Ukrainian conglomerate System Capital Management (SCM Group), the current owner of nationwide fixed telco Ukrtelecom, is appealing a Kiev Economic Court decision invalidating the March 2011 privatisation agreement under which the State Property Fund sold a 92.79% in the operator to Austrian investment fund Epic via holding company Epic Services Ukraine (ESU). SCM – owned by Ukraine’s richest man Rinat Akhmetov – acquired the controlling stake in Ukrtelecom in October 2013 by purchasing 100% of ESU.
If implemented, the court decision would lead to the return of Ukrtelecom into state hands with no compensation to SCM. In addition, the Kiev court ordered the State Export-Import Bank of Ukraine (Ukreximbank) to collect a fine of UAH2.17 billion (USD81.5 million) from ESU (SCM) for failure to fully satisfy obligations of the original share purchase agreement.
As reported by BizLiga, SCM (via ESU) is taking the ruling to the Court of Appeal, whilst noting that the decision from the court of first instance ‘will not affect’ Ukrtelecom’s current operations including its network investment programmes, and adding that ‘ESU considers it necessary to reach a reasonable compromise on the implementation of privatisation obligations.’ The State Property Fund’s February 2017 audit concluded that ESU did not meet some of the privatisation obligations, including certain investment pledges and the promised implementation/transfer of a ‘special communication system’ (secure network) for the state. Furthermore, in May the Prosecutor General’s Office launched an investigation into alleged illegalities in the UAH10.58 billion Ukrtelecom privatisation, which was carried out under the former pro-Russian presidency of Viktor Yanukovych.
Note that Epic’s 2011 purchase of Ukrtelecom was partly financed by two state-owned banks, the aforementioned Ukreximbank and Oschadbank, to which ESU issued bonds worth UAH4.2 billion to fund the second tranche of the purchase price to the State Property Fund. Since acquiring ESU from Epic, SCM is yet to redeem the bonds in full, and has repeatedly deferred repayment (to the end of 2017). TeleGeography notes that SCM/Ukrtelecom had intended to sell its mobile subsidiary TriMob to cover the debts to the state banks, but the latest attempt to offload TriMob was abandoned in November 2016, having not received permission from the necessary authorities; the deal was reportedly not in line with the 2011 privatisation contract (under a clause saying that Ukrtelecom should not sell any part of its business with a market value of more than 10% of its charter capital until all its post-privatisation development conditions in the contract have been met).