US Backs $50 Billion Ukraine Bond Using Frozen Russia Assets

Alberto Nardelli and Jennifer Jacobs
·3 min read
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(Bloomberg) -- The US proposed to its Group of Seven allies that they create a special purpose vehicle to issue at least $50 billion of bonds backed by the profits generated by frozen Russian sovereign assets and use the proceeds to support Ukraine, according to people familiar with the plan.

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The proposal would pool the $280 billion of Russian central bank assets that have been immobilized by G-7 countries and the European Union in the SPV, the profits of which would back the so-called freedom bonds, said the people, who spoke on the condition of anonymity.

More than two-thirds of Russia’s frozen assets are blocked in the EU, where they generate about $3.6 billion of net profits a year. Proceeds from the prospective bond offering would nearly equal the $60 billion of US aid that is still stuck in Congress.

Western allies are struggling to get funding to Kyiv at a critical moment in the war, as Ukrainian troops face artillery shortages and as Russia has made advances in the east. EU leaders meeting in Brussels Thursday will discuss how to use profits from the frozen Russian assets to help Ukraine.

Ukraine’s international bonds were among the biggest gainers across emerging markets Thursday, with its dollar notes due in 2026 trading at the highest since June 2022.

Spokespeople for the White House National Security Council declined to comment.

Discussions are at an early stage and are ongoing, one of the people said. Some G-7 nations including Germany and France expressed caution over the new idea, said another person.

The effort could generate much more than $50 billion, according to one person. Some EU countries, including Estonia, have urged allies to be bolder and seize the assets outright.

The G-7 has previously said the assets will remain frozen until Russia agrees to pay Ukraine for the damage it’s done.

G-7 allies have in recent months discussed several options on how to tap the frozen assets — from using the money as collateral to raise debt or issuing guarantees against the frozen funds. But they remain at odds due to European reluctance to do anything that could be perceived as effectively seizing the assets, which they worry could run into legal challenges, risk the stability of the euro and face retaliation from Moscow.

For now, EU leaders are nearing an agreement to use the proceeds of the blocked assets to help fund Ukraine’s military needs. Under plans presented this week, the bulk of windfall profits, which are mostly held through the Belgium-based clearing house Euroclear, would be transferred to the European Peace Facility, a mechanism used primarily to reimburse governments for military purchases bound for Ukraine, and a smaller share to the regular EU budget’s Ukraine facility.

The US argument is to devise an option that maximizes the revenue generated by the frozen assets and anticipates the value of the windfall profits in order to get Ukraine more support quickly, according to the people.

The allies have been at odds before over how to best sanction Russia, including in December 2022 when the Biden administration convinced EU nations to back a price cap on Russian oil after the bloc had already passed more stringent restrictions on servicing the commodity.

President Joe Biden has told allies that he wants to make progress on a plan to use the assets by the G-7 summit in Italy in June, Bloomberg previously reported.

--With assistance from Viktoria Dendrinou and Andras Gergely.

(Updates with Ukraine bond move in the fifth paragraph.)

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