Government fails to privatise its biggest asset – price tag to be lowered
The highly anticipated and much needed privatization of Ukraine's property has started with a wrong foot. The public sale of one of the most lucrative pieces of state property – Odesa Port Plant – has failed. According to the official reports the starting price of around USD 530 million was too high. None of the potential buyers submitted their bids and the tender process was cancelled. Ukraine Today correspondent Volodymyr Solohub discusses the reasons for that as well as the way out for the government with the CEO of Concorde Capital investment company, Igor Mazepa.
"The businessclimate is not perfect for the time being, of course. It would be different had this privatization happened."
"Now if you apply any more-or-less reasonable multiple [to the EBIDTA] - four, five or even six, you come up with the market price of this company of USD 300 million enterprise value. Now there is also USD200 million debt. Which the company owes to gas supplier. So if you deduct the debt from enterprise value, you come up with USD 100 million market cap. And the starting price should be even lower than this one, if you really want to get an interest from investors and make sure there is real competition between them."
"We estimate that the company is making somewhere between USD 50 to 90 million free cash flow each year. And those groups, who are interested, who are beneficial owners of this cash flow, they are not interested to sell it."
"Here in Ukraine everyone believes that the state property is worth billions or tens of billions of dollars and it's all multibillion country. But still the privatization of Odesa Port-Side Plant is very politically and socially sensitive issue. The government was under stress and under careful watch from the public. With pretty-much unstable political situation here, probably the sellers – the state property fund of Ukraine and prime minister were afraid that they will find themselves in a confrontation with public opinion."
Igor Mazepa named some of the key buyers in Odesa Port-Side Plant tender.
"In my mind, the privatisation is not the key source for the budget implementation. There are more important things, which come with the privatisation. First of all, it's the major source of corruption in Ukraine. If you privatise the whole thing, apart from killing corruption, you also bring best people as management, best knowledge, money, which will go into the surrounding infrastructure. This is something, by the way, that changed the Polish market."