U.S. working to block Motor Sich sale to China

U.S. National Security Adviser John Bolton is working
to persuade Ukrainian defense officials to block the sale of a controlling
stake in Motor Sich to a Chinese defense holding, the wsj.com news site
reported on Aug. 23. Bolton arrived in Kyiv this morning. “We will speak with
the Ukrainians about China’s ambitions and what we see in what China is
proposing,” an anonymous White House source said, stressing the U.S. is trying
to prevent the Chinese from acquiring aviation engine technology. “This is
all a part of national security strategy and the national defense strategy.
It’s a strategic competition with China.”

Motor Sich (MSICH UK) is among the world’s largest
producers of airplane and helicopter engines, particularly for military
vehicles.

Recall, Ukroboronprom officials agreed to
allow the sale of a majority stake in Motor Sich to
Chinese defense contractors Skyrizon Aircraft and Xinwei Technology Group,
Interfax-Ukraine reported on Aug. 19. In exchange for the controlling stake,
Ukraine’s budget will receive USD 100 mln from the Chinese, while Ukroboronprom
will gain about a 25% stake, depending on approval from Ukraine’s Anti-Monopoly
Committee.

Beijing Skyrizon Aviation started active cooperation
with Motor Sich in 2015, which led to its acquisition of a large stake in the
company. The deal was blocked by a court in September 2017 as part of an
investigation by the State Security Service of Ukraine of threats to national
interests.

Alexander Paraschiy: Ukraine is
not only a battleground between U.S. and Russian geopolitical interests, but
now between U.S. and China. So U.S. interests could put Motor Sich in a bind.
It can’t sell its engines to Russian defense contractors, nor its shares to
Russian investors. Now the same prohibition could be extended to China. Bolton
will have to propose a new option that will keep Motor Sich competitive and
profitable. In our view, the most effective solution is to arrange a purchase
by a U.S. defense contractor, possibly in cooperation with Ukroboronprom.

Alternatively, the U.S. side could make an argument for
the State Anti-Monopoly Committee to reject the sale based on excessive
concentration of the controlling stake by a Chinese holding. However, it’s
worth considering that Chinese firms have been actively cooperating with Motor
Sich for about four years, meaning the U.S. might be too late in its efforts to
block the acquisition of Ukrainian technologies by China.

MSICH public shares remain frozen since April 2018,
with their future unclear.