The Cabinet of Ministers initiated the procedure for conveyance of the Odesa Port Plant into private hands

If investors underestimate assets at the "test" auctions, further privatization can stop

Photo: Ukrainian Photo

Premier Arseniy Yatsenyuk approved the plan for placement of shares of three state-owned enterprises at the Cabinet’s meeting on Wednesday. In addition to Dniprometrobud and the Research Institute of Electromechanical Devices, the Odesa Port Plant was added to the list of companies up for privatization. Previously, all three companies belonged to the group G based on classification of the State Property Fund (SPF). According to the Cabinet’s instruction, by October 31 the SPF should hold auctions for the sale of 5% of the shares of all three companies in order to assess their market value and by June 30, 2015 hold tenders for the sale of their controlling stakes. By doing so the government plans to gain revenues to the state budget and attract investments to improve the financial standing of the enterprises, according to expert conclusions.

In compliance with the information disclosure system of the National Securities and Exchange Commission (NSEC), the net profit of the OPP in the first half of this year increased by 0.4% (to UAH 11.24 mn) to UAH 2.9 bn UAH and its gross loss decreased fourfold by UAH 50.9 mn to UAH 16.8 mn. In 2013 the financial results of the OPP left much to be desired: the company’s net loss increased 9.9 times or by UAH 1.03 bn compared to 2012 to UAH 1.143 bn. The plant’s net profit based on results of 2013 decreased by 8.7% to UAH 467.5 mn. However, the short supply of gas in the second half of the year will significantly worsen its financial performance by year’s end.

Putting up for sale 5% of the OPP will launch the «large-scale privatization» promised by the current Cabinet. «The government is initiating the largest privatization, offering the Verkhovna Rada to strike 1,251 companies from the list of companies prohibited for privatization. In the case of the OPP and other plants, we suggest that the test stock of shares of up to 5% be placed on exchanges in western countries, not in Ukraine, in order to determine their true value,» said Yatsenyuk. In particular, the government is considering the Polish stock market — Gielda Papierow Wartosciowych w Warszawie. Yet experts interviewed by Capital doubt the possibility of IPO on western stock exchanges in such a short time. Head of the Warsaw Stock Exchange Office in Kyiv Andriy Dubetsky says the process of introduction of Ukrainian companies on the WSE will take from six months to a year. «Placement is the end result, which shall be preceded by extensive preparatory work at the level of consultants and it also requires the company’s compliance with corporate governance standards,» says Dubetsky.

The small size of the stake may also be an obstacle. On the one hand, free floating on the WSE should be at least 15% or 100,000 shares (according to the Cabinet’s instruction 5% will be offered for sale, which is 39.9 million shares — Capital). On the other hand, the placement of such a small stake, including commissions for the services of all consultants, will be economically unsound. Therefore, it is most likely that on October 31 the shares of OPP will be offered for bidding on one of Ukraine’s stock markets «according to the method of auction for the raising and lowering of prices». However, in this case, the success of sale of 5% of the company’s shares by the government seems rather doubtful. «Experiments of the State Property Fund in the sale of minority stakes of power supply companies through exchanges have failed in the past. For example, in June the SPF could not sell any shares from the 5% stake of Kharkivoblenergo and Khmelnytskoblenergo at starting prices of UAH 75.6 mn and UAH 18.2 mn, respectively,» says Managing Partner at Elliott Capital IC Mykhailo Umnikov. The same fate befell the stocks of Mykolayivoblenergo (5%) and the Dniprodzerzhynsk HPP (6,873%). According to the press service of the State Property Fund, in all cases the auction did not take place for one reason — there were no bids. As a reminder, the Cabinet projected proceeds of UAH 17 bn from the sale of state property in 2014.

The 5% stake of the OPP is estimated at UAH 39.927 mn, according to the decree of the Cabinet. Thus, the nominal value of 100% of shares of the OPP is worth UAH 798.5 mn (slightly more than US $63 mn). Yet earlier the government stated that it expects to receive 10 times more for the enterprise — at least US $600 mn. Acting Chair of the State Property Fund Dmytro Parfenenko says selling 94.6% share package at such a price it is quite realistic. Indeed, four companies have already expressed their interest in buying the OPP. Parfenenko refused to name these companies, but said that one of them is French, two are concerns from Qatar and Japan and another company from the Middle East.