2019/Q1 Ukraine Newsletter


Dear Friends and Partners,

VI2 Partners is happy to share with you our recent newsletter on the most important developments and economic trends in Ukraine.

Please check our new website and our blog for more information.


VI2 Partners Ukraine Newsletter Q1 2019


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The BIG Short: Fast Forward Into Recession


Dear Friends,


The very dynamic year 2018 comes to an end and the events of this year will shape the coming decade and beyond. We are witnessing a rapid transformation and disruption of our global word order, and the end-game of the domination of Western-style democracies.


Main events of the past 12 months


  • TARIFF MAN hits the Chinese Dragon: The self-proclaimed tariff man has started a full-scale trade war with China. However, the ultimate USG goal is to weaken or at least slowdown China on its path to become a dominant world power, which has started to flex its muscles not only in the South China Sea but also in Cyber Space. More than 90% of all DOJ followed economic espionage cases and 2/3 of all economic theft cases in the US are linked to China, which is accused of a sophisticated “rob, replicate, replace” strategy. The damage of these activities is much bigger than from any unfair trade practice – and the US not willing to tolerate this any longer. Therefore, any wishful thinking of a quick resolution of the trade dispute is an illusion. EU naively watching at the sidelines.
  • The Great Populist Revolution: After the US and France, Italy and Brazil have followed the sweet seduction of populist leaders, more countries will follow. Be attentive – this happened during an economic upturn! Western democratic systems seem to have reached their limits in a largely trend-based, social media-driven society, and we might have reached the end-phase of this form of governance with the renaissance of managed democracies and authoritarian leaders. Assuming an economic downturn in 2019, this development will accelerate. Yellow vests in France are just the beginning.
  • The Fake Avalanche: Led by the US President, the general public and every individual has been filled up with a mountain of fake news, misleading information and lies. The post-truth age is reality and it plays into the hands of government and corporate manipulators. It will lead to an identity crisis of traditional, social media and all types of electronic publications. There is an urgent need for credible answers and the build-up of a quality check/stamp by this industry.
  • The End of the Rules-Based World Order: UNSC Members have finally driven the UN into meaninglessness. Today, the UN has lost all ambition to act as an international body to manage, calm or solve global conflicts. We are completely dependent on the power-based boots on the ground politics of the dominant nations, who deliberately destroy rules-based global systems and processes. UN useless, WTO obsolete, Climate Agreement dead, EU disintegrating – and the results start to materialize: unchained cyber-attacks and warfare, technology and energy used as a power instrument, open chemical attacks, and state-sponsored murders, journalists killed or in prisons, international contracts dumped, resistant superbugs and viruses on the rise. We are entering a truly Darwinian world order.


Other important events in 2018 included the (official) start of Genetically Modified Humans (GMH) in China, the Mueller investigation and economic and reputational cracks in technology giants like Apple, Google, and Facebook.


Review Forecast 2018


We had dared to make a series of forecasts for 2018 at the end of last year – some in stark contrast to banks and other analysts. Without going into the details and the reasoning, the review shows as follows:


  • The Return of the Dollar: Correct
  • US turning against China: Correct
  • Energy Price Surge: Wrong
  • Inflation Reloaded: Neutral
  • Cryptocurrency Breakdown: Correct
  • Bears go Hunting: Correct
  • King BoJo plays Hamlet: Correct
  • French Renaissance: Wrong



Forecast 2019


Now to the more important look into the crystal ball of 2019 developments:


  • The Ugly R-Word on the Wall: US and parts of Europe will move into recession area in the 2nd half of 2019. Trade wars, rising interest rates in USD and EUR, fast de-leveraging, end of quantitative easing, fiscal tightening of many G20 states and the end of the China boom will all happen more or less simultaneously and lead to a contraction of global output and consumption.
  • Continued Confrontation Between US and China: The battle has only started. The US will try to further harm the economic, technological and military rise of China. Interim negotiation results will be celebrated publicly, but not last long.
  • China Economy Faltering: China will not be able to compensate for the abrupt barriers to the US market and the hostile environment for their leading technology companies. We expect the first real and painful contraction in China, with a massive impact on the employment and housing market. New markets, that are currently opened, will not be able to compensate in time. How a generation, which has experienced nothing but double-digit growth will cope with this situation, is yet to be seen.
  • Fake Trump Bubble Bursts: Congress will start impeachment procedures against Donald Trump for alleged criminal behavior. The biggest fake bubble with more than 6.000 officially counted lies and grossly misleading statements, that were published by POTUS while in office, will start to burst and haunt him. And many knives are prepared, both in the US and abroad.
  • The End of Germany’s Golden Decade: Welcome to reality, Germany’s export-oriented engineering, car and machine building industries have driven an employment and tax revenue boom in Germany over the last ten years. With a capex contraction in China and mounting barriers to international trade, Germany will be one of the countries to suffer the most. It will backfire now, that over the past ten years, critical investments into infrastructure, education, and future technologies have not happened, and that necessary structural reforms were neglected.
  • To Brexit or Not to Brexit: The biggest ever national humiliation continues. The most probable scenario is: Theresa May will not bring her Brexit deal through parliament. The UK will ask the EU for a delay/suspension of Article 50 for 6-12 months. A cross-party coalition will agree on a much softer Brexit, with the UK staying in the customs union. Labour will achieve new elections as a bargain price for agreeing to this deal. The Tory party might split.
  • EU under Fire: 2019 will be a year of truth for the EU. Parliamentary elections and the quest for a new Head of the Commission as well as the ECB will bring the big topics to the center stage: austerity vs. free spending, the role of the ECB, liberalism vs. nationalism, depth of integration, solidarity on the borders, budget 2020 without the UK as a payer. A lot will depend on the direction France will take in 2019 and the willingness of net payers to shoulder additional costs in order to contain disintegrative forces.
  • Ukraine and Russia: both the Russian and the Ukrainian leadership might profit from a re-ignited frozen conflict, that turns into open fighting, a real war in Ukraine is close to reality. Putin might use the tiredness of EU member states of going against Russia and the political bombshell of an impeachment process against Trump to test the resilience of the West with a further landgrab in Ukraine. The current schism between Ukrainian and Russian Orthodox church would deliver a perfect pretext for action.
  • Energy Prices: Recession ahead, and Chinese production on the brakes, we expect a further downturn in energy prices towards the 30 USD/barrel price range. Only a middle east war would be a real game changer to this trend.
  • USD: in contrast to this year, we see the USD weakening in the coming 12 months: a fast deteriorating US economy, together with a weakened US President, and international trading partners who try to get at least partially independent from the USD, will lead to less demand for USD. However, an un-orderly no deal Brexit and a new Euro crisis originating in Italian and/or French spending fantasies have the potential to reverse this macro trend.
  • Inflation and Interest Rates: Interest rates will go up, both in the US and Europe – and in our opinion faster and stronger than many believe. Central banks will only stop monetary tightening once the economy has moved into recession at the end of 2019. Until then, tariffs and tight labor markets will lead to a pick-up in inflation.
  • Bear Party: This time bulls will wait in vain for a market rebound. Profound corrections into bearish spheres on all major stock markets in the making, biggest losses in Germany and UK.
  • Cyber Attacks: Prepare for new waves of aggressive cyber attacks. While the US and the UK will be in retaliation mode against China and Russia, respectively, we might see a new dimension of attacks both on the government and corporate level.


