Kyiv Commercial Court decision keeps Ukrtatnafta in Privat’s hands

The Kyiv Commercial Court endorsed the annulment of the sale of 18.3% of Ukrtatnafta Refinery to AmRuz Trading (8.34%) and SeaGroup (9.96%) in response to a request by the Ukrainian government, Interfax reported yesterday. The stake was initially sold to AmRuz and Seagroup in 1999, followed by a cancellation of the sale in 2001, then reversal of the cancellation in 2002, and a further annulment in 2005 and reversal in 2006. In 2008, the Kyiv Commercial Court annulled the sale to Amruz and SeaGroup and in 2009 Privat Group acquired this share. Antonina Davydenko: Though still subject to appeal, the endorsement of the annulment of the sale ensures Privat’s control over Ukrtatnafta (est. Privat 57%, state 43%), thus enabling the creation of a vertically integrated company with Ukrnafta (UX: UNAF UK). Integration poses dilution risk for Ukrnafta minority shareholders given Privat Group’s attempts to overprice Ukrtatnafta. Ukrnafta’s 1Q11 financials indicated significant price transferring, with Ukrnafta’s profits dropping an unexpected 93% y-o-y to USD 5.8 mln, while Ukrtatnafta posted a surprising USD 73 mln in net earnings in 1Q11 vs. a USD 170 mln loss in 1Q10. Privat recently announced it valued Ukrtatnafta at USD 2 bln, 40% above our estimated value of the refinery.