BlackRock and JPMorgan Chase are collaborating with the Ukrainian government to establish a reconstruction bank, aimed at facilitating public seed capital for rebuilding projects and attracting private investments worth billions of dollars. The Ukraine Development Fund is currently in the planning phase and is expected to launch after hostilities with Russia cease. However, this week, investors will have a sneak peek of the fund at a conference in London, co-hosted by the British and Ukrainian governments.
Blended finance is crucial in addressing long-term challenges, such as this one, according to Philipp Hildebrand, Vice-Chair of BlackRock. Hildebrand will be discussing the work at the conference on Wednesday. The World Bank estimated in March that Ukraine needs $411 billion for post-war reconstruction, a figure that has increased due to recent Russian attacks.
In November, the Ukrainian government engaged BlackRock’s consulting arm to determine how to attract the capital required, and later added JPMorgan in February. Last month, President Volodymyr Zelenskyy announced that the country is working with BlackRock, JPMorgan, and McKinsey consultants. The fund aims to raise low-cost capital from governments, donors, and international financial institutions, leveraging it to attract five to ten times more private investment. Although BlackRock and JPMorgan are contributing their services, they will benefit from early investment opportunities.
During consultations with private and public sector investors, BlackRock and JPMorgan found that these investors wanted to help Ukraine but had concerns about governance, transparency, and shallow capital markets in the country. BlackRock advised that Ukraine needs a development finance bank to identify investment prospects in areas such as infrastructure, climate, and agriculture, making them appealing to pension funds and other long-term investors and lenders. JPMorgan was included for its debt expertise.
“The fund will provide public and private sector investors the chance to invest in specific projects and sectors,” explained Stefan Weiler, JPMorgan’s head of debt capital markets for central Europe, Middle East, and Africa. “The fund has identified certain sectoral funds as priorities for Ukraine, with the goal of maximizing capital participation.”
The fund’s structure involves using concessional capital, which is lower-cost public money, for initial investments and absorbing the initial losses. BlackRock’s Co-Head of Financial Markets Advisory, Brandon Hall, explained that this seed capital would act as a risk mitigation mechanism and attract private sector capital at scale. Ukraine will establish its own organization to source and syndicate local investment opportunities.
To alleviate concerns about governance, the fund plans to appoint representatives from international financial institutions and governments to its board. Additionally, it will hire investment professionals to execute its strategy. “A strong governance structure and internationally credible stakeholders leading this fund will go a long way,” emphasized Hall.
BlackRock’s expertise in advising the Saudi National Development Fund and the Climate Finance Partnership has been instrumental in shaping its recommendations for Ukraine. At present, the focus is on establishing the fund’s structure, governance, and procedures, as most investors prefer to wait until hostilities cease. “The important part is that Ukraine is already thinking ahead,” remarked Weiler. “When the war is over, they’re going to want to be ready and start the rebuilding process immediately.”
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