The good news: (1) there are many ways to invest successfully during recessions, every risk is an opportunity; (2) nobody can claim that there were no warnings; (3) the catharsis is needed prior to any new lasting and healthy upswing.


Preferred Sectors:


And finally, the sectors on which we are bullish for 2019:


  • Emerging Markets, i.e. Brazil, Argentina, and Turkey
  • Agricultural Goods
  • Gold
  • Selected Real Estate
  • Military and Defense
  • Alternative Energies
  • Robotics
  • Genetic Engineering and Health
  • AI and Cyber


We wish you a great, successful and healthy start into 2019!



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2018/Q4 Ukraine Newsletter


Dear Friends and Partners,

VI2 Partners is happy to share with you our recent newsletter on the most important developments and economic trends in Ukraine.


VI2 Partners Ukraine Newsletter Q4 2018

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Philosophy in a World of Robots – BIG questions for great thinkers


This article is a summary of a brain teasing session that we held at the

NUS (National University of Singapore) Medicine International Conference, Singapore, November 27, 2018 and

at the Taras Schevchenko University, Faculty for Philosophy, Kyiv/Ukraine, October 2018


The Widening Cognitive Gap


Humanity is facing its biggest challenge yet. Since the beginning of mankind our thinking capabilities were beyond our technological capabilities. We could calculate the path of planets long before the first computers were developed and adapt our societies and legal systems to reflect the profound changes and possibilities these technologies were offering. We were mastering the technologies, alongside with understanding their impact, adapting ourselves and staying mentally sane at the same time.

This period ends abruptly. As our technological capabilities have started to grow exponentially, our cognitive skills are only growing gradually. This leads to a widening gap between what we can do and our understanding of its impact. The necessary adaptations of the way how we live and interact are not keeping up the pace. Huge parts of the population are intellectually left behind.

In case our societies and leaderships do not find appropriate answers and develop naturally into a higher state of governance, they will be abolished through revolutions or a putsch by small hyper-intelligent elites or robots, or a hybrid of both.


Philosophical Challenges Ahead

The main philosophical challenges can be summarized as follows:

  • the creation and development of knowledge
  • the understanding and differentiation between right and wrong
  • the understanding of the purpose of life

They are valid on an individual level, and on a societal level, and have a huge impact on our daily life beyond any theoretical value. The answers to and societal consensus on these questions are defining the morale foundation of our societies, the way we interact with each other, the foundation of our laws and understanding of justice, the basis for all social contracts and state governance, and last but not least the breeding ground for our mental sanity and happiness.


Now, technological change and capabilities are creating a new playfield for these philosophical challenges and insights. This playfield questions the very fundamentals of our thinking, which have been stable for the last 3.000 years:

  • Knowledge creation is no more happening exclusively through human thinking, dispute, exchange and analysis, but can by artificially created and exchanged by machines (Artificial Intelligence, AI). Who is in charge?
  • Too much data and information lead to a constant overload and overflow of the human cognitive system and hinder clear thinking. There is a naïve tendency to surrender to algorithms.
  • Truth and Beliefs are getting blurred and manipulated in a digital and virtual world. We are entering a post-truth age, in which true and fake are more and more difficult to distinguish.
  • Traditional purposes and boundaries of human life are no longer valid, this will cause a metamorphosis of humans and human interaction.


These profound challenges and questions to human societies are illustrated in six short take-aways, which are neither exclusive or exhaustive. They have a pure exemplary character for the challenges ahead of humanity.


(1) Freedom or Slavery: How free are we?


