Ukrtelecom parent group reaches final settlement with former owner

4 Oct 2019

SCM Financial Overseas – part of Ukraine’s SCM group, the parent of national telco Ukrtelecom – has reached a final settlement with Cyprus-based Raga Establishment (formerly Epic Telecom Invest) in a legal dispute regarding SCM’s 2013 takeover of Ukrtelecom. SCM’s statement on its website confirmed that the formal agreement on 1 October means that ‘all existing proceedings ongoing between Raga and SCM and their affiliates shall be discontinued’.

The statement did not, however, disclose the monetary value of the settlement.

SCM – the conglomerate wholly owned by Ukrainian tycoon Rinat Akhmetov – bought its 92.79% controlling stake in Ukrtelecom (including cellco TriMob) in October 2013 via the purchase of local holding company Epic Services Ukraine (ESU) from investment fund Epic, which had itself acquired the telco via the government’s privatisation tender in March 2011 for UAH10.58 billion (worth USD1.32 billion at that date, but just USD425 million at today’s exchange rate). The subsequent purchase price agreed in 2013 between SCM and Epic was not disclosed at the time. However, in June 2017 the London Court of International Arbitration ruled that SCM owed USD760 million in unpaid debt from its Ukrtelecom takeover to the former Epic Telecom Invest – now Raga – plus USD60 million interest/costs, due to the fact that it had only paid USD100 million of the stake’s asking price of USD860 million (equivalent to UAH7 billion at October 2013 exchange rates; worth UAH21 billion at current prices). SCM’s excuse for not paying was that Epic (Raga) had failed to fulfil investment obligations stipulated by the 2011 privatisation contract, but in May 2018 it lost a London High Court appeal against the arbitration decision, ostensibly making it liable to pay Raga at least USD820 million.

The actual amount SCM pays Raga in their final settlement is likely to be significantly smaller. bne IntelliNews quoted Alexander Paraschiy of Concorde Capital who asserted that the latest agreement involved a ‘much smaller’ payment, ‘no more than 50%’ of the arbitration award (i.e. less than USD410 million), in keeping with Ukrtelecom’s diminished value. Paraschiy added that a key source of funding for its payment to Raga could be dividends from SCM’s majority-owned subsidiary Metinvest (a steel and mining group operating across Europe and the US). The Concorde analyst also claimed that the resolution of the Raga dispute puts SCM in a better position to settle separate pending issues with two Ukrainian state-backed banks threatening its ownership of Ukrtelecom.

Recall that in August 2019 the State Executive Service under Ukraine’s Ministry of Justice ‘arrested’ SCM’s controlling stake in Ukrtelecom due to non-payment of debts to Oschadbank totalling nearly UAH1.8 billion (USD72 million at today’s exchange rate) stemming from a UAH1 billion bond. Furthermore, the State Executive Service opened a procedure aiming to recover UAH810 million owed by the group to UkrEximbank representing interest on bonds. Oschadbank and UkrEximbank had filed claims after SCM failed to fulfil a 2015 pledge to buy out the existing UAH2 billion bonds of holding company ESU.

Ukraine, Ukrtelecom (incl. TriMob)