18:30 Sep. 2, 2016
Ukraine's Cabinet promises additional assets for privatization
Cabinet of Ministers of Ukraine decided to increase the number of state-owned assets to be privatized in 2016. The list now includes 319 pieces of property. While the new list itself is not yet public, the state property fund of Ukraine, which is the main manager of the state-owned property, already announced on its web site that additionally added assets would include Kharkiv-based Turboatom and Zaporizhya Titanium & Magnesium Plant.
Turboatom is among the top ten turbine construction companies in the world with net profit of around USD100 million in 2014. The government currently controls 75.22% of company's shares. 14% of stock is owned by the companies, which are ultimately controlled by the Russian businessman Konstantin Grygoryshyn. With his business interests mostly located in Ukraine, Ukrainian financial magazine Focus estimated his net worth at USD1.8 billion in 2013, ranking him no.8 in the richest people in Ukraine's list. In 2016, Russian edition of Forbes estimated his net worth at USD0.95 billion ranking him no. 82 among the richest Russians.
Turboatom Plant (Source: UNIAN)
According to Alexander Paraschiy, Head of Research at Concorde Capital, Turboatom is among the most attractive state assets in Ukraine. ‘It is still one of the leading suppliers of power turbines to Ukraine and former USSR countries and Eastern Europe. Today, as soon as this company remains competitive on global power engineering market, (due to still high recognition of its brand) it is a high time to sell it. With little investments into R&D, it could lose its competitive edge very soon. Among the straightforward bidders for Turboatom, I see large power engineering firms like Siemens, GE, ABB, Areva.' Paraschiy estimates potential price of Turboatom's 75% stake around USD400-600 million.
Zaporizhya Titanium & Magnesium Plant's ownership is as follows: 51% is owned by the state and 49% - by the companies ultimately controlled by the Ukrainian oligarch Dmytro Firtash. According to Focus, his net worth was USD2.7 billion in 2014 placing him among top-five richest Ukrainians. On 13 March 2014, Austrian authorities arrested Firtash on bribery and other charges at the request of the FBI. He and five business associates were charged with paying USD 18.5 million in bribes to officials in the Indian state of Andhra Pradesh for licenses to mine titanium, which they planned to sell to Boeing for use in building the 787 Dreamliner passenger jet. On 30 April 2015, after thirteen hours of the court session, the Regional Court of Vienna in criminal cases rejected the US request for the extradition of Firtash. He is currently in Austria, where a number of his companies are registered.
Read more: Firtash's Vienna house searched
Nevertheless, the sale of both - Turboatom and Zaporizhya Titanium & Magnesium Plant might not be a done deal. Oleksandr Borodkin, partner with Vasil Kisil & Parners law firm, argues that including both these companies into the list of assets to be put on sale was made during the meeting of Cabinet Committee on economic, financial and legal policy, the development of fuel and energy sector, infrastructure, defence and law enforcement that took place on Tuesday, August 30-th, 2016.
Oleksandr Borodkin, partner, Vasil Kisil & Parners
‘The committee has developed a specific proposal, which will be passed to the Cabinet of Ministers of Ukraine. The list of privatization objects, which has been changed, has been approved by the decision of the Cabinet of Ministers. There is still some way to go from the Committee to the Cabinet of Ministers before we can talk about the privatization of Turboatom'.
The most lucrative piece of state-owned property to be put on sale is ammonia-producing Odesa Port Plant. In July the first attempt to sell it failed, when the government set a very high starting price at nearly USD500 million and none of the potential buyers submitted their bids. Shortly after the failed privatization of OPP we spoke to the CEO of Concorde Capital Mr. Igor Mazepa about the reasons for that.
You can find the full interview with Mazepa here: No bidders for USD 500 million state property
According to Mazepa, the starting price for OPP should not be higher than USD100 million. Alexander Martynenko, Head of corporate research ICU group come to the same conclusion: ‘As the ammonia markets are likely to remain well supplied in 2017-18, with FOB Black Sea prices staying at subdued levels of 0-270/t, we estimate that Odessa Port Plant is potentially able to earn no more than -60m of EBITDA in the next two-three years. This implies an enterprise value of 0-360m. Net of 0m debt, this would result in a market price of 0-160m'. The debt of USD200 million both Mazepa and Martynenko mention is gas price, which was supplied to OPP by Firtash' Group DF companies.
‘The failed attempt of privatization of the Odessa Port Plant in July 2016 showed that foreign investors still look carefully towards Ukraine. Indeed, Ukrainian investors do not hurry as well to acquire strategically important enterprises, even at the cost estimated according to the new standards' – believes Borodkin.
Odesa Port Plant (Source: UNIAN)
Be these new standards or not, the government of Ukraine needs to realize, that most of the state-owned assets are distressed and to be successful in finding the proper new owner the asking price should be very reasonable. Setting the low prices for the state-owned property might contradict the populist promises of the very same government to raise billions from privatization.