The Kyiv Economic Court has ruled in favour of cancelling the 2011 sale-purchase agreement (SPA) of a 92.8% stake of Ukrtelecom, the country's largest fixed line operator and internet provider, according to the country’s State Property Fund (SPF).
The 92.8% stake in Ukrtelecom was purchased by a company named ESU for UAH10.575bn (€361mn), while the SCM Group of oligarch Rinat Akhmetov went on to become the owner of ESU. In April, a Kyiv court backed a petition of the Ukrainian Prosecutor General's Office (PGO) to arrest shares of Ukrtelecom and its subsidiary 3G/UMTS mobile operator TriMob, both controlled by SCM Group.
The court also ruled to fine Ukrtelecom's buyer $81.9mn for breaching investment commitments, according to the SPF.
The move was attributed to the alleged nonfulfillment by Ukrtelecom's buyer of a $450mn investment plan in the five years after privatisation. The buyer also allegedly failed to spin off Ukrtelecom’s division that provides special communication services for government agencies to the state.
Later, ESU said in a separate statement that the company will challenge the court's ruling. The company also promised to continue its massive investments in the development of Ukrtelecom's telecommunications networks.
"The ruling won't take effect once ESU files its appeal. ESU’s comments that it will continue investments into Ukrtelecom suggest confidence it will be able to settle the conflict with the government and avoid cancelling the privatisation," Alexander Paraschiy at the Concorde Capital brokerage in Kyiv wrote in a research note on October 20.
The expert believes that the company and the state have "a solid chance at compromise, as cancelling the privatisation will bring a lot of trouble to the government".
"First of all, the cancelation would harm the image of the government, which is still planning to privatise dozens of large assets," Paraschiy added. "Secondly, it will generate losses to state banks Oschadbank and Ukreximbank, the key creditors of ESU with over UAH4bn in outstanding loans."