Everybody knows about Tinder and other dating applications. The basic idea is that people enter their profiles based on a set of parameters and preferences and are automatically matched by a neutral, objective algorithm, and set up to meet. So far so good. Instead of meeting at a bar, university, or work, Bob and Allison meet in the cloud. But imagine Bob and Allison meet based on a manipulated algorithm, or because someone wanted them to meet. Most users have a complete blind trust in algorithms, assuming that what comes out of these engines is neutral, objective and solely based on their criteria. We choose jobs, travel plans, drugs, business partners, romantic or sexual encounters, and even Presidents on that basis. Often because someone wants us to make these choices, not because it really matches our needs or preferences. Choices are increasingly outsourced to algorithms, which in reality are not neutral, of course. For the sake of convenience, anonymity and efficiency, we surrender subconsciously and naively our freedom of choice and widely open the doors to any form of manipulation. From the US elections to the strange ads following your search paths on the web, all possibilities to manipulation are and will always be fully exploited. The noise of constant information makes it easy for manipulators to hide themselves and their intentions and for us difficult to impossible to critically reflect and decide. In many countries every second relationship is originating in the cloud. There are predictions that the Millennials will be the last free generation on this planet.



(2) How to cope in a world where fake is real and real is fake?


Knowledge creation is based on the understanding of truth and beliefs, on a profound differentiation between true and false. We are moving high speed into a reality, where it is difficult to make this distinction. The digitalization and virtualization of all contents makes it too easy to digitally change, enhance or modify the truth: pictures, videos, sounds, statements, but also health data, personalities, bank account data. We do not have a truth stamp yet. While some politicians exploit this situation ruthlessly and create an alternative facts and post-truth habitat (i.e. The Washington Post counts 6.420 lies or grossly misleading statements of President Trump in his 649 days of office to date). At the same time, we openly provide biometric data, personal information and preferences, pictures, shopping and movement patterns and even sexual preferences to a big and unregulated data cloud, where these data will be stored forever.


With the foundation of knowledge creation in shatters, we give in to noise. The loudest will win the battle, the one who can push out a message to a maximum number of listeners and multipliers, no matter whether wrong or wright. Will the noise win in the end and be the new alternative truth? Will we be constantly influenced and manipulated? How can we navigate and orientate ourselves in a world, where we are simultaneously suffering from an overloaded brain and dramatically shrinking attention spans?



(3) Fusion of Man and Machine: The Identity Quest


It was a big surprise to science when in the beginning of the Millennium, US universities discovered that there was not even a 5 % difference between the DNA of a human and chimpanzee. Elon Musk has stated – and I tend to believe this estimation – that humanity had only a chance of survival and dominance vis-à-vis machines, in case that we fused with machines. But where will we stop to be human and start to be a machine, with 5 % of machine parts, or 50 % or 95 %?


This fusion has already started and will accelerate. It has taken off with the repair of defects/diseases from automated insulin pumps to bionic extremities, but this is only a starting point of human enhancements. The discussion of the essence of what is human has to start. Do we allow students with memory enhancements and runners with artificial joints? Is a human with 50 % machine parts still a human? And what happens if machines take over? Is a machine with an implanted human brain considered to be human? Can it register a residence and vote? It might sound sci-fi, but this process has started and is developing by leaps and bounds. Do not forget: the first Iphone was only introduced in 2007, and most people use it (or another smartphone/tablet) today more than 4 hours per day.



(4) Paradise 2.0: Robots work, Humans relax


Panic has arrived at the workforce level. The automation and robotization of large areas of our daily life and operations, will lead to mass extinction of low skilled and repetitive jobs. From automated trucks, to auto-pilot surgeries, sex robots, nurses, bankers, lawyers, huge numbers of jobs are set to disappear, and for the first time in history it happens across all industries. And we are talking huge numbers. In Germany alone, we have estimated 700.000 truck drivers. Who would believe we need those drivers in ten years from now and that we will have an alternative paid occupation for them? And this automation tsunami will hit white collar workers as well. How many banking outlets will survive in the next 10 years and what will happen to all the employees. What could be a paradise on earth, where humans relax and robots do the work, will not materialize with today’s distribution of wealth where the ownership of machines and capital is highly concentrated with a small group of super-rich. The way-out can only be a strategy of “panem et circenses” or a free general income for everyone in combination with broad entertainment and development offerings. The critical questions of who will own the robots, who will reap the benefits, what will be our occupation and purpose are getting louder. Whether our Western democracies will survive this strain on social systems in combination with the described proliferation of fake, has yet to be seen. We might see revolutions, the putsch of super elites or the transformation into managed democracies, such as Singapore or China, the end-game for Western democracies as we know them. There is no guarantee that a pure blood democracy will be the best form of governance to address the challenges of the future (see Brexit). In this regard, the mounting anger of wide circles of the population, the enormous polarity of our societies and the rise of populist movements is a bad foreboding of what to come. Donald Trump is perfectly Zeitgeist, and as in other countries his success is much more based on the hopelessness of the global middle class rather than on hyped immigration threats.



(5)  Waiting for the spiritual revolution


If you ask teenagers today what they want to be later, you will not hear doctor, scientist or policeman. Many will answer that they want to be rich and famous. The life of the personal avatar is more important than the real one. Enormous time and energy is spent to create and communicate in the cloud an illusion of a perfect, pretty and sunny life. Confronted with real life, mass psychosis and depression are guaranteed. The meaning of life is reduced to the material riches. At the same time and, not surprisingly, all studies show, that people are to a high extent lonely, depressed, empty and self-centered. Their jobs are meaningless and boring, useless and they nevertheless suffer from burn-our syndromes. We literally touch our smartphones in average 4,5 hours per day – and human beings for mere 2 minutes. First we have lost our spiritual beliefs and ability to mediate in a fourth dimension (and do not forget: not to believe is also a belief). Are we now on the path to losing our human interface, hiding in anonymity and leaving all communication and interaction to technology? Where will the human race end up with, if we only concentrate on the left-hand side of our brain, on pure materialism – are we ourselves mutating into machines?


