A Ukrainian roadshow visits London this week. Delegates hope to identify investment opportunities. This may seem ludicrously premature. The flag of Ukraine has only fluttered over Kherson for a day or two. Russia has retreated, not been defeated. Nevertheless, having prepared for the worst, it is time for supporters to start planning for the best.
Roadshows are these days termed “investor education”. Plenty of schooling will be needed to explain a reconstruction effort that could cost upwards of $1tn. That would be about six times the real-terms size of the US Marshall Plan for Europe after the second world war.
Russia has destroyed swaths of infrastructure with missile and drone strikes. The Russian army is trashing plenty more as it heads back east. Businesses are relocating and rebuilding away from the war zone, power cuts permitting.
So far, reconstruction funding has mainly come from foreign governments, multilateral agencies and development banks. An estimated $400bn of Russian assets frozen overseas may also be deployed. But foreign private sector investors should also ponder how they can get involved.
For the moment, buying Ukrainian eurobonds is the easiest way to register confidence in the country’s independent future. Yields have moved in line with progress in the war.
Russia’s recent retreat from Kherson delivered a fillip. But returns still reflect huge uncertainties. One US dollar eurobond bearing a 6.75 per cent coupon and maturing in 2028 yields 46 per cent.
Peace would need to be in sight to justify a big rally. Even then, debt restructuring seems inevitable. Both are distant prospects. Optimists argue that a longer conflict is worse for Russian president Vladimir Putin. His absence from this week’s G20 summit in Bali hints at deepening trouble in Moscow.
One sensible proposal is for a new international agency to identify bankable projects, raise capital by issuing bonds and even make equity investments.
Ukraine was riddled with corruption before the war. A $1tn reconstruction effort would be a fresh magnet for chicanery. After a Ukrainian victory, Volodymyr Zelenskyy would need to be as implacable a foe of crooked oligarchs as he has been of Russia.
The Lex team is interested in hearing more from readers. Please tell us what you think of Ukraine as an investment prospect in the comments section below.
