Chinese firm sues Ukraine in Motor Sich case

Chinese investors in Motor Sich (MISCH UK) have
initiated a legal claim against Ukraine in international arbitration court on
Dec. 5, the DCH Group owned by Ukrainian tycoon Oleksandr Yaroslavsky reported
the same day. Recall, in September, the Unian news agency reported that Chinese
company Skyrizon had sent a notice of investment dispute to the Ukrainian
government, estimating its losses at USD 3.5 bln.

Recall in 2016, Chinese investors accumulated at least
56% of the shares of Motor Sich, Ukraine’s private producer of aeronautics
engines. In 2017, Chinese company Skyrizon filed a request to Ukraine’s
Antimonopoly Committee asking to officially take control over Motor Sich. The
committee has refused to do so. Meanwhile, Ukraine’s State Security Service
arrested Motor Sich’s 56% stake and is investigating a criminal case of state
treason related to the company’s shares sale to the Chinese. Skyrizon tried
unsuccessfully to reach a cooperation agreement with state machinery holding
Ukroboronprom on joint control over Motor Sich. In August, it partnered with DCH Group in its
attempt to gain control. The key opponent to the Skyrizon / Motor Sich deal is
the U.S. government as U.S. Secretary of State Mike Pompeo has called the deal
“malign Chinese investments”.

Alexander Paraschiy: We see the
Chinese claimants as having a solid chance to win the claim, taking into
account that the Ukrainian government has yet to present a reasonable argument
in over three years to explain its reasoning in blocking Motor Sich’s shares.
Nevertheless, the company itself stands to lose the most, as its ownership
structure has been unclear for many years and will likely remain so. That
prevents the company from having a dedicated management team and any strategy
to remain afloat on the competitive aeronautics engine market.

Our understanding is that it’s the U.S. government
that is blocking the Ukraine-Chinese deal in Motor Sich. And there is little
chance that the U.S. position will change with a potential Biden
administration.