Private View Blog: Ukrainian assets have foreign investors circling
Family offices, venture capital funds and other investors hungry for yield see plentiful opportunities in Ukraine, especially in its ports, agriculture and technology sectors. But the risks remain, not least over central bank independence and future relations with Vladimir Putin’s Russia
Ukraine, a country of abundant natural resources at the heart of the Eurasian landmass, once again finds itself at the centre of the global news agenda.
This time it’s all about a phone call from US president Donald Trump to his recently-elected Kyiv counterpart, Volodymyr Zelensky.
A week before the call on 25 July, the White House delayed $400m of military aid earmarked by Congress. Following Mr Trump’s boasts of US support for Ukraine and Mr Zelensky asking about further shipments of Javelin anti-tank missiles, the transcript reports the US president saying: “I would like you to do us a favour though because our country has been through a lot and Ukraine knows a lot about it.”
This favour apparently involved the Ukrainians seeking compromising information on Hunter Biden, son of Joe Biden, a Democratic presidential candidate. The younger Biden was until recently a board member of Ukrainian natural gas producer Burisma Holdings.
The claim from Democrats, who have begun an impeachment process, is that that the US president made military aid contingent on digging dirt on his political rivals.
Among the questionable claims Mr Trump made in the call and during the brouhaha which has followed it, there is one true stand-out fact, that Ukraine has “a lot of assets”, which bode well for the country’s long-term economic future.
Despite the investment risks associated with such murky political dealings, these “assets” are becoming more attractive to foreign corporate and private investors seeking an elusive yield.
There appear to be three sector opportunities attracting family offices, venture capital funds and potential industrial partners: agriculture, ports and new technology.
The first is buoyed by a record grain harvest in 2019, promises of land reform plus increased Asian demand for Ukraine’s high-quality poultry, produced by agricultural giants such as MHP. The second is highlighted by infrastructure investments in the Pivdennyi port, just outside Odesa on the Black Sea Coast. Foreign partners have included Dubai’s DP World and US food processor Cargill, which has helped build a $150m grain terminal together with the European Bank for Reconstruction and Development. This means bigger boats can enter, allowing high volume exports to China, fast eclipsing the US as Ukraine’s biggest customer for agricultural produce. The port’s owner, Andrey Stavnitser, is busy drumming up interests from family offices for his SD Capital private equity fund, looking to invest $200m in Ukraine’s logistics and food processing industries.
The technology sector, dominated by a handful of firms in the western city of Lviv, including SoftServe and Epam, specialising in outsourcing work for US tech giants, is increasing attracting the interest of investment funds run by the likes of ICU and Horizon Capital. At a recent event in Odesa, ICU founder Makar Paseniuk described a country “able to able to boost growth, strengthen its competitive position and occupy new market niches”.
The first question asked by investors is how much the TV comedian-turned president is influenced by metals, media and banking magnate Ihor Kolomoisky
These niches include Odesa’s start-up firms such as ceramic ornament and human body part substitute manufacturer Kwambio; and 3DLook, which provides online shoppers with virtual models that can be dressed with their chosen clothing before purchase.
Yet despite these innovation hubs, the risks remain. The IMF has decided not to go ahead with a planned $6bn lending programme. The first question asked by investors is how much the TV comedian-turned president is influenced by metals, media and banking magnate Ihor Kolomoisky. Believed to hold Ukrainian, Israeli and Cypriot citizenship, the man known to Ukraine analysts as “Special K” lost control of Privatbank, nationalised by the previous government on the advice of the IMF and National Bank of Ukraine. The NBU says its staff have faced threats and terror attacks.
“The only way Zelensky can assure [investors] about central bank independence is to come out on the side of the NBU and the IMF on the nationalisation of Privatbank,” warns Timothy Ash, senior emerging market sovereign strategist at BlueBay Asset Management.
The second question is about negotiations between the presidents of Russia and Ukraine under the “Steinmeier formula,” aimed at holding elections in the Eastern industrial conurbations centred around Donetsk and Luhansk, currently controlled by Russian troops and their local proxies. These “statelets” would then be re-integrated into Ukraine, but with “special status”.
Many Ukrainians fear this would give president Vladimir Putin’s Russia a permanent foothold in their country and a veto against further EU integration, which has until now been a key attraction to foreign partners. Investors will be watching these developments closely.
Yuri Bender is editor-in-chief of Professional Wealth Management. Follow him on Twitter @YuriBender
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