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AS E-Piim Tootmine (“E-Piim”) is one of the largest dairy producers and exporters in Estonia, owned by more than a hundred local farmers in Estonia and Latvia. A new plant, located in Paide, will replace ageing manufacturing facilities, and significantly expand the existing production capacity, whilst also adding a fourth production facility. It will process milk from its cooperative members into high value-added dairy products such as hard and semi-hard cheese (gouda and cheddar), whey-based powders and pasteurised cream or butter.

The construction of a greenfield dairy plant will greatly increase the competitiveness through expansion of capacity and automation. Operating 24/7, 350 days per year, the new plant will process up to 1,150 tonnes per day of milk and 85 tonnes of whey. The new plant will on an annual basis produce 37,000 MT of cheese, 27,000 MT of whey-based powders and 9,000 MT of cream (or butter equivalent). The majority of the cheese, cream and powder products is exported to the EU and the global market, whilst consumer-packaged goods are sold locally.

Tetra Pak is responsible for the cheese/”wet” part of process design and engineering, fabrication, pre-testing, delivery to site, installation, commissioning and training of E-Piim personnel. Processing Director Kim Barkus says Tetra Pak is proud to be a partner: “It is a great opportunity to be involved in the construction of an efficient, environmentally friendly production facility for consistently high-quality cheese and dairy products within Estonia. Having a facility that is capable of producing cheddar and semi-hard cheeses together is unusual and Tetra Pak is one of the few companies globally that can provide equipment and solutions for both.”

Access to the European market and partnerships with leading Dutch food processors and distributors mattered a lot to our decision to go along.

Creative club deal

The project is valued at 154 million euro, financed through a club deal with syndicated financing from The European Investment Bank, Estonian bank LHV and ECA-backed financing from ING Bank, guaranteed by EKN and Dutch ECA Atradius. The total export finance facilities are 70 million euro and ING acted as sole lead arranger for the entire syndicated financing package.

Since the new plant will process a whopping 50 percent of all milk produced in Estonia, access to export markets and partnerships with international food producers/distributors were seen as vital to success. Two international leading dairy companies from the Netherlands (Interfood Group and Royal A-Ware) teamed up to invest in a 24.99-percent stake of AS E-Piim Tootmine. Eugène Kock, Director Structured Export Finance at ING Bank, says involvement of the Dutch companies and the cover from EKN and Dutch ECA Atradius were crucial: “Access to the European market and partnerships with leading Dutch food processors and distributors mattered a lot to our decision to go along.”

Assessing the risk of such a huge project requires industry expertise. Rick Dijsselhof, a Food & Agriculture Industry Specialist at ING Bank, paints a background: “Estonia saw a growing milk pool in the country but lacked the industry to support the value-adding process for this output. The dairy cooperative wanted to step up its ambitions and find an outlet for the milk by aiming at the international market and teaming up with Interfood Groups and Royal A-Ware to secure an outlet.”

At EKN, Senior Underwriter Michael Regmert agrees these partnerships were instrumental: “The size of the transaction makes it unusual, and it represents one of the largest Tetra Pak deals we have ever supported. Neighbouring Estonia, however, is an easy country in terms of country risk assessment, we know ING Bank and we know the partners. Furthermore, E-Piim is a company with long history and the offtakers of the dairy products from the new facility are well-established food giants.”

We have worked with EKN for over two decades now and they are always very helpful and accommodating.

Reducing complexity

Tetra Pak also testifies to the solid structure of the deal: “By minimising the number of countries of origin, E-Piim were able to maximise the financing of equipment through the ECA structure,” says Barkus and adds, “Limiting the number of ECA offices to Sweden and Netherlands has reduced the complexity of the guarantee structure and simplified communications for the financing process. Having the risk transferred to ECA facilitated the financing by institutional investors and allowed the use of relatively high bank financing in the project, which is important for developing the local dairy sector as farmers’ equity resources are quite limited.”

ING’s Kock confirms the importance of ECA cover: “It certainly affected the terms and the conditions and without EKN and Atradius this deal wouldn’t have materialized. Providing long duration loans of this kind is virtually impossible without the support of an ECA.”

Still, ING believes in the projects and was therefore willing to settle for 85 percent cover from EKN.

Finally, Kock praises the cooperation with EKN: “We have worked with EKN for over two decades now and they are always very helpful and accommodating.”