The good news: the spiritual revolution will come. As with many things, once the pendulum has swung too strong into one direction, it will bounce back with brutal force. It is only a matter of time and urgency. Humanity might realize it by itself in the end state of the global burn-out or by being forced into humility having experienced a global war or health crisis. Yet, the re-discovery of our minds and spirituality in combination with our technological skills might be the beginning of a new development stage for our race.



(6) On the verge to eternal life: the hunt for the ageing gene


There is no natural law/logic that we age and die, when cells in principle have the ability to renew and grow. So far, modern medicine was very successful in pushing up the average expectancy of life, with longevity being a mass phenomenon. However, the absolute maximum age of human beings has barely altered. We are entering an age where this will change. With the understanding of the human genome and the introduction of epigenomics, it is only a matter of time, resources and computing power until we will have found the triggers to stop and even revoke the ageing process of critical cells for our life. The hunt for the ageing gene and epigenomics is in full swing, and it will develop into the biggest business this planet has ever seen.


Then, humanity will reach the final philosophical question. The quest for the purpose of life is profoundly different in such a context. What will we do, if our life span is massively extended, and who might decide how long we live. Are we heading towards a super-elite, super-performing and longer living, which will dominate the rest of humanity, as Stephen Hawking has predicted in his last book? Eternal life can be frightening. Or are we entering the final level of our development, the human end-game, the last level of the development of our race? Note, scientists of the University Jerusalem have found out in an in-depth study, that male fertility had decreased by more than 50 % over the last 40 years, and the trend continues. So far nobody has found a satisfactory or consistent explanation for this phenomenon.


(7) Summary


We have seen tremendous technological progress over the past decades. This has created great material wealth and well-being for many countries and its peoples. It has also strongly increased the inter-connectivity of people, communities and countries. Global resources have massively been allocated to advance this technological progress. However, this has come at the price of a slow erosion of our human interfaces and negligence of the social impact of the rapid progress. The technological progress has largely outpaced our cognitive mastering and social adaptation. It is time for a renaissance of social sciences to better understand how this progress will shape the societies in the future and how our race will stay in control.


The only time, when technology has shortly outpaced our social systems, was the beginning of the industrial revolution. This ended in real revolutions, wars, the end of aristocracy, the introduction of human rights and democratic systems. Humanity had the comfort of a 50-100 years adaptation period at that time. It can be excluded that we will be granted the luxury of such a slow-motion adaptation again.




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2018/Q3 Ukraine Newsletter


Dear Friends and Partners,

VI2 Partners is happy to share with you our recent newsletter on the most important developments and economic trends in Ukraine.

VI2 Partners Ukraine Newsletter Q3 2018

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The New Pre-Fascist World Order


Mind September/October for a serious stock market correction


The World is developing fast from a post WW2 liberal world order into a Nationalist Pre-Fascist World Order. Unfortunately, the President of the United States has hijacked the GOP and is leading this movement with an evil determination; the US has effectively stopped to be an advocate of human rights, a liberal world order, free speech, and media, strengthening of the rule of law.


This changing US role in the World will have dramatic consequences in the coming years and decades, and we should be prepared that we are heading into a post-democratic age. It gives an excellent pretext for other political leaders/movements to abolish inconvenient democratic standards. And it will have a significant impact on global trade and investment flows. These developments happen slowly but steadily while being blurred by the amount and speed of new scandals and while societies wrongly and dangerously get accustomed to the new normal.


Typical signs of a Pre-Fascist political order (and recent examples) are:

  • Undermining the Rule of Law and Independence of Courts
    Mueller investigation is a witch hunt, Judges against immigration orders are a shame
  • Abuse of Immigrants/Foreigners as Scapegoats
    Walls shall be built to friendly neighbors, Mexicans are labeled as drug dealers and rapists
  • Use of Aggressive Language and Threats
    Un-cooperative nations shall be erased, former allies are labeled as foes
  • Bashing of Media/Press
    Unpleasant facts become Fake News, Reputable media institutions are the Enemies of the People, journalists are singled out and publicly insulted or humiliated
  • Incriminating/Criminalization of Political Opponents
    Lock her up chants against Hillary Clinton and other opponents
  • Authoritarian Leadership
    Promotion of North Korean Public Administration Culture as the new benchmark for the White House
  • Promotion of Nationalist Framework
    Mega MAGA, US First and Only, Cancellation of Multinational Agreements/Contracts, Undermining WTO, NATO, EU, G7
  • Jeopardizing Due Political Processes
    Governing by Decrees, Inciting Public Pressure via Twitter
  • Direct Communication with Masses
    Using agitation of masses to avoid parliamentary/political discourse


This erosion of global democratic norms and safeguards takes place, while the economy is booming – watch out for the looming recession. On a populist foundation, where masses have smelled blood and have been whipped for aggression against media, foreigners, political opponents, worse developments might happen. Pre-Fascist World Order implies that we are on the verge to a Fascist World Order. Unfortunately, the next recession is written on the wall:

  • We are approaching the end of a nearly decade-long economic and financial market boom-cycle, fueled by excess liquidity from central banks and historically low interests rates;
  • Interest rates are rising across the globe and will pose a real-life stress test to many business and investment models, the liquidity bubble might burst;
  • The US has started an extended trade war with China out of a long-term strategic interest to dominate future core technologies;
  • Energy prices have risen fast over the last 12 months and might continue to rise on the basis of a potential escalation with Iran;
  • Decreasing risk appetite on the basis of stronger US dollar and higher interest rates will deepen a beginning emerging market crisis;
  • Record debt levels on Government, corporate and private level might prove unsustainable;
  • Energy prices, Tariffs, interest rates will start an inflation cycle, that will require an even faster increase in interests5 rates;


Mind September/October for a serious financial market correction. Cash is king. An un-orderly Brexit caused by an incompetent UK Government and a reckless Tory party will only be an additional footnote in this scenario.

