As Bloomberg explains, Ukraine is in a state of war for the third straight year and has become the largest recipient of investment from the Arkaim Advisors debt fund. With a return of 12% this year, the fund outperformed 99% of similar funds. Arkaim owns debt obligations from state-owned companies such as Naftogaz and Ukrzaliznytsia, as well as the mining and metallurgical holding of Metinvest. These companies have shown strong emerging market returns of around 73%, 52%, and 19%, respectively, while the average for low-rated companies is 9.4%. These companies have assets outside of Ukraine, guaranteeing safety in case of default. However, Naftogaz restructured its debt and received financing from the EBRD. Metinvest bought out the bonds, and Ukrzaliznytsia continued an agreement that suspended payments until January 2025. Since the summer, Ukraine has accounted for a larger share of the fund’s portfolio, with more than 10% compared to 8% in October last year. The fund’s strategy is to buy the debt of relatively healthy companies from countries with economic difficulties, often with hard currency revenues or assets abroad.
A junk bond fund moves significantly ahead of its competitors by absorbing debt from Ukrainian companies.
