The long distance firm will add sizzle to the upcoming Ukrtelekom privatization tender
phone provider Utel three weeks ago, it amounted to the largest repatriation of foreign capital in Ukraine’s history as a sovereign nation.
But the buyback also prompted questions as to why foreigners had elected to bail on one of Ukraine’s most lucrative companies.
With a virtual monopoly on Ukraine’s long-distance market, Utel has been raking in huge profits ever since it was established in 1992 as a joint venture between Ukrtelekom, which held a 51 percent interest, and foreign telecom giants AT&T, Deutsche Telekom and Dutch firm KPN, with a combined 49 percent stake. The company’s profits exceeded $27 million in 1996 and $33 million in 1997. After the financial crisis cut into profits in 1998, the firm rebounded to post a $28.7 million profit last year.
Despite that success, the foreign partners said they were happy to be out of the deal.
“We are leaving Utel with a feeling of complete satisfaction,” said Andrei Grunin, AT&T’s country director in Russia. “Our participation in this joint venture was a big success.”
Industry insiders said the foreign partners had made most of their big profits not by owning part of the company, but by selling Utel the necessary equipment and technical support to upgrade Ukraine’s outdated switching stations.
The Utel buyback was unique in that Utel itself provided the funds to its majority shareholder, Uktelekom, to make the deal. Those funds took the form of a $55 million interest-free loan. The government paid $55.7 million for the 39 percent combined share held by AT&T and Deutsche Telekom.
Utel will now become a subsidiary of Ukrtelekom.
Though Ukrtelekom will consolidate certain operations with Utel, Dovhy said he was unsure on whether the two firms will merge into one legal entity. He said Ukrtelekom may generate additional value by preserving Utel’s well-known brand name.
That brand name should boost the value of Ukrtelekom substantially. And that is exactly what the government wanted to do in making the deal, analysts said.
Experts said Ukrtelecom’s value could jump by at least 30 percent once the Utel acquisition is formalized.