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2018/Q2 Ukraine Newsletter


Dear Friends and Partners, 

Kindly find attached our VI2 Partners Q2 2018 newsletter on recent developments in Ukraine.

This quarter was rich in political and economic highlights, with the approval of the bill on the anti-corruption court and securing another € 1 bln from the European Council to cover Ukraine’s financial needs being, undoubtedly, among the most important ones for further progress and meeting up the expectations of the international community.

Slowly, but consistently, Ukraine sees retail trade grow by 7% and a 37% increase in capital investments Year-over-Year in Q1 2018. There is a reason to look optimistically into the coming quarters.

Read more in our latest newsletter!

VI2 Partners Ukraine Newsletter Q2 2018


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Smart Debt Restructuring


How to break the deadlock between lender and debtor – experiences from the negotiation front in the non-performing loan arena

By Marc-Milo Lube and Alexei Chernyshov
VI2 Partners GmbH

When John Wayne entered the Saloon in his famous Hollywood Western movies, the gangsters knew he was ready to shoot first and ask questions later. Consequently, in most situations, he did not have to shoot at all. Bad debt business is like a real-life Western movie: exciting, nothing for the faint-hearted, sometimes dirty. And when your opponents arrive with knives, you better have your gun ready and unlocked.

The Non-Peforming-Loan (NPL) Saloon in Ukraine is wide open. With a 56% NPL ratio of the total countrywide loan book and a volume of close to USD 20 billion, the Ukrainian NPL market deserves an in-depth investigation from institutional investors as well as workout companies. Most of the NPL volume is concentrated within the corporate sector (> 80% of the NPL volume) and is highly covered with underlying assets, and therefore interesting for a workout. Both for the Government, the National bank, and supranational institutions, the clean-up of the NPL portfolio is a priority, as it acts as a congestion to the credit system and slows down new loan issuing and economic growth. Dynamics in the sector will be high in the coming 2-3 years and rewards high for the successful players.

Bad debt business is very simple. A debtor is not able or does not want to pay back the principal and/or interest to his lender(s). The cheapest and easiest way out is most of the time not taken, namely a co-operative agreement on a restructuring of the debt or the forfeiture and subsequent sale of an asset covering the total of the debt. The modern game theory has many explanations for this situation: it is a mixture of greed, misplaced morality, chicken run, compliance frameworks, criminal behavior and personal egos.

Enters the outside (who is sometimes inside!) investor and buys the debt from the lender to go for the extra yield, either interested in a fast cash payback of the debt or in an appropriation of underlying assets. This is the big greed game, where yields are over-proportional but difficult to realize. Having fought on all fronts of the spectrum, there are some lessons learned to share for lenders, investors, and debtors. Here are some general observations in the field of bad debt business, which are relevant for all players.

Exit Strategy – think from the end

All successful wars start with thinking through the end-game. It is astonishing to see even with experienced market players, how a) banks start lengthy court proceedings and appropriation processes without knowing what to do at a later stage with an asset, how b) investors are led by a superficial yield calculation/greed without being clear how and when to ever realize any gain and c) debtors believe they can avoid or ignore proceedings and commercial necessities in the long-term.

Measuring the True Value of the Debt

Both investors and lenders are constantly over-estimating the true value of bad debts. A different view would lead many lenders to sell assets earlier, and at lower prices, and investors to take a much more selective approach to bad debt transactions. Realistic valuations need to

  • thoroughly assess the legal situation of the debt and underlying asset, taking the country-specific situation and escape mechanisms of the debtor into account;
  • fully understand the enforceability of any claim, and also counterclaims from other lenders, business partners, and the debtor;
  • make a realistic assessment of the value of the underlying assets, taking into account any expected time delays, run-down of assets, negative publicity, etc.;
  • estimate the time to market, comprising negotiations, enforcement, selling of claims and assets. In our experience, the time needed is practically always two times higher than initially planned;
  • understand any additional investment need for legal proceedings, appropriation, subsequent asset management incl. additional CAPEX/OPEX, asset sale, etc.

Understanding the Assets

For any debt investment, the same wisdom holds true as for equity transactions. Only invest in debt, when you understand the underlying business, industry, and country of the debtor, otherwise do not touch it, even if the price and yield appeal to the greed factor. Too many debt investors and banks who appropriate assets from bad loans treat bad debt transactions as a pure financial game. Rough awakening guaranteed.

Beware of Poison Pills / Install Poison Pills

Take is as granted, that the debtor does not want to pay back the debt and accumulated interests. Depending on the legal seat of the debtor and the location of any pledged assets and the nature of the assets, there are plenty of obstacles that can be built to render the task of appropriating an asset extremely costly and lengthy or to devaluate the asset. We have seen many surprises and unlimited creativity in this area.

