction, and to create a security facility of about 10m euros to service bank payments in 2022.

Therefore, Porto Franco has studied possibilities of raising a loan from KredEx and/or obtaining their sureties such as to satisfy EBRD in order to ensure that the funds under the already signed loan agreement would be put to use in Estonia’s economy as soon as possible. All amounts sought from KredEx would be applied as bridge financing until the bank financing is provided, and will be repaid after the permit for the use of the building has been received. Resources needed for that are available under the agreement concluded with EBRD.

The shareholder of Porto Franco has long-term partnership relations with EBRD and KredEx dating back to 2007, and together they have realised projects for the aggregate amount of 250m euros. Cooperation with KredEx and EBRD carries strategic importance in promoting Estonia’s exports of construction services towards eastern markets, and it will continue in years to come.