Bad news and good news for Ukrtelecom in ownership court cases

14 Dec 2017

The owner of Ukraine’s largest fixed network operator Ukrtelecom, holding company ESU (wholly owned by Ukrainian conglomerate SCM Group), has lost a petition in Kyiv’s Court of Appeal against the decision of the Kyiv Economic Court on 19 October 2017 invalidating the March 2011 privatisation agreement under which the State Property Fund sold a 92.79% stake in the operator to Austrian investment fund Epic via 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. The owner confirmed that it would launch a fresh appeal against the latest decision issued on 12 December 2017, telling Interfax-Ukraine: ‘ESU disagrees with the decision of the appeal court and will use all procedural opportunities, including the submission of a cassation [i.e. taking the case to a higher court],’ adding that Ukrtelecom is ‘operating as usual’.

In addition, the Kyiv court of first instance in October 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. 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). However, there was some positive news for SCM this week when Ukrtelecom won a court of first instance ruling in a lawsuit against Oschadbank, reports. Akhmetov’s company demanded to terminate the agreement on the sale of bonds to the state bank for the amount of UAH1 billion and to cease its related obligations. The Kyiv Economic Court agreed with SCM/Ukrtelecom, although the bank says it will appeal.

Ukraine, Ukrtelecom (incl. TriMob)