Junk vs. Value Strategies

The ever-interesting question in this field. Both strategies can work, junk strategies will need the extra stamina from the investor and require a very strong understanding of the local market conditions and powerful local boots on the ground. Nothing for the new-comer to the market. Also, beware of the debt market life cycle.

Timing Traps

Debt investors need to have the financial power to live through years of legal proceedings and commercial negotiations. Expecting the unexpected, especially in timing, is quintessential to survival.

Compliance Tag

Debt recovery and enforcement can be a dirty business. And opponents will fight back, with legal, half-legal and sometimes criminal means. Legal and commercial loop-holes in some countries allow for situations, unthinkable in others. In case that the reporting, legal or compliance regulatory frame is too strict or in case that one is not ready to answer the knife attack of opponents with a gun, it is better to stay outside of the Saloon.


Open and transparent negotiations, ideally moderated by a neutral party, tend to be in most of the cases the best, most efficient and fastest way for conflict resolution. However, sometimes both parties have to get bloody noses before a real negotiation process can start, sometimes it never happens. In these cases, the winner will collect the whole lot, but often the value is then already negligible. Yet, over and over again, players are overestimating their bargaining position and enforcement or obstruction options or do not dare to tell the ugly truth of losses to their superiors – which lead in turn to unrealistic expectations, vast time delays and a further destruction of value.

Moral Hazard and Inflated Egos

Last but not least, one of the most important factors in bad debt deals – the human factor. The success of bad debt deals is not decided by spreadsheets, but by human beings, and the negotiation processes are highly sophisticated interactions in which psychology and the right tactics often make the difference between make and break. Both for lenders/investors and debtors there is one very common attribute that we observe and that often proves to be disastrous and very costly for the respective party: lenders and investors lean towards punishing debtors for not willing to pay back the debt (also as deterrent for other failing debtors) or towards envying them realizing a profitable debt restructuring. Debtors lean towards overestimating their own power and control position and are often driven by personal ego and pride vis-à-vis lenders, employees and business partners, not recognizing the need for drastic changes.

Bad debt deals can be highly rewarding, especially in highly volatile economies like Ukraine. The investors and debtors, who are ready to invest in appropriate planning, who are disciplined in their execution and ready to test unchartered waters are in for the extra yield.

On VI2 Partners

VI2 Partners is an independent investment company that invests on its own books and provides a full range of investment banking services. The activities of VI2 Partners are aimed at ensuring economic growth, efficiency and increasing customers’ profitability. Our qualified and experienced team plans, scouts and executes investment opportunities, performing customers’ tasks on a high-quality level, above the accepted standards.

VI2 Partners specializes in portfolio assets management, direct investments, investment banking, ICO, capital raising and debt restructuring, services for investors to enter new markets (Ukraine and Eastern European counties, EU). We also provide services for the assets acquisition and protection in Ukraine for international investors, develop mechanisms for the complex structured transactions’ regulation, provide services for the problematic assets’ management and their transformation into sellable investment products, M&A.

Founded by Mr. Alexei Chernyshov and Dr. Marc-Milo Lube, the company operates in CEE and Western Europe markets, with registered offices in Vienna (Austria) and Kyiv (Ukraine). VI2 Partners actively cooperates with commercial, government structures and investors around the globe, with whom we built long-term relationships based on the principles of transparency, trust, effectiveness, and confidentiality.


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Background Reading Comments Off on Smart Debt Restructuring

Professore Nebuloso – A comment on the Italian Political Drama


or How to Realize Fast that You Cannot Eat the Pasta and Have It.

The Trumpist revolution of narcissism, denial of reality, national egocentrism, and pre-dominance of lies has reached a new climax in Italy – although admittedly briefly outshined by Trump’s letter to cancel the nuclear summit with North Korea. It looks like Italy did not study the Greek adventures of Professor Varoufakis, another case where a self-declared expert wanted to save the country by denying basic economic laws. Alas, we will take front seats in the Colosseum, watching how Professor Conte – whom a French magazine already attested to show all characteristics of a professional crook – will explain, how Italy can avoid bankruptcy while spending additional billions of Euros on the back of an already bursting deficit and debt status of its public finances. While the German Hausfrau is developing an immediate allergic reaction, even the French are scared big time now. Given this situation, the political life of the Professor might be as short-lived as his academic visits to the US.


Following bigger footsteps from across the Atlantic, the Italy First Movement wants to eat the Pasta and make the World (first Europe) pay for it. This undertaking is doomed to fail dramatically. Obviously, the Italians do not have the USD, the strongest military in the World and also not the consumption power of the US. The bullying potential is limited in this case. Remember the Greek experience of trying to enforce on Europe and the Euro-System a carte blanche spending spree for Greece. It ended in an economic disaster that left the Greeks with a prolonged crisis, a humiliated Government, stronger controls, more unemployment and additional lost years. They had to swallow the savings dictate from Brussels and Frankfurt.


The real choices for Italy are very simple. Restructure profoundly or leave the Euro and devaluate. All else is another aria, that nobody wants to listen to anymore: the French have to look for themselves, the Brits are no more interested, the Germans do not want to pay, and the Spanish have run through the painful experience, why spare the Italians the same? And all Governments face at home the identical outcries of Germany, France, England, Dutch, Whoever First. Nobody is willing or able to come to the rescue. Perhaps the Italian drama will finally enforce on the EU to have the discussion that Macron started, but nobody wanted to lead and decide on: further integration or looser association.


