Citigroup underwrites the first "Ukraine Reconstruction Bond," "the biggest opportunity in the bond market in the coming years," Wall Street can't wait?

Facing the estimated $524 billion Ukrainian reconstruction market by the World Bank, Citigroup Group is taking the lead in laying out plans to underwrite the world's first "debt-for-reconstruction" bonds. Media reports reveal that the product is planned to help the Ukrainian national power grid company (NPC Ukrenergo) refinance some of its debt on more attractive terms, saving interest costs to repair the war-damaged power system. According to sources cited by the media, Citigroup has been promoting this product to potential investors since the end of last year. Market analysts believe that Ukrainian reconstruction financing will become an important opportunity in the future global capital market, with multiple international financial institutions vying for position, and Citigroup is trying to seize the initiative in this emerging market. Seizing the initiative Internally, Citigroup refers to this transaction as a "debt-for-reconstruction swap," drawing on the structure of existing tools such as "debt-for-nature." If successful, this would be the first such transaction arranged by an investment bank. According to an informed source, as of May this year, Citigroup has set a target size for this transaction between $750 million and $1 billion. This transaction will also mark Citigroup's entry into the ESG debt swap market, with competitors JPMorgan Chase, Standard Chartered Bank, and Mitsubishi UFJ Financial Group entering the field last year. Data shows that new issuances in the sustainable debt swap market more than doubled last year. It is worth noting that Citigroup is the only Wall Street bank still operating in Ukraine since the start of the war, with about 500 clients in the country, including the Ukrainian government. Julie Monaco, the outgoing head of global public sector banking at Citigroup, said in June that there would be "a lot of opportunities" in Ukraine after the war ends. Her successor, Stephanie von Friedeburg, said Citigroup hopes to establish a structure for "debt-for-reconstruction" that is well-suited to achieving a range of goals, including food security, energy security, and health and education. In addition to the proposed bond deal, Citigroup already has other business in Ukraine. Earlier this year, Citigroup signed a $100 million revolving credit agreement with the European Bank for Reconstruction and Development (EBRD) to increase local currency supply to local businesses in Ukraine. At the same time, Citigroup is also working with the U.S. International Development Finance Corporation (DFC) to develop a domestic mortgage market in Ukraine. Uncertainty and Potential Risk Mitigation The main obstacle facing this transaction is the changing situation in Ukraine. According to sources cited by the media, investor interest is currently "mixed." In response to geopolitical risk, the U.S. International Development Finance Corporation (DFC) may be a key player in the transaction. According to two sources cited by the media, if Citigroup moves forward with this debt swap, DFC is likely to be involved. Established by President Trump in his first term, DFC is a U.S. government agency aimed at advancing U.S. foreign interests through financial tools. Its key role is to provide "political risk insurance" for transactions to mitigate private investor concerns. Previously, DFC has successfully played this role in similar transactions in countries like Belize, Ecuador, and Gabon, providing the transaction with the backing of the U.S. government. It is worth noting that according to an agreement signed earlier this year between the U.S. and Ukraine, DFC will manage an agreement granting the U.S. priority access in natural resource development in Ukraine. Furthermore, this proposed transaction is taking place in the context of broader debt management in Ukraine. Last year, Ukraine reached a $20.5 billion debt restructuring agreement, but negotiations still need to be held regarding $2.6 billion in GDP-linked warrants and a $700 million loan from Cargill Financial Services International. The direct beneficiary of this transaction, Ukrenergo, is currently restructuring its $825 million in bonds.