Ukraine parliament approves IMF-requested bill easing privatization

Ukraine’s parliament approved on Jan. 18 the second reading
of legislation to ease the privatization procedures of state assets by
eliminating unnecessary bureaucratic impediments. The legislation, which has
been demanded by the IMF to grant its next loan tranche, simplifies the
classification of state companies by separating them into two groups only
(small and large, with their threshold being the book value of total assets at
UAH 0.25 bln).

Based on the draft available prior to the vote, small
enterprises will be sold via electronic auctions, with the starting price set
as the book value of a company’s assets. Large companies will be sold at
privatization auctions with the mediation of advisors to lead the M&A
process (or without advisors, if their selection process fails). Their starting
prices will be set by an advisor or (in his absence) by the privatization
commission. In case a single participant signs up for a privatization tender,
the State Property Fund will be free to decide on whether to sell a company to
this participant at a price that is not less than the starting one. In case of
the tender’s failure, the asset will be offered at a lower price (no less than
50%) for additional auction, if any bidder appears.

A key peculiarity of the new law is that it will allow
a potential bidder to sign an M&A deal (before end of 2020) under English
law, according to Economy Ministry comments on Jan. 18. The ministry believes
this will significantly widen the circle of potential bidders due to their
better legal protection.

Alexander Paraschiy: We have yet
to see the final version of the adopted law, particularly after some amendments
were introduced, but the renewed draft looks much better than the document approved in the first reading
on Nov. 9. In particular, it states the obligation (not an option) to hire a
financial advisor, as well as reduces the risk of the process being blocked by
the Cabinet of Ministers (in the first draft, it was the Cabinet, not an
advisor, who decided on the starting price of large assets; and it was the
Cabinet, not the State Property Fund, that could decide on a new tender in case
the first one failed). Therefore, the draft prepared for the second reading (if
not changed significantly at the last minute at the parliament session) will
indeed make the privatization process in Ukraine faster, simpler and more
transparent. In our view, such a law will fully satisfy the demands of the IMF.

Unfortunately, the law can’t overcome the lack of
political will to initiate large privatization process in Ukraine, which leaves
us skeptical about this process starting in the near future. However, the
chances for a long-awaited large privatization wave now look higher. Most
likely, we will see the demand for concrete results of a privatization process
in forthcoming memoranda to be signed by Ukraine with its Western financial
supporters.