Investing in Ukraine’s post-war reconstruction

The German G7 presidency and the European Commission will next Tuesday host a conference focused on Ukraine’s post-war reconstruction. Alongside the use of public funds, a central question will be where and how to encourage private investment. Policymakers will be keen for examples of where the market is already finding opportunities that they can learn from and promote. Other potential investors will also be looking at the experiences of these “first movers” among financial institutions and corporates. I want to look at three broadly representative examples. 

First, and most obviously, there is lending to the Ukrainian government. BlackRock, Fidelity, Pimco and other private creditors agreed to a 2-year Ukrainian debt freeze earlier this year. This was mainly on humanitarian grounds, and it will take time for the government to rebuild its reputation after the “selective defaults” in the summer of 2022. However, it has also been striking that – despite strong media pressure – the government has not frozen or expropriated the assets of companies that have continued to do business in Russia. Core to building on this, and ultimately for the government’s ability to return to bond markets, will be successful not just in regaining its territories but also reintroducing administrative control for raising taxes and overseeing expenditures.  

Second, there are signs of confidence returning to Ukraine-focused investment funds. For example, institutional and private investors have backed a new $250 million growth fund by Horizon Capital, a Ukrainian private equity firm. This focuses largely on IT-related SMEs and start-ups. The uncertain outlook for energy supplies does entail risks for these companies, particularly in light of recent Russian attacks on infrastructure. But investors will have taken reassurance from the World Bank’s (reportedly) planned $2 billion support package that should rebuild damaged infrastructure. 

Finally, there are companies with operations throughout the wider Eastern European and Eurasia regions that are looking at restructuring their supply and distribution networks. Kingspan Group in the building materials and insulation sector is an eye-catching example of a firm committing to invest in Ukraine while also cutting ties with Russia.

For both corporates and investors planning investments or a strategic expansion in Ukraine, we would advise a combination of thorough political due diligence – which includes thought-out scenarios on the war’s further trajectory and close monitoring of the evolving business environment in Ukraine – and an assessment of the reputational minefield accompanying such plans. The degree of institutional support provided to these early movers and whether they are likely to reap the benefits in the long term should become clearer on Tuesday.