State risk. War and assessment of Ukrainian business.

Foreign investors are increasingly questioning the rationality of investments in Ukraine due to significant dangers, especially in wartime. Are the extras still fair discount rates and reducing factors when determining the value of the enterprise in such circumstances? Director of Corporate Finance Department of Deloitte Ukraine Artur Ogadzhanyan explains.

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During conversations with foreign companies considering investments in Ukraine, we hear from time to time that the cost of such projects should be determined with a significant discount. Sometimes, after a long analysis, potential investors offer such large reductions in price that it leads to the cancellation of the agreement.

Market prices are formed on the basis of concluded agreements, not hypotheses. A deal that did not happen also affects the valuation of the business.

popular Category Ratings Date November 19 202 the largest private companies of Ukraine 2025: from Metinvest, DTEK and ATB to agricultural traders, clothing stores and drone manufacturers

Q: Are additional discount rates or discount factors acceptable when valuing a wartime business? Despite the fact that analysts are able to theoretically justify such changes, in practice, real investors use them.

However, unlike the usual methods of calculating discount rates and multipliers, there are no universal approaches to determining additional factors of reduction, with the exception of the country risk factor.

Any additional discount is usually formed during negotiations between the parties.

Country risk During the full-scale war in Ukraine, the attitude of foreign investors to the risks of investing in the country changed significantly. There was an understanding that Ukraine as a state has survived, the loss of its subjectivity is extremely unlikely. Ukraine has proven that, with the support of Western partners, it not only has the will, but is also able to hold on for a long time.

No one, except Russia and its allies, sees the defeat of Ukraine due to exhaustion or unwillingness to defend itself as a possible option for ending the war. States that are our allies or supporters, countries from which investors consider Ukraine as a likely territory for their investments, associate the end of the war rather with the exhaustion of Russia itself.

At the moment, there are no signs that Western countries will stop or significantly reduce the amount of aid to Ukraine. On the contrary, the audacity shown by our enemy, provoking NATO countries, only stimulates the allies to strengthen their own defense and continue to support Ukraine.

It is in such circumstances, which are significantly different from the situation in which Ukraine was at the beginning of the full-scale aggression, that the modern attitude of serious investors towards investments in Ukraine is formed.

One of the indicators, which is a generally recognized indicator of the state’s investment risks, is the yield of sovereign bonds.

The yield dynamics of Ukrainian Eurobonds with a maturity of 10 years showed a sharp jump from 7-8% per annum in 2020-2021 to more than 70% in 2022. But over the next three years, it gradually declined: around 50-55% in 2023, 14-15% in 2024, and currently around 13%. The significant increase in country risk observed in 2022-2023 has been replaced by a more moderate attitude of investors.

The yield of sovereign Eurobonds could be affected by their restructuring in 2024. Therefore, it makes sense to make sure that, despite this, the tendency to decrease profitability (and therefore risks) was also observed in corporate bonds.

Analysis of the dynamics of the profitability of corporate Eurobonds in 2020–2025 the largest of Ukrainian companies with a maturity of four to six years shows trends very similar to the change in the yield of Ukrainian Eurobonds: a sharp rise in 2022 with a fairly rapid decline over the next three years to a level exceeding pre-war indicators.

An illustrative example is also the restructuring of Vodafone Ukraine Eurobonds in February 2025, as a result of which the rate was increased from 6.2% to 9.625%, which de facto reflects a premium of +3.4% for the additional risk associated with the war (the bonds were issued until 2022).

The profitability of sovereign bonds is a complex indicator that characterizes only the general perception of investment risks, but one way or another clearly demonstrates a significant change in market sentiment. However, it is worth considering that the risks that can be considered in connection with specific investments are different depending on the markets/industries, geographical location within Ukraine. Moreover, the perception of risks regarding specific investments by different investors today may also not coincide.

GDP is also a rather important indicator that characterizes the state of the country’s economy, in particular the level of investment activity. The nominal GDP of Ukraine in 2021 was $200 billion, in 2022 it significantly decreased to $162 billion, gradually increasing annually over the next two years, and in 2025 it is expected to be $209 billion, according to the forecast of the Economist Intelligence Unit.

All this indicates that the mere fact of the continuation of the war is not a reason to apply significant additional discounts to the value of investment objects.

The direct impact of the war The vast majority of investors who, under the current conditions, are considering an investment opportunity to Ukraine, the main obstacle is considered to be the risk of physical damage and/or destruction of assets.

However, today, after more than three and a half years of war, a war risk insurance system is being implemented, which is gradually reducing potential business losses. The World Bank Group Investment Guarantee Agency (MIGA) and the American Development Finance Corporation (DFC) offer insurance instruments for foreign and Ukrainian investors.

We can also mention the Guarantee Program for the Recovery and Reconstruction of Ukraine (URGF) from the European Bank for Reconstruction and Development, war risk reinsurance for commercial real estate in Ukraine from McGill and Partners and FortuneGuard, the export credit guarantee mechanism to support the export of European companies to Ukraine from the European Commission and the EIB Group, as well as the Ukrainian Export Credit Agency (ECA), which provides insurance for investment agreements and loans against war risks.

