Ukraine: New approach to privatisation

CMS Cameron McKenna, 
Kyiv, Ukraine, Thu, Sep 17, 2015

TheState Property Fund of Ukraine (the “Fund”)has recently cancelled the sale of 5% stock in Odesa Port Plant PJSC (“Odesa Port Plant”).  This decision follows the approach which theUkrainian government tries to implement to cancel mandatory sale of 5-10% stockin joint stock companies of Groups C and D[1] before conducting a tender and toamend the valuation of privatisation objects.

Toformalise such approach and facilitate an open, competitive and efficient saleprocedure, the Fund has prepared a draft law (the “Draft Law”) that provides, among other things, for cancellation ofthe mandatory sale of 5-10% stock in Groups C and D objects on a stockexchange, and extension of the list of objects whose privatisation may involveconsultants.  The Draft Law currentlyawaits consideration by the Parliament.

Inaddition, the CMU has adopted a resolution establishing that the initial saleprice set for Group D and fuel-energy complex objects is subject to review bythe state privatisation authorities by the end of September 2015, and that anysale of stock such objects on a stock exchange would be suspended until then.

Accordingto the 2015 Privatisation Schedule for Groups C and D companies, the 5% stakein Odesa Port Plant was to be sold on a stock exchange in July 2015, and theremaining 94.567% stake – through a tender in September 2015, however neitherof these sales took place.  The Fund hasrecently announced that privatisation of Odesa Port Plant is now postponeduntil January-February 2016.  It is alsoexpected that privatisation of other strategic objects, such as CenterenergoPJSC, will be moved to the middle of 2016. By that time the Fund expects to have the Draft Law enacted by theParliament, which would allow selling such strategic objects for a higher priceand involving credible foreign investment consultants to advise throughout thesale process.

Theproposed new approach to privatisation is supported by U.S. Agency forInternational Development (USAID), the European Bank of Reconstruction andDevelopment (EBRD) and other international financial institutions operating inUkraine.  Both the EBRD and USAID haveoffered technical and financial aid to Ukraine to assist in conductingtransparent and efficient privatisation. Needless to say, in return they expect to see the Ukrainian governmenttaking further steps towards progressive privatisation reforms.

[1] Group C (in Ukrainian – групаВ) includes integrated property complexes of the companies which, during afiscal year, employ more than 100 employees and have a gross profit exceedingUAH70 mln. and/or value of assets sufficient to establish a joint stock company(currently, approx. USD70,388), and shares in joint stock companies formed inthe course of privatisation and corporatisation;

Group D (in Ukrainian – групаГ) includes integrated property complexes and shareholdings in joint stockcompanies which have strategic importance for Ukraine’s economy and securityand those which have dominant market positions.

Authors:

Graham Conlon, Partner, Graham.Conlon@cms-cmck.com

Tetyana Dovgan, Senior Associate, Tetyna.Dovgan@cms-cmck.com