(Bloomberg) -- A program for private investors to help rebuild Ukraine is aiming to provide $15 billion of funding with support from state bodies and capital markets. 

The Ukraine Development Fund is on track to secure at least $500 million from countries, development banks and other grant providers, along with $2 billion from private investors, according to Philipp Hildebrand, vice chairman of BlackRock Inc. who is among the financiers leading the discussions. 

That could bring together a consortium of equity and debt investors who could finance at least $15 billion of reconstruction work in Ukraine, he said. 

The total bill to rebuild Ukraine following Russia’s invasion was estimated at nearly $500 billion by the World Bank and others last month. 

Hildebrand said the new fund represents a “pretty sizable chunk” of the $80 billion of work that could be financed by the private sector, as estimated by the International Finance Corporation. Ukraine’s government and finance firms have spent a year and half in talks about encouraging private investment.

Luxembourg Base

The development fund is likely to be registered in the international funds center of Luxembourg with an investment committee plus analysts and researchers, according to Hildebrand. The aim is to create one of the biggest ever public-private collaborations, similar to Germany’s KfW, set up after the Second World War, or the Climate Finance Partnership between BlackRock and several governments in 2021, he said.

The priority areas for the fund will be the key sectors of agriculture, manufacturing, infrastructure and energy. About 20 viable projects have been identified so far, out of 200 that have been assessed. Alongside the fund, there will be a “project preparation facility” dedicated to finding investible ideas, ensuring a pipeline for investors to back. Its costs will be met from investment returns, Hildebrand said.

BlackRock’s Financial Markets Advisory Group has had five people working on the fund alongside staff from JPMorgan Chase & Co. Both institutions are working for free. It comes as Ukrainian President Volodymyr Zelenskiy met a group of senior business figures at the World Economic Forum in Davos in January to try to strengthen business support for the country.

A year ago, investors were getting ready to plow funds into Ukraine as hopes rose that its counter-offensive might end the war quickly — but as the military campaign stalled, investment planning has slowed, according to several people familiar with the matter, who asked not to be named given the sensitivity.

Investors watching the situation are also conscious that swathes of Ukraine’s skilled workers — particularly in areas such as technology — have either moved away or are fighting at the front. 

Read more: The $1 Trillion Race to Rebuild Ukraine Is Slowly Getting Going

Private investors require “the cessation of hostilities, or at the very least a perspective for peace,” Hildebrand said. In the meantime, the focus is on being “operationally ready for the day when you can begin to deploy capital.” 

Investors are also looking for signs Zelenskiy is getting to grips with the corruption that has stirred concerns overseas. The message was positive at the Davos meeting, according to attendee Mary Erdoes, chief executive officer of JPMorgan’s asset and wealth management business. 

“Ukraine’s leaders understand the need to prioritize transparency and good governance ― these priorities will accelerate foreign capital’s enthusiasm to move quickly,” Erdoes said in an interview with Bloomberg at Davos.

Zelenskiy sees the situation as “an opportunity to redesign the economy, including governance structures and capital markets,” Hildebrand added.

Waterfall Structure

The new fund has “several aspects that are quite unique,” being focused on equity and profit sharing, according to Hildebrand. “The first return goes to the private sector, then public, then beyond a certain return the upside could be again shared with the public sector participants.”

Others, such as the European Bank for Reconstruction and Development which is already lending billions to Ukraine, are welcome to join the fund. “This is not a competition,” Hildebrand said. The aim would be to include European and American investors, while the Ukrainian government is “open to having skin in the game” and may put in some of the first-loss capital, Hildebrand said.

Andrew Forrest, the billionaire founder of mining firm Fortescue Ltd., last year pledged $500 million for the new fund. He introduced BlackRock to the Ukrainian government and developed the idea of the vehicle, according to a statement about his investment. 

Other Pressures

Separately, the Kyiv government will need to agree a debt restructuring with international creditors this summer. JPMorgan helped Ukraine negotiate a two-year freeze on $20 billion of debt repayments in August 2022. 

Stefan Weiler, JPMorgan’s head of debt capital markets in Central Europe, the Middle East and Africa, said a deal would help Ukraine’s economy and create more investment opportunities.

“There would still be investible projects if Ukraine is unable to restructure its government debt, but if there is more money available for rebuilding infrastructure rather than for debt repayments, that should spur economic activity and make the country more attractive for foreign direct investments,” Weiler said.

In another initiative with the private sector, Ukraine’s government agreed with the Lloyd’s of London insurance market and the broker Marsh McLennan earlier this month to widen existing coverage for ships carrying grain to cover all non-military cargo such as iron ore and steel. 

According to Timothy Ash, strategist at RBC Bluebay Asset Management and expert on emerging markets, private sector support could play a part in the longer term development of Ukraine. But in the short term, he believes “the private sector is not going to do the heavy lifting.” 

Ash said countries must band together to seize Russia’s $300 billion of frozen central bank assets and support a Ukrainian victory, which he described as “a Western public good.”

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