Ukraine's landmark privatisation tender fails due to lack of investors

Ukraine's landmark privatisation tender fails due to lack of investors
Odessa Port Plant is a no-sale after months of big billing by the government.
By bne IntelliNews July 19, 2016

Ukraine has failed to launch the privatisation a 99.567% stake in the Odessa Port Plant (OPP) during its tender due to lack of bids from investors, the State Property Fund (SPF) said after the deadline for submitting bids expired on July 18.

The tender was scheduled on July 26, with a starting price of UAH13.175bn ($531.6mn), the deposit set at UAH658.75mn ($22.5mn) and bids due to increase in increments of UAH200mn ($8mn). Companies and persons from Russia and other individuals blacklisted by Ukrainian authorities had been barred from bidding.

OPP should have been the centrepiece of the privatisation of large state-owned companies, promised by Kyiv to foreign investors two years ago. The failure was attributed specifically to OPP's debt of UAH193mn owed to Ukrainian oligarch Dmytro Firtash's Ostchem company.

Earlier, under a case brought by Firtash, the Arbitration Institute of the Stockholm Chamber of Commerce in April ordered OPP to refrain from alienation or encumbrance in any way of its non-current assets until August 31, 2016.

Another reason for the failure, according to the SPF, is the conflict with the Nortima company, allegedly controlled by billionaire Ihor Kolomoisky. The firm threatened to block the privatisation of a 99.567% stake in OPP. Nortima said any sale deal would be regarded as a purchase of stolen assets following a 2009 tender, in which Nortima outbid two rivals with an offer of  $600mn at the exchange rate at the time. However, the SPF declined to recognise the company as the tender winner.

The SPF also believes that the tender failed due to limitations imposed earlier by the authorities on the withdrawal of dividends from Ukraine, and the high starting price.

"If we cannot handle certain problems or risks, they should be taken into account and incorporated in the sale and purchase agreement," the SPF's head Ihor Bilous said in the statement. "I think it should be done together with an ad hoc privatisation group along with the involvement of advisors who worked to prepare the plant for privatisation."

The sale of OPP would have been a landmark event that would have sent the message to investors globally that transparency is being introduced into Ukraine's economy, Roman Topolyuk, an analyst at the Concorde Capital brokerage in Kyiv, wrote in a note on July 19. "We expect the preparation of another privatisation tender might take up to six months or more, and the new starting price might be set at a lower level to induce potential bidders."

On the same day, Bilous told journalists in Kyiv that the SPF is now plannbing a second attempt to privatise OPP "at the end of summer or early September". He added that potential investors from the US, Turkey and Arab countries "still show their interest" in the asset.

Meanwhile, Concorde's director general Ihor Mazepa told in an interview with Ekonomichna Pravda online news on July 19 outlet that OPP's fair market price is no more than $300mn.

Bilous added that the Ukrainian authorities are considering a possible 30% discount for the plant. The SPF will also start talking to the government about the possibility of awarding tax preferences for future investors in the plant, and about signing a debt restructuring agreement with an investor before the sale of the plant.

OPP accounts for 17% of Ukraine's ammonium nitrate capacity and 19% of its urea production capacity. Due to its strategic location on the Black Sea coast and connections to chemical transportation infrastructure, the plant is export-oriented: export sales constitute up to 85% of output, while the major export destinations are the EU and US.

As a part of its privatisation drive, the Ukrainian authorities intend to privatise Ukraine's second largest thermal power generator Centrenergo in the first quarter of 2017. Earlier, the SPF announced that it is considering a proposal to sell the company not as a single asset, but as three separate thermal power plants (TPPs): the Trypilska TPP, located near Kyiv; Zmiyivska TPP, located near Kharkiv; and Vuhlehirsk TPP, located in the eastern Donetsk region.