Government’s Ukrtelecom sale debacle continues

17 Jul 2007

The Ukrainian government has suffered further setbacks in recent weeks in its bid to raise more than USD200 million by privatising minority stakes in fixed line incumbent Ukrtelecom, reports the Kyiv Post. The tender was intended to showcase the PTO ahead of a sale of a larger stake to strategic investors later this year, but potential bidders have stayed away, alleging that the starting price for shares is too high.

Under the State Property Fund’s (SPF) plan, the sale of a 5% stake in Ukrtelecom was to have been implemented between 28 March and 23 June 2007, but repeatedly failed to attract bidders. Only one auction found a buyer, granting the investor 0.072% of the company for almost USD3.1 million. On 21 May, the Kyiv Economic Court imposed a ban on a planned sale the next day, as a result of a lawsuit filed by Dotrin-2002, an advocacy group for the disabled in the Khmelnytsky region. The ruling also banned the sale of a 1% stake scheduled to take place on the PFTS, Ukraine’s main trading platform, on 8 June. Market insiders suggested that the advocacy group was a front for powerful business interests, aiming to scare off bigger foreign bidders and increase their chances of obtaining shares at lower prices. Later, an auction scheduled for 29 May on the Ukrainian Stock Exchange (UFB) was cancelled after no bids were submitted. Then, auctions scheduled to take place on the UFB on 5, 12, 19 and 26 June, 3 July and 10 July also failed due to a lack of bids. Meanwhile, auctions scheduled to be held on the Kyiv International Stock Exchange on 5 July and 12 July were also cancelled with no bids placed. Also, on 19 June the Kyiv Economic Court imposed a ban on the sale of Ukrtelecom’s shares at auctions pencilled in for 21 June on the Kyiv International Stock Exchange, 11 July on the Ukrainian Interbank Currency Exchange and 1 August on the Inneks exchange. The court issued the ruling according to the solicitation of another plaintiff, private company Transcom.

Nina Yavorska, head of the SPF’s press service, said recent court decisions that banned sales of Ukrtelecom’s stakes frightened off potential investors. Nevertheless, she said that ‘we offer stakes for sale almost every day.’ The SPF says it is preparing to offer 37.86% of the former monopoly on the London Stock Exchange, but the Kyiv Post reports that few analysts actually expect the tender to go ahead. Oleksandr Ryabchenko, director of the Kyiv-based International Institute for Privatisation, Asset Management and Investments, said the SPF’s privatisation strategy was doomed from the very beginning. Ukrtelecom ‘needs a strategic investor fast’, he added.

The repeated failure to sell stakes in Ukrtelecom has provided political ammunition for the country’s pro-Western president Viktor Yushchenko to criticise the governing coalition of his arch rival, prime minister Viktor Yanukovych, ahead of upcoming early parliamentary elections, scheduled for 30 September 2007. Yushchenko has over the years called for a majority stake in the telco to be privatised to a strategic investor capable of infusing fresh capital needed to compete with fast-growing mobile operators that have eroded its potential client base. On 4 July, Yushchenko’s administration once again urged the government and the SPF, headed by Socialist Party member Valentyna Semenyuk, to move forward with the sale of a controlling stake rather than ‘wasting time’ with minority share auctions. Such a strategy has in the past year been widely opposed by Yanukovych’s government and the SPF. Currently Ukrtelecom is 92.778% state-owned. A 7.14% stake was privatised on privileged terms to employees (2.14%) and top management (5%) in 2002.

Ukraine, Ukrtelecom (incl. TriMob)