Appellate court reaffirms ruling to return Ukrtelecom to state

The Kyiv Appellate Economic Court rejected in full an
appeal filed by the private owner of Ukrtelecom (UTLM UK) of a lower court
ruling that cancelled the sales-purchase agreement of the telecom operator, the
State Property Fund of Ukraine reported on Dec. 12. Besides the cancellation,
the court ruled that Ukrtelecom’s key owner should pay USD 81.9 mln in
penalties, the Fund reported.

The State Property Fund sold its 92.8% stake in
Ukrtelecom for UAH 10.6 bln in 2011 to ESU, a company with unconfirmed
ownership, which was later purchased by the SCM business group of Rinat
Akhmetov. In 2017, the Fund initiated a court hearing to cancel the
privatization deal.

The reason for the cancellation was non-fulfilment by
Ukrtelecom’s buyer of a USD 450 mln investment plan in the five years after
privatization, as well as failure to spin off to the state Uktelecom’s division
that provides special communication services for government agencies.

Alexander Paraschiy: Although
there is a chance for SCM’s successful cassation of the recent ruling, now the
Ukrainian government has full authority to return Ukrtelecom to its ownership.
There are little signs that SCM is trying to reverse this ruling, which leads
us to believe that the loss of Ukrtelecom won’t be painful for its business.
Otherwise, Akhmetov can do all his best to prevent the nationalization of
Ukrtelecom, as he did with the contested privatization of power GenCo
Dniproenergo in 2007. In that case, Akhmetov was able to retain control over
the electricity company despite an adverse ruling from Ukraine’s Supreme Court
in 2008.

Among straightforward benefits for Akhmetov from the
possible nationalization of Ukrtelecom is ESU avoiding repaying loans from
state Oschadbank and Ukreximbank. (In which case, we expect the banks will have
more arguments to appeal to the state for new recapitalization.)

Also, Akhmetov may demand the return of money paid
for Ukrtelecom in 2011. If the nationalization is completed, the government
will get yet another headache — the current legislation requires that the
state resell Ukrtelecom in one year.