Export Development Canada backs loan to primarily Russian-owned Buhler Industries

Export Development Canada a federal Crown credit corporation signed a guarantee to back halfof a $14-million loan toBuhler Industries in December2020 to support the company's ongoing operations.

The Winnipeg-based manufacturer of farming equipment, including Versatile tractors, has been under scrutiny sinceKonstantin Babkin,who resigned as a Buhler director on March 2, made at least two public statements in support of Russia's invasion of Ukraine.

In a Feb. 27Russian language interviewon CGTN, a Chinese state-owned broadcaster, Babkin blamed the Russian attack on U.S. interference and said "it is necessary to stop the conflict, to build a unified economic space with Russia."

Babkin also leads the Action Party, a Russian political party thathassupportedRussian President Vladimir Putin. On Feb. 21, Babkintweeted outthe party's support ofPutin's decision "to recognize the Donetsk and Luhansk People's Republics" two separatist-controlled areas that are recognized by the international community as Ukrainian territory.

Since Russia's invasion began on Feb. 24, more than 400 civilian deathshave been officially recorded by the UNhuman rights office, which said the actualnumber is much higher. The UN saidtwo million people have now fled Ukraine.

The Russian military doesn't offer regular updates on its casualties. Only once, on March 2, it revealed a death toll of nearly 500.

BuhlerIndustrieshas repeatedly denounced Russia's attack on Ukraine.

Babkin's resignation did not impact his ownership stake in Buhler Industries, which is 97 per cent owned by Combine FactoryRostselmash.

That company is a subsidiary ofNovoe Sodrugestvo CJSC, a Russian conglomerate co-owned by Babkin, currentBuhler director DmitryUdrasand Buhler CEO Yury Ryazanov.

Pulling out of loan would have huge impact: Buhler

Buhler spokesperson and vice-presidentAdam Reid, who has taken onBabkin's director role,stressed his company "is completely independent of Combine Factory Rostselmash,which has not collected profits or dividends from Buhler Industries in any way since acquiring a majority share in the company in 2007."

Buhler exports more than $150 million worth of machinery and parts each year, predominantly to the United States. That accounts for about 60 per cent of the company'stotal sales, according to Reid.

The last dividend distribution at Buhler was in 2007, although the heavy machinery manufacturer has seen profitable years since then.

Udras and Ryazanov, who are Russian nationals, wereon the federal council of the Babkin-led Action Party, according to the party's website.

On Friday, Reid confirmed Udrasand Ryazanovhave resigned fromthe leadership of the party but remain as directors of Buhler Industries.

"The fact that these individuals have resigned from that party means that they are feeling theeffects of those sanctions that we're applying elsewhere," said Marcus Kolga, senior fellow at theMacdonald-LaurierInstitute, an Ottawa-based think tank.

Kolga, whose area of expertise isCentral and Eastern European politics, says Canada needs to be extremely vigilant when it comes to dealing with companies owned by Russians.

"It doesn't matter [what] sort of financial interactionsthe federal government might have with any of these companies. We need to be very sure of who we're dealing with," said Kolga.

Russia can now be considered a hostile nation, he said.

Export Development Canada a federal export credit agency with a mandate to support international tradesays it applies additional scrutiny to agreements when Russia is involved.

The agency has no longer pursuedany business related to Russian contracts or Russian borrowers since 2014, when Russia annexed the Crimean peninsula,a spokesperson said.

"Any transaction with any direct/indirect Russian connection will continue to be subject to enhanced due diligence which could include seeking additional information on counterparties, contract awarding processes, and reviewing financial statements," wroteZo de Bellefeuille.

The agency says it backed theBuhler Industriesloan to promoteCanadian agriculture equipment exports and create domestic jobs.

BuhlerIndustries says pulling out of the loan could have a huge impacton workers, farm equipment dealers and farmers who count on the company for spare parts.

"Consequences of the removal/cancellation of the loan could include staff layoffsof Canadian jobs, less investment in research and development, liquidation of inventory and property, a decrease in sales and inventory and a reduction in competitiveness as a result of lower volumes," said Reid.

Reid says Buhler Industries employsapproximately 700workers in Canada and 50 in the United States, which amounts to more than$50 million in jobs and taxes.