BlackRock, JPMorgan Chase Partner With Ukraine To Launch Reconstruction Bank
Leading financial firms BlackRock and JPMorgan Chase are partnering with the Ukrainian government to establish a reconstruction bank that will serve as a conduit for public seed capital to fund rebuilding projects.
These initiatives aim to attract significant private investment, potentially amounting to hundreds of billions of dollars.
Currently in the planning stages, the Ukrainian Development Fund is expected to be fully launched once hostilities with Russia come to an end. However, investors will be provided with a preview of the fund at the London conference hosted by the British and Ukrainian governments.
Philip Hildebrand, Vice President at BlackRock, highlighted the importance of blended financing in addressing long-term challenges, stating, "You need these vehicles to mobilize capital at scale." Hildebrand will discuss the business during the conference on Wednesday.
According to the World Bank's estimates in March, Ukraine would require USD 411 billion to rebuild after the war. Recent Russian attacks have increased this figure even further.
The Ukrainian government engaged the advisory arm of BlackRock in November to explore effective strategies for attracting this type of capital and subsequently enlisted the expertise of JPMorgan in February. Ukrainian President Volodymyr Zelensky announced last month that the country is collaborating with the two financial giants and advisors from McKinsey.
Although no official fundraising target has been set, insiders familiar with the discussions suggest that the fund aims to raise and leverage low-cost capital from governments, donors, and international financial institutions to attract five to ten times more private investment.
Both BlackRock and JPMorgan are offering their services as donations, which will provide them with early insights into potential investments in Ukraine. This assignment further strengthens JPMorgan's relationship with Ukraine as a long-standing customer, as the bank has facilitated over USD 25 billion in sovereign debt for the country since 2010 and led the restructuring of its USD 20 billion debt last year.
During consultations with private and public investors, BlackRock and JPMorgan identified concerns regarding Ukraine's governance, lack of transparency, and underdeveloped capital markets. To address these apprehensions, BlackRock recommended the establishment of a development finance bank that would identify investment opportunities in sectors such as infrastructure, climate, and agriculture. The aim would be to make these opportunities appealing to pension funds, long-term investors, and lenders. JPMorgan's expertise in debt played a key role in its involvement in the project.
Stefan Wheeler, Head of Capital Markets Central EMEA at JPMorgan, explained that the fund's purpose is to provide public and private investors with the opportunity to invest in specific projects and sectors. The Ukrainian Development Fund will prioritize different sectoral funds, which will act as vehicles for investment. Wheeler emphasized the goal of maximizing capital participation.
The fund's structure involves utilizing low-cost public funds, known as concessional capital, for initial investments and absorbing first losses. Brandon Hall, co-head of BlackRock's financial markets advisory division, explained that this seed capital would serve as a de-risking mechanism, enabling the possibility of accessing large-scale private sector capital. Ukraine will establish its own organization responsible for acquiring and pooling local investment opportunities.
To address investor concerns about governance, the fund plans to assemble a board of directors consisting of representatives from international financial institutions and governments. Additionally, investment specialists will be appointed to implement the fund's strategy.
Hall emphasized the importance of a robust governance structure and internationally credible stakeholders in instilling confidence among investors. Drawing on BlackRock's experience working with the Saudi National Fund for Development and the Climate Finance Partnership, which directs investments into sustainability projects in emerging markets, the firm's recommendations were influenced by its involvement in similar initiatives.
Currently, Ukraine is focused on creating the necessary structure, governance, and operational procedures. Most investors prefer to wait until hostilities cease before committing funds. Stefan Wheeler stated, "The important part is that Ukraine is really thinking about the future. When the war is over, they will want to be ready and start the rebuilding process right away."
