Ukraine lowers starting price of Odesa Portside Plant

Ukraine’s Cabinet of Ministers approved on Oct. 19 the conditions of a repeated attempt at a privatization tender of Odesa Portside Plant (OPP), a large nitrogen fertilizer producer, the Cabinet’s website reported the same day. “The State Property Fund of Ukraine has now suggested a starting price for the auction of the plant at UAH 5 bln. Thus, the basic conditions of participating in the OPP tender are much better than in May,” said the release, citing Prime Minister Volodymyr Groysman. The starting price discussed at the Cabinet meeting was UAH 5.16 bln (USD 200 mln), according to Interfax-Ukraine.

Recall, the government was unable to attract any potential investor at its July tender in which it asked for at least UAH 13.175 bln for OPP’s 99.6% stake, or about USD 520 mln. Later on, State Property Fund Head Ihor Bilous suggested that the starting price could be lowered to USD 150 mln.

Alexander Paraschiy: Thus far, the document listing all the tender conditions is not available to the public, so we cannot evaluate whether the conditions are “much better” indeed. But if the change in tender conditions only involves the starting price, we do not see any improvement. As earlier calculated by Bilous, OPP now officially owes tycoon Dmytro Firtash over USD 250 mln (and this debt was not accounted for in the previous valuation of the starting price) and the plant had a working capital deficit of about USD 100 mln, which requires corresponding additional investments, either from a new owner or from increased debt. If we add these two numbers to the “better” starting price, we would get a total acquisition cost of USD 550 mln.

When also taking into account that the conflict between the State Property Fund and the 2009 OPP privatization tender winner has not been resolved, we see no improvements in the plant’s value. And given that prices of OPP’s key product, ammonia, are 30% below the levels recorded before the July tender, it’s likely that the plant’s value has decreased since then. All this makes us pessimistic about the ability of Ukraine to sell OPP at the declared new starting price.