The first step in the privatization of Ukrtelekom, Ukraine's national telecom monopoly and arguably one of the nation's most prized assets, has ended with the privileged sale of company stock creating a stir among securities brokers, who allege an inside connection may have given one investment firm an edge.
The fisrt step in the privatization of Ukrtelecom, Ukraines national telecom monopoly and arguably one of the naions most prized assets,had ended with the privileged sale of company stock creating a stir among securities brokers, who allege an inside connection may have given one investment firm an edge.
Ukrtelekom’s present and former employees were entitled to buy a limited number of shares for 12.5 kopeks apiece, half the stated value of 25 kopeks per share. Ukrtelekom Chairman Oleh Hayduk told journalists Feb. 1, one day after the subscription deadline, that the firm netted $20.1 million from the sale, which took place over a five‑month period beginning Oct. 1.
Despite the deep discount, not everyone eligible to buy stock placed orders. Had the sale been fully subscribed, the phone company could have raised almost $30 million.
Of the stock earmarked for the privileged sale, 2.08 percent was allocated to non‑management employees, 5 percent was available to managers and 5.91 percent was made available to retirees and others “with the right to the privileged purchase of shares,” the company said. Of those “others,” Ukrtelekom said that retirees were entitled to a total of about 1 percent of the stock. It wouldn’t disclose who else was included to buy stock reserved for “others.”
Hayduk said that 98.9 percent of the company’s non‑managerial workforce and 90 percent of its managers exercised their right to buy shares. In addition, about 70 percent of Ukrtelekom’s retirees bought the shares allocated to them. Hayduk said the final results of the sale would be known Feb. 18.
Brokers estimate that of the 13 percent stake offered during the sale, no more than 8 percent of the company was sold.
Ukrtelekom officials have said that any shares left over after the privileged sale might be sold on a stock exchange or be added to the stake it plans to offer to a strategic investor later this year.
Ukrtelekom’s new shareholders will have to wait awhile before they will be able to trade the shares on a stock exchange. Share certificates won’t be in buyers’ hands for several months yet.
But that doesn’t mean the stock hasn’t been changing hands.
Employees and retirees entitled to buy shares have been approached by securities brokers interested in buying the discounted shares on behalf of or for resale to speculators. Brokers have reportedly offered new shareholders cash for their still‑unissued stock, enticing them with a quick, risk‑free profit.
A Jan. 30 report in the Financial Times said one brokerage firm, Interregional Finance Company (known by its Ukrainian initials as MFK), had successfully wooed employees and retirees.
Kyiv brokers say that MFK had an unfair edge in that it has close ties to Ukrtelekom’s management and to ENSTI Transfer, the firm that is acting as registrar for Ukrtelekom’s stock. Access to the names of persons eligible to buy stock during the privileged sale put MFK in the best position to solicit current and former employees and potentially to accumulate a large enough basket of shares to interest a major investor, they say.
MFK’s competitors, stockbrokers who spoke to the Post on condition of anonymity, angrily denounced MFK’s edge as unfair and non‑transparent. They alleged that MFK’s ties to top Ukrtelekom managers helped the brokerage buy most of the shares allocated to management employees.
“MFK definitely has some kind of privileged access to make these deals. All stockbrokers in Kyiv know this,” one trader, who asked not to be identified, said. He said that MFK probably bought almost all the stock available from Ukrtelekom managers who were willing to sell.
MFK sent signals as early as Dec. 1 that it had or expected to acquire a large block of the shares purchased during the privileged sale. The firm posted a research report on Ukrtelekom on its Web site that indicated it had as much as a 5 percent stake in the telecom giant.
In a Jan. 18 interview, MFK investment manager Erik Nayman denied his company was involved with trying to buy stock purchased at a discount by Ukrtelekom insiders.
Five days later, two of Ukrtelekom’s deputy directors told the Post that they had signed contracts promising to transfer their shares to MFK when they were issued. Unlike the securities brokers, one high‑level telephone‑company executive told the Post, MFK offered a “very good price.”
That same executive said it was possible that a large proportion of Ukrtelekom’s managers had sold shares to MFK.
While MFK’s Nayman denied that his firm had any special arrangement with Ukrtelekom, he did say that MFK General Director Mykhailo Levchenko is a personal consultant to Hayduk regarding the privatization.
Brokers at several firms said that if MFK has purchased a large block of stock in anticipation of selling it at a profit to an investor, the company might lose. They say they’ve found little interest from investors in buying Ukrtelekom shares.
If MFK has purchased shares and found a buyer, brokers and analysts active in Ukraine’s markets claim to be unaware of it.
The privileged sale of Ukrtelekom shares is seen as paving the way for a larger open tender the government says it will announce in April. The state plans to retain a 50‑percent‑plus‑one‑ share stake in the telecom, but hopes to offer up to 39 percent to a strategic investor.
Foreign lenders and investors are watching the Ukrtelekom privatization carefully. The privatization of the company is viewed internationally as a bellwether of the country’s commitment to economic reforms and transparency.
