In a move designed to stop so-called shadow privatizations, President Leonid Kuchma on Dec. 24 signed a bill imposing a moratorium on the forced sale of assets of companies in which the state owns 25 percent or more.
ich the state owns 25 percent or more.
The moratorium will remain in effect until parliament amends the nation’s bankruptcy laws, making it more difficult for creditors to thwart the privatization of state-owned enterprises by forcing them into bankruptcy over debts. The Cabinet has one month to submit amendments.
In the past, creditors could compel the sale of the state firms’ most valuable assets, often at fire-sale prices, leaving the state with little of value to privatize.
Adoption of the law comes more than six months after creditors forced the sale of assets belonging to a handful of Ukraine’s largest state-owned companies. In two highly publicized cases, creditors brought involuntary bankruptcy actions against Donbasenergo and Luhanskoblenergo. In both cases, the companies’ assets were auctioned to pay debts.
The sales have been sharply criticized by analysts and investors, who argue that the assets were transferred in a non-transparent manner at prices well below their actual values prior to scheduled privatizations.
Labeling the forced bankruptcies “shadow privatizations,” Volodymyr Saprykin, director of energy programs at the Razumkov Ukrainian Center for Economic and Political Studies, believes that influential business groups maneuvered the energy firms into incurring large debts with the intention of later obtaining assets at auction.
The moratorium halts similar attempts to force state-owned energy firms into bankruptcy.
Sapykin and Yury Kubrushko, business development director at IMEPower Investment Group, a firm that advises investors about Ukraine’s energy sector, both praised the law.
The law protects the interests of both the state and of potential investors, Kubrushko said. “It gives investors hope that shares in these companies will be left for privatization.”
The law buys the government the time it needs to improve existing bankruptcy procedures and to deal with the escalating debts at state-owned enterprises most vulnerable to creditor lawsuits, Kubrushko said.
If the government accomplishes both, it will likely prevent continued non-transparent sales of state assets, they say.
“Ukraine has good bankruptcy laws, but they are not implemented correctly,” Saprykin said. “The fact that valuable assets were sold at a fraction of their value proves that if what has been happening is not outright foul play, something is wrong with the system.”
Kubrushko and Saprykin agree that the law, as it was passed, prohibits creditors from one method of collecting debts. But it is necessary to protect strategic enterprises, they said.
“This will help stabilize the companies and allow the government to prepare them for privatization and to ensure that their debts are paid,” Kubrushko said.
“The government has the chance to restructure, swap or forgive the debts of many of these companies,” he said.
Kuchma vetoed an earlier version of the bill that parliament passed in July. It would have halted privatization of energy companies until June 1, a restriction not contained in the latest version. As a result, the government is free to follow through with its plans to sell controlling stakes in 12 electricity distributors.
The moratorium is also being received well by the country’s securities traders, many of who saw their shares in companies lose their value after their assets suddenly disappeared.
“This could be good for the market, but the future of the market depends more upon whether investor interest rebounds,” said Serhy Chernenko, a trader at Kinto securities firm.
Chernenko believes foreign lenders such as the International Monetary Fund, the European Bank for Reconstruction and Development and the World Bank lobbied hard for the moratorium.
He hopes they will continue to lobby for other reforms that will bolster investor confidence.
Meanwhile, it is up to the courts to rectify asset-stripping cases that have already occurred.
“I think the sales [that occurred in 2001] will eventually be overturned by the courts, and the assets will be returned to the state-owned companies,” he said.