The real scary part of the story is, that the Italian voters wanted to have exactly the Government, that they have received now, implementing the very same agenda, that is now promoted. This is contrary to Brexit, where one could argue, whether voters were just tricked by BoJo and alike. No, this time, all was clear and stated during the campaign, and the announced political program reflects a soft version of the election promises. Here are the main reasons for this situation:


  • The political bunga bunga elite failed completely over the last 20 years to reform the country and work for the long-term success of Italy. This has led to a lost generation of 18/35-year-old people without job, experience, and perspective. A perfect breeding ground for the extremists.
  • The credibility level of traditional parties and established politicians after 20 years of complete mismanagement was below zero. Many Italians preferred to vote for a journey into the unknown than to live on with their un-performing status quo system leading to a slow but steady decline. And they were right.
  • The EU showed no(!) solidarity with Italy to control and manage the refugee invasion on Italian coasts. Colorful declarations to strengthen European maritime commandos or threats to close down the Brenner border, the over-arching symbol of European free movement, have not helped, but have been taken understandably as cynical in Italy.
  • The Italians have a top-line mentality and a tendency to bend rules (in a positive way!), they are revenue, not cost-driven. In this mentality, the system and philosophy of a common, strictly rule-based currency with frugal Dutch and German Protestants, is completely counter-productive; austerity not compatible with Italian lifestyle and drama.


All this has led to a profound change of the political landscape, the Government will stay longer than many expect and implement the will of the voter. However, Italians cannot expect other nations to pay for this emotional overreaction and the following political experiment. What does this all mean for the EU and Italy in specific:


  • ECB directors get nervous in Frankfurt. Their overly relaxed willingness to buy Italian bonds without guarantees for sound state finances is in severe danger of backfiring, it has rendered the ECB too dependent on national Governments and prone to financial blackmailing. The falcons have started to take off their hoods. In case that the situation with Italy would escalate, it could herald an inglorious departure of Mr. Draghi.
  • The new Italian Government will start to implement their program and raise spending levels, putting huge pressure on both the EU Commission and the ECB to relax budget restrictions and grant debt relief/write-offs. Finally, we will see a show-down on the Euro. And while Greece had to surrender, Italy has a much stronger bargaining position: they are a founding member of the EU, they are the third strongest European economy and the ECB has an Italian debt stock-pile on its books. Nevertheless, it is inconceivable that other countries, the commission and the ECB would open the Pandora box of further softening debt ceilings and/or financing Italy through ECB debt write-offs.
  • This situation has all potential for big drama with only two potential outcomes: Italy leaves the Euro or faces new elections very fast. Renzi and Berlusconi could celebrate a surprise comeback in the latter case.

Italians voted for change. They are sick of their political elites. They are sick of the most inefficient public service in Europe. But they lack the strength and perseverance to go through radical reform programs. Spending the way out of this crisis does not work within the Euro System. The departure from this system is, therefore, the only credible, viable and productive way forward. Everything else is a lie and illusion. A devaluated Italy leads to a restructuring of the country through lower standards of living for a certain period (less German cars), a relative reduction of wealth and pain for the old and poor in the country. But after this period of pain and the revaluation of the Italian asset base, it would also lead to much stronger competitiveness, an orientation towards the future and attract big streams of foreign investment into the country, which would, in turn, reduce unemployment.

Other Governments and the ECB need to wake up to this new political reality. If not now, at a certain point in the near future, the economic development of Italy and/or financial markets will force a decision on them. As Turkey and President Erdogan are currently realizing: economic laws cannot be denied ad infinitum. Professore Nebuloso and his masters will soon have to decide, whether they surrender, lead the EU to an institutional crisis or their country out of the Euro. We bet they will first try with the crisis.

State of the Nation Comments Off on Professore Nebuloso – A comment on the Italian Political Drama

Why Europe will Shine in a Robot Future


Investment Climate and Opportunities in Good Old (New) Europe

This analysis was presented and discussed in a different format by VI2 Partners at the

NUS (National University of Singapore) Medicine International Council Berlin Conference: New Europe and Germany on April 23, 2018


Many political and financial analysts believe, that Europe is doomed to fall behind in the competition with the new economic and technological powerhouse China and the massive talent hoover and technology breeding ground US. We want to argue in a different direction and explain why we believe more in a next level European Renaissance than in Europe turning into a Museum for the World. The reasoning will start on a global level, move on to European developments and give an outlook, on which industries we are particularly bullish for the future.


The Global Arena – War is in the Air


The World is moving fast into diverse armed conflicts, without any power showing significant interest or activity to stop or contain these developments. The political post WWII order is trembling and shuttering and will ultimately make room for a new world order following a big earthquake. War is in the Air everywhere and in multiple dimensions:


  • Twitterman versus Rocketman Saga: Do not trust the fog bombs that both parties are throwing around. While Trump has changed the quality of the North Korean leader from insane to honorable in a minute, and Kim Jong Un is reflecting on de-nuclearization, both players are lying big time. Hangover more probable, than honeymoon (Macron might also be jealous, in case that Trump would start to kiss Kim during their encounter). In any case: good marketing show for both actors.
  • Isolation and Radicalization of Russia: Russia has overplayed his hand and gets punished for this on all levels. Pushed into the corner of the ill-mannered child, more chaos and disruptions in Europe and the Middle East will be targeted. Alienation between NATO and Turkey, sowing disaccord in the EU, conflict between Israel and Iran, and escalation in Syria. The resulting side effect of higher oil prices will over compensate for the sanctions of the West.
  • Iran, Israel and the JCPOA: It is only a question of time, when the Syrian mess will also lead to a bigger clash between Israel and Iran. Israel in this case can be expected to also inflict material damage to the ballistic and nuclear program of Iran. On the JCPOA, we believe that Netanjahu, Pompeo, Bolton and the conservative establishment will win over the European attempt to save the Iran nuclear deal. If not in May, the plan might soon be history.
  • Trade War: As we have discussed in earlier contributions, China will be punished by the US. It is in the long-term economic, political and military interest of the US, to weaken or at least decelerate the economic rise of China. Trade war is coming.
  • Cyber War: is already taking place. All capable countries are increasing their defensive and attack capabilities. More battles to be seen soon.
  • Authoritarian Tendencies: In times of fundamental global and societal changes, people are voting for authoritarian leaders. This can be observed around the globe. With the free press being in recline, political parties as power buffers dissolving, war memories of the population fading and the nation state back in fashion, water temperature is rising in the risk pot of leaders going wild or rogue.


