The world's largest investment company BlackRock and the American financial holding JPMorgan Chase are helping the government of Ukraine to create a Reconstruction Bank to direct the state's start-up capital to reconstruction projects that can attract hundreds of billions of dollars of private investment, writes the Financial Times.
The Fund for the Development of Ukraine is in the planning stage and is not expected to be fully operational until after the end of the war with Russia. But investors will get a preliminary presentation of the fund already this week as part of a London conference organized by the governments of Great Britain and Ukraine.
“So many of today's long-term challenges are best addressed through blended finance, and this is one of them. You need these funds to mobilize capital at scale,” said BlackRock Vice Chairman Philip Hildebrand.
The government of Ukraine engaged the consulting division of BlackRock in November 2022 to determine how best to raise capital to rebuild the national economy, and JPMorgan later joined the initiative.
In April 2023, the President of Ukraine, Volodymyr Zelenskyi, announced that the country was actively working with two financial groups and McKinsey consultants.
No official fundraising target has been set, but sources familiar with the discussions say the fund aims to raise low-cost capital from governments, donors and international financial institutions and use it to attract 5 to 10 times more private investment.
The financiers consulted with investors from the private and public sectors and found that they want to help Ukraine, but are suspicious of the sphere of public administration, lack of transparency and underdevelopment of the domestic capital market.
According to BlackRock, Ukraine needs a development finance bank to find investment opportunities in sectors such as infrastructure, climate and agriculture and make them attractive to pension funds and other long-term investors and lenders. "The fund is also being created to provide investors from the public and private sectors with the opportunity to invest in specific projects and sectors," said Stephan Weiler, JPMorgan's head of debt capital markets in Central Europe, the Middle East and Africa.
The strategy would see the fund use cheaper public money, known as concessional capital, to make initial investments and cover initial losses. To address investor concerns, the fund is expected to fill its board with representatives from international financial institutions and governments and hire investment professionals to implement its strategy.
Currently, work with Ukraine is focused on creating structure, governance and practical procedures, as most investors want to wait for the hostilities to end.
Context
In September 2022, it became known that the investment company BlackRock will provide free consultations to the Ukrainian government. They will concern the creation of the Recovery Fund to support the Ukrainian economy. Australian billionaire Andrew Forrest, the founder of Fortescue, has pledged to invest 740 million Australian dollars ($500 million) in the BlackRock-managed Ukraine recovery fund. The Sydney Morning Herald writes about it.
On January 3, Prime Minister Denys Shmyhal announced during a government meeting that the damage caused to Ukraine as a result of the war exceeds $700 billion. In February, Shmyhal said in an interview with Forbes that Ukraine currently has more than UAH 150 billion that the market can use to rebuild housing and critical infrastructure. Within the framework of the rapid recovery program, priorities are the restoration of power grids, demining, reconstruction of housing and critical infrastructure, as well as business support programs.
In March, the World Bank increased the assessment of Ukraine's needs for recovery and reconstruction to $411 billion. Bloomberg writes about this with reference to the bank's calculations based on losses incurred during the year of the war. This figure is 2.6 times higher than the expected GDP of Ukraine in 2022.
According to regional military administrations, almost 18,500 multi-story residential buildings and more than 142,000 private estates have been destroyed or damaged since February 24, 2022.
The European Bank for Reconstruction and Development (EBRD) in its report "Regional Economic Prospects" reports that the five-year recovery period of Ukraine will require additional investments of about $50 billion per year due to the inflow of foreign capital, including private capital.
