Status: 03/03/2022 7:09 p.m
In order to raise money for the armed forces and the population, Ukraine issued a military bond on the capital market during the war against Russia. The next one will follow soon.
To finance the war against Russia, Ukraine has sold a first series of military government bonds in local currency and thus borrowed expensive money on the capital market. The Ministry of Finance announced on Twitter that the country was able to collect 8.1 billion hryvnia ($277 million). At the same time, the authority thanked all institutional and private investors: “Thank you for participation!”
Military bonds are debt instruments issued to finance military operations during wartime. Their prices are considered particularly volatile because they are often sold when a country’s economic and political situation – or even its very existence – is unpredictable. Ukraine’s War Bonds offer investors the opportunity to lend money directly to the country’s government while earning an above-average return.
Eleven percent return
Because the papers that were sold on March 1 bring a whopping return of eleven percent with a term of two months. For one-year bonds, it’s even eleven percent – and that in times of zero interest rates. The face value was 1000 hryvnia, the equivalent of about 33 dollars. The transactions were handled through traders including Citigroup, Austria’s Raiffeisen Bank and Budapest-based OTP Bank Nyrt, the Wall Street Journal reported.
Ukraine uses the proceeds “to meet the needs of the Armed Forces of Ukraine and to ensure uninterrupted coverage of the state’s financial needs during the war,” according to the Ministry of Finance. This would not only involve military equipment, but also humanitarian aid such as clothing and blankets. The government recently increased the soldiers’ pay to 100,000 hryvnia (3,000 euros) a month.
For March 8, the government plans to auction more military bonds. Issuing in foreign currencies is also possible, Ukraine’s government commissioner for public debt management, Yuri Butsa, told Bloomberg.
credit downgraded
Ukraine is heavily indebted and has long been dependent on support from the International Monetary Fund (IMF). The country continued to suffer financially as a result of the corona pandemic. It has yet to repay $4.3 billion in debt this year alone.
After the Russian attack, rating agencies such as Fitch also downgraded Ukraine’s credit rating from “B” to “CCC” and thus to junk level. The invasion has subsequently increased risk to foreign and public finances, macro-financial stability and political stability. Some institutional investors can therefore no longer buy regular government bonds.
In order to nevertheless attract investors, Butsa is said to have advertised at the beginning of the week that the state was solvent and well capitalized. In addition, the Ukrainian central bank transferred around 630 million dollars to its state budget and the government made an interest payment of 290 million US dollars shortly before the auction. The fact that investors grabbed the war bonds despite the high risk is probably also due to the money tips from other countries and authorities, which are making Ukraine more liquid for the time being.
cash injections from abroad
In addition to donations, the Ukraine also receives financial state aid in the billions – for example from the European Union (EU), the USA and also Germany. In addition, the World Bank wants to start a short-term loan payment of 350 million dollars in the coming days to stabilize the budget. A $200 million package for health and education projects is also expected to follow shortly.
In the coming months, the World Bank intends to expand the aid package to a volume of three billion US dollars. The International Monetary Fund (IMF) also wants to participate in extensive aid for Ukraine and will decide on emergency financing next week.