Europe – Renaissance or Museum?


To Europe. Given the global percussions, Europe feels like a safe haven of stability, which will be rewarded. There are signs, that Europe can stay a main player in the future and enjoy a bright economic future:


  • Broad based recovery: finally, after nearly 10 years of disappointing growth, all major EU economies have started last year a broad-based recovery. We will experience over the next 24 months stronger wage growth, decreasing unemployment, reduction of budget deficits, and rise in inflation in all major EU economies.
  • Diversity and Innovation are elements that mutually support each other. Mixed with a tradition and culture of sciences and invention, Europe has the best natural breeding biotope for game changing technologies and research. And the countries in Eastern Europe from Poland to Romania and Ukraine are only starting to join the game by returning to their roots of scientific excellence in engineering, mathematics, information technology, aviation and others. A young generation of scientists and entrepreneurs take over and will lead Europe to a new level of innovation. Check out where the game changing innovations in most natural sciences and technology areas originated over the last 50 years. No wonder the Chinese are out hunting.
  • Re-industrialization: The peak globalization is behind us and the big move of production to Asia is over. Many companies in Europe are considering to re-locate at least parts of the production back to Central Europe. Automatization and robotisation favor excellent skills, rule of law, IP protection. Labor cost becomes close to irrelevant. Increased protectionism, changing tax regimes, and the political will to re-industrialize are increasing this trend.
  • New social models: Europe will be the first region to test new social models of general income and/or general pension. As certain professions will soon become obsolete on a large scale and faster than many can imagine, new social models and contracts will be a necessity, and Europe will profit from its lead.
  • Quality of Life: Europe is the place to be. In a world of robots, VR and constant information and communication, people will long for a place of serenity, nature and pleasure. To offer quality of life will be key to attracting talent in the global arena in the future. Top talent will choose to live in the best places. From the top 10 cities in the world in the latest Mercer Report on Quality of life, eight cities are located in Europe.


Certainly, there are risks around. Brexit, Catalonia secession and traditional Italian political chaos will keep the European capitals and Brussels busy. But in our view the economic impact of Brexit will only be short lived (on the EU side of the Channel), and in the mid-term already prove beneficial to the continent. The constant aging of the population is cause for concern and will require a massive overhaul of social security systems and massive attraction of qualified foreign immigrants against the general mood in the population. Alone in Germany 500.000 qualified immigrants will be needed per year, to keep the pension age at its current level. Europe is falling back in patent applications and industrial production in comparison to Asia, but do not mix up quantity and quality of patents and innovations.


Key Investment Areas – Go and No-Go Zones

Looking to the key investment sectors in Europe for future investments and why we have chosen those:


  • Fashion, Design and Luxury FMCG: The world wants to consume European and mirror European taste. Wherever you travel in the World these days, luxury brands are dominated by European players. The new affluent population and middle classes of the world want to drive Mercedes, wear Prada and Gucci and drink Bordeaux wines. Rising global wealth in China, Russia, the Middle East and other regions will lead to higher demand.
  • Defense: Higher independence from the US, the growing insight that European governments allowed the run-down of their military, the accepted NATO doctrine of 2%-defense spending relative to the GDP, and new global threats, lead to significant modernization and increase of defense spending of all major European countries. Gone are the times, when it was en vogue to decrease the national defense budgets.
  • IT/Cyber: Corporates, Governments and Privates are waking up to the cyber threat in all areas. Huge need to catch up with reality leads to an investment wave into devices, services and processes. No trust into US, Israeli or Russian solutions. Big chance for European players.
  • Clean/Blue/Green Tech: It is the continent of environment freaks, where train tracks and motorways are not built because of rare species, the population turns maniac about nuclear, GMO, pesticides and any type of emission. Innovation in this area will be developed and tested here.
  • MedTech: The fusing of medical technology, IT, robotics and nano engines and machines will prove to be a key sector of European development, bringing together historical key strengths and skills of the continent.
  • Agriculture and Bio-Food: The westernization of eating patterns, increase in wealth and concentration of population in the cities lead to increased demand of animal farming as well as traditional crops, while at the same time fertile agricultural land is shrinking globally. Central Europe from France to Germany via Poland, Russia, Romania and Ukraine has by far the largest black soil agricultural surfaces in the world, and the potential in some Eastern European countries in terms of professional agro management, output efficiency and logistics is by far not fully utilized. We believe in strong price growth both in agro products and land in the near future, especially in the high-end segments of non-GMO food and low pesticide and bioorganic production processes.


NO-GO: Banking (weak capital base and legacy systems in a fintech world) and car Industry (emission scandals, new ownership models, electric vehicles).


COUNTRIES: We would overweigh France, Netherlands, Germany, Austria, Poland and Romania. The risk-takers should have a look into Albania, Serbia and Ukraine.


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