Supporting Ukraine by working with neighbors: The significance and role of Samurai bonds

What JBIC can do to support Ukraine and its neighbors

In February 2022, Russia invaded Ukraine. Along with taking a resolute stance on this issue, the Japanese government promptly announced its unwavering support for Ukraine. JBIC immediately formed a task force to plan what support it could provide as a policy-based financial institution.

Project leader KANAMORI Hisashi, then Deputy Director General of the New Energy and Power Finance Department I, recalled, “Ukraine needed support. That being said, from our position as a bank, not an aid agency, it was not an easy matter to provide direct loans or financial support to a country at war.” (An amendment to the JBIC Act has now made it possible for JBIC to guarantee loans to recovery projects issued by multilateral development banks for the purpose of supporting Ukraine.)

So JBIC turned its eyes to Ukraine’s neighbors. The aim was to provide indirect assistance to Ukraine by supporting the Central and Eastern European countries around Ukraine that were feeling the impacts of the war. In collaboration with the JBIC Representative Office in Paris, which is charged with this region, JBIC conducted studies on what countries to support. Through assessments that included the size of the economy and population, and market entry by Japanese companies, JBIC decided to first focus on Poland.

“With the exclusion of Russia, Poland was the country taking in the largest number of refugees from Ukraine,” said KANAMORI. “So, from a humanitarian aid perspective as well, it was a natural course of action to first provide support to Poland.”

Discussions with Poland’s Bank Gospodarstwa Krajowego (BGK) began soon afterwards, focusing on the urgent issue of energy. Like other Central and Eastern European countries, Poland is highly energy dependent on Russia, the source of about 80 percent of its natural gas imports. In addition, Poland produces about 70 percent of its electricity from burning coal. Such conditions make it crucial to promote Poland’s transition to a carbon-neutral society.

In September 2022, JBIC and BGK signed a memorandum of understanding on support that included enhancing natural gas-related infrastructure and the use of renewable energy. Half a year had passed since the invasion began.

Samurai bond guarantee to raise capital for a refugee support fund

The next step in selecting specific financing recipients took more time than expected, but it was during this process that a new form of support came to attention—the Aid Fund established by BGK. The purpose of this fund is to provide humanitarian aid, such as health care, education, housing, and social security, to Ukrainians who had fled to Poland.

But the number of refugees kept increasing, and at one year from the invasion reached 1.5 million in Poland. “With no end to the war in sight, refugees were increasing day by day,” said KANAMORI. “As the fund’s budget had its limits, it was clear that additional capital would have to be raised.”

JBIC also learned that BGK wanted to diversify its financial sources and was considering the issuance of yen-denominated bonds in the Japanese bond market (Samurai bonds). Japanese investors are wary of investing in countries around Ukraine that are affected by the conflict. A proposal was then made to BGK for the issuance of Samurai bonds guaranteed by JBIC under the condition that proceeds would be solely used for the Aid Fund.

Following a request from BGK in January 2023, negotiations to realize this plan began moving at full speed. Aspiring to provide support as soon as possible, the goal was set for an official announcement at the G7 Hiroshima Summit in May. With about four months to prepare, time was just about up. However, the hurdles to overcome proved more difficult than anticipated.

Emboldened by a sense of challenge, JBIC will engage in supporting Ukraine’s other neighbors

Since this was BGK’s first-ever issuance of Samurai bonds, a great deal of time was spent on preparing the Japanese prospectus and contract to comply with Japanese law. Consequently, it was not until April that unofficial approval was obtained from the Polish government. That left only one month to the Hiroshima Summit. No one thought it could be done in time.

SHIMIZU Yusuke played a central role in the negotiations after joining the project team as a member of the New Energy and Power Finance Department I and the Corporate Planning Department. “All adjustments we could do on the Japan side were done during the day and sent to the Poland side late at night, and we waited for their response the next morning,” said SHIMIZU. “We took advantage of the time difference to rush through this one month.”

Through such efforts, the official announcement was made immediately prior to the May 19 opening of the G7 Summit. When the President of Ukraine, Volodymyr Zelenskyy, made a surprise visit to Japan during the summit, Prime Minister KISHIDA Fumio introduced the JBIC initiative in his explanation of Japan’s continued support for Ukraine. President Zelenskyy expressed his gratitude for the support.

At the end of May, after the G7 Summit, members of the project team visited a Ukrainian refugee facility near Warsaw, Poland. It houses some 100 people, mainly women and children who fled the conflict. Many expressed their appreciation to the team. “It brought home the fact that our financial support was helping their daily lives,” KANAMORI said. “This form of assistance, which differed from our usual projects in that we are able to see the actual beneficiaries of our support, gave us a new sense of challenge and achievement,” added SHIMIZU.

This initiative is a form of support that can only be provided by a policy-based financial institution and is also a new challenge for JBIC to take on in order to fulfill its expected role. JBIC will continue to realize support for Ukraine and its neighboring countries.