Ukraine schedules massive privatization for 2H15

The State Property Fund of Ukraine published on June 11 a schedule of privatization auctions for the rest of 2015, which includes a number of big state assets. In particular, the state plans to sell a 99.6% stake in fertilizer producer Odesa Portside Plant, a 100% stake in chemical producer Sumykhimporm, a 78.3% stake in power generation company Centrenergo (CEEN UK) and a 60% stake in power distribution company Zaporizhiaoblenergo (ZAON UK). These companies will be sold in two stages: the first 5%-10% stakes will be sold through stock exchanges in July-September, and the remaining stakes will be sold in privatization tenders in November and December.

On top of that, the fund has scheduled sales of the remaining 25% stakes in power GenCos Dniproenergo (DNEN UK), Donbasenergo (DOEN UK) and Zakhidenergo (ZAEN UK); and power DisCos Kyivenergo (KIEN UK), Dniprooblenergo (DNON UK), Donetskoblenergo (DOON UK) and Odesaoblenergo (ODEN UK). It also will offer 46%-70% stakes in four smaller power DisCos and 100% stakes in four small combined heat and power plants. Sales are also scheduled for machinery plants, coal enrichment factories and even a 16.5% stake in the Zasiadko Mine located in the center of the occupied city of Donetsk.

Alexander Paraschiy: We remain skeptical on the timing of the offer of the large state assets for sale and see a high probability that a lot of the announced tenders will not take place. The total value of all the offered stakes is close to UAH 15 bln, we estimate, and we don’t see the fund achieving this goal this year. Definitely, the current geopolitical environment does not play towards the state getting good prices for its assets. At the same time, some of the assets will likely be of high interest to local players, namely Odesa Portside and Centrenergo.

The offer of 25% stakes in Dniproenergo, Zakhidenergo, Kyivenergo and Dniprooblenergo as soon as August looks very inconvenient for energy giant DTEK (DTEKUA). These assets form the backbone of DTEK, which fully controls their operations and does not want anybody else to buy the offered blocking stakes. The holding is in talks to restructure its debt currently, and it suffers from decreased profitability due to the government’s unbending policy on producers’ electricity rates. These factors suggest that spending about UAH 3 bln for the acquisition of these four stakes (estimated based on the price of the previous privatization tender) might be a big challenge for the holding, which has limited access to debt and cash.