A 1 percent stake in the fixed-line monopoly was to be auctioned off on May 22 on the Ukrainian Stock Exchange
A long-awaited privatization auction for shares in Ukraine’s state telephone company, Ukrtelecom, was halted by a last-minute court ruling on a claim filed by an obscure plaintiff.
A 1 percent stake in the fixed-line monopoly was to be auctioned off on May 22 on the Ukrainian Stock Exchange for about $40-50 million. Additional auctions for another four 1 percent stakes were expected in the coming weeks. Combined, the sales were expected to raise more than $200 million for state coffers and serve as a teaser for an initial public offering of a larger stake to be auctioned off on a major Western stock exchange.
But an unexpected court ruling thwarted the plans of the State Property Fund, Ukraine’s privatization agency, derailing what could have been the largest sell-off of state assets this year.
Stunned SPF officials and investors were unsure if the sale would commence anytime soon. Meanwhile, experts predict that the sale could, and possibly should, be postponed until Ukraine’s longstanding political crisis subsides.
SPF chief Valentyna Semenyuk was admittedly surprised by the May 21 Kyiv Commercial Court ruling, which was announced by a court official only five minutes before the auction was scheduled to begin. The SPF said it would appeal the court ruling blocking the sale, but that it would likely put the sale off to “study the issue,” Semenyuk said.
“Nobody knew about this court case, neither the stock exchange, nor the SPF,” she said.
The second round of Ukrtelecom privatization was scheduled for June 8, with shares to be auctioned off at another domestic stock exchange, the PFTS.
On May 23, an appeal was filed, but it remained unclear who really initiated legal proceedings against the sale in the first place.
Formally, the lawsuit was filed by Dotrin-2002, an advocacy group for the disabled in Khmelnytsky Region. Insiders suggested that the advocacy group was merely used as a front for powerful business interests.
The governing coalition of Prime Minister Viktor Yanukovych has backed the SPF’s plans to auction off minority stakes, while President Viktor Yushchenko’s Secretariat has pushed for a majority stake to go on the bloc.
Semenyuk, a Socialist Party member, has pledged to keep a controlling share of the multi-billion-dollar company in state hands.
Western portfolio and institutional investors were said to be eyeing the stakes, as were influential Ukrainian billionaires, such as Rinat Akhmetov.
Comstar-UTS, a fixed-line operator in Russia controlled by Moscow mogul Vladimir Yevtushenkov, has also expressed interest in Ukrtelecom.
Ukrtelecom controls about 78 percent of Ukraine’s fixed-line telecommunications market, but has gradually lost revenues as more Ukrainians have opted for increasingly affordable mobile telecommunications.
The state-owned company lost control of mobile communications provider UMC when it was privatized for $100 million by Yevtushenkov’s Sistema in 2002-2003. Today UMC is valued at billions of dollars.
Ukrtelecom has desperately tried to rebuild a mobile telecommunications business and recently announced plans to invest hundreds of millions of dollars into developing a costly third generation, or 3G wireless network.
Ukrtelecom is 92.86 percent state-owned. A 7.14 percent stake was privatized on privileged terms to employees and top management in 2006. Many of these shares are currently traded on Ukraine’s main stock trading platform, the PFTS.
Market talk
Peter Keller, head of research at Kyiv-based investment bank Millennium Capital, said that even if the 1 percent auction had gone ahead, it might not have been sold because the initial asking price of $43 million was too high.
“In an auction, the initial price is normally 10 percent lower than average market price,” he said. “The SPF price was high for many Ukrainian investors and foreigners.”
However, Keller noted that there were brokers eager to pay a premium, indicating that demand from cash-rich portfolio investors was high.
A temporary halt to the sale should not “have any impact on the price of the Ukrtelecom shares” nor should it be a surprise to anyone, “because everybody knows this privatization is politically sensitive,” Keller added.
Stanislav Kartavykh, an analyst at Kyiv-based investment bank Foyil Securities, said the court ruling blocking the sale could have been masterminded by a strategic Ukrainian or foreign investor eager to scare off competition or bring down the starting price.