Insurance of war risks is becoming a reality, and their impact on the value of investments today can be measured and taken into account when making an investment decision.

Factors affecting “country risk”: the main risks remain unchanged Level of investment protection. This is the main factor that can ensure the regulatory and legal field of Ukraine. While risks directly related to business are usually consciously assumed by investors, investor protection issues regulated by law are risks that investors cannot manage. These include legislative requirements regarding corporate governance, in particular real practice, as well as the state of the judicial system.

In this regard, we probably cannot boast of any significant positive developments.

Disadvantages of regulatory regimes in the relevant industries. First of all, in those where natural monopolies function or there is any form of state management and/or control. This may concern the energy sector, the utility sector, but not only them.

State intervention through any bodies in business affairs is usually absolutely legal. And this is what makes it impossible or much more difficult for businesses to protect their interests and deters many foreign companies from investing in anticipation of a more attractive regulatory regime.

Corruption. This factor is still a problem for Ukraine. But one has to be very prejudiced to claim that from this point of view Ukraine remains the same as it was before the Revolution of Dignity.

Digitization of public services, simplification of procedures, improvement of the business environment and, in general, a certain distancing of the state from business could not help but reduce the level of corruption.

Have no illusions – we are still far from the best standards even in Central Europe, but it is definitely not the Ukraine of the times of Yanukovych or even Kuchma. The events surrounding NABU and SAP and the unusually quick reaction of the authorities to the protests testify to the growing intolerance of corruption in Ukrainian society.

In 2014, Ukraine ranked 142nd out of 175 countries, and according to 2024, it will be 105th out of approximately 180 countries in the Corruption Perceptions Index (CPI), according to Transparency International. However, even if you compare us not with the Baltic countries, but with the less developed countries of the post-Soviet space, in which there are no authoritarian forms of government (Georgia – 53rd, Armenia – 63rd, Moldova – 76th), we see that it is too early for us to rejoice and that we still have an unacceptably high level of corruption.

Other important factors Business value is usually a hypothetical value and depends on assumptions and expectations, so opinions may vary. Under normal conditions of economic stability, these differences are insignificant, but the situation is different for investments in Ukraine. Communication with foreign companies shows a different perception of risks depending on the investor’s country, experience in other markets and corporate policies. This has always been the case, but today it is especially clear.

The attitude of investors to different industries also differs. The defense industry, construction and production of building materials are attractive for investment, given the high pent-up demand. There is also interest in industries where reforms are expected.

Instead, using the classic “beta” in the discount rate taken from developed markets, even under the conditions of using “country risk”, may not take into account all the risks of investments in Ukrainian industries that are uninteresting or too risky from the point of view of a foreign investor.

And, of course, two conditionally identical or quite similar objects located in different regions – one near the war zone, the other in the west of the country – will be perceived and evaluated differently by investors.

For a better understanding of the general perception of risks in Ukraine, it is appropriate to look at the volume of direct foreign investments in recent years. They demonstrate the level of interest of investors.

The dynamics of direct foreign investment in Ukraine shows a change in the mood of foreign investors: if in 2022 the amount of their investment fell to $221 million from almost $8 billion in 2021, then in the next two years it was significantly higher – $4.6 billion in 2023 and $4 billion in 2024, but in 2025 it is expected to decrease to $2.3 billion, according to Economist data Intelligence Unit.

The reasons for the decrease in the volume of investments in the current year must be carefully studied, although among them there are obvious ones – the insufficiency of the state’s efforts in creating effective mechanisms for guaranteeing the return of investments and protecting the rights of investors in general.

At the same time, the potential of our market, even in war conditions, remains extremely high. Confirmation of this is, for example, Kyivstar Group’s IPO on the American Nasdaq stock exchange on August 15, 2025.

Instead of conclusions Ukraine has a future only if it integrates into Western civilization, particularly in the economic sphere. Real growth is possible thanks to the inflow of foreign investments, which requires the creation of an attractive investment climate.

After the initial refusal of foreign companies to do business in Ukraine at the beginning of the full-scale war, today there is cautious interest and even investment in certain industries. The inflow of European capital is especially important, so it is worth assessing risks from the perspective of European business.

This article offers an analysis based on a general understanding of the situation and communication with companies. It confirms that classical methods of risk assessment, in particular through discount rates and multipliers, remain acceptable even in war conditions.

Real agreements reflect the interests of specific parties, not hypothetical participants. Additional reduction factors may be the result of negotiations, but today they are not a tool of pressure, since Ukraine has already exited the period of uncertainty that lasted in 2022-2023.

The article was written in co-authorship with Deloitte Ukraine senior manager Taras Trokhymenko and Deloitte Ukraine corporate finance consultant Nazar Popriychuk

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