Ukraine schedules Odesa Portside sale for July 26

Ukraine’s State Property Fund (SPF) announced on June 13 it will hold a public tender on July 26 to sell a 99.57% stake in nitrogen fertilizer producer Odesa Portside Plant. The SPF set the starting price at UAH 13.175 bln (USD 526 mln) and will accept applications until July 18. The tender will be valid only if there are two eligible contenders, including at least one non-resident of Ukraine. Investors registered in Russia won’t be able to participate.

Seven potential investors have already signed documents enabling them to participate in the plant’s due diligence, said the same day SPF Head Ihor Bilous, as cited by Interfax-Ukraine. He added that about five additional investors could express their interest in the tender.

On June 2, Reuters reported that the IMF and EBRD sent letters to Ukraine’s prime minister warning that the plant’s starting price is too high for “many reputable investors.” As his response, Bilous said the tender will respond to such concerns, and his task is to secure the competition there.

Roman Topolyuk: The successful sale of the Odesa Portside Plant would be an important step for Ukrainian authorities, who are trying to send a message to investors that transparency is being introduced to Ukraine’s economy. The state enterprise has a long story of corruption scandals, in which competing business groups benefited from manipulating the plant’s cash flows.

The starting selling price of USD 526 mln implies a 1.0 EV/sales trailing multiple, as the plant generated USD 511 mln in revenue in 2015 (+13% yoy), which is close to the lower bound of the 0.9-3.0x range for its international peers. Meanwhile, we admit that fertilizer prices have fallen by a third yoy (ammonia prices plunged 31% yoy to USD 270/ton beginning June), driven by the decreasing price of natural gas, which may respectively impact the plant’s top line in 2016. Accounting for that fertilizers’ prices decline we see the plant being offered to investors at 1.5x forward EV/Sales, which still looks affordable. This multiple does not account for USD 193 mln in the plant’s payables to local businessman Dmytro Firtash (if fully included, forward EV/Sales would reach 2.0x).

The audited IFRS accounts of Odesa Portside Plant haven’t been published yet, so we think the enterprise’s earnings, published according to Ukrainian accounting standards, have been understated (EBITDA of USD 29 mln in 2015, up from minus USD 11 mln a year before).