Shares of privatized First Kyiv Machinery Plant arrested

On demand of the State Bureau of Investigation (the
DBR), an investigative judge has arrested 100% of the shares of the First Kyiv
Machinery Plant, the DBR reported on Jan. 13. The plant was sold to General Commerce ltd, a
company related to real estate businessmen Vasyl Khmelnytsky and Andriy Ivanov,
for UAH 1.429 bln, in late October 2021. The plant’s most valuable asset is a
land plot near central Kyiv of about 35 ha that is suitable for real estate
development.

According to the DBR, the plant’s sale was unlawful
and brought losses to the interest of the state. Namely, the DBR alleges that
the appraisal of the plant before its privatization had occurred with
violations that led to the under-estimation of its value. It initiated a
criminal investigation into an official’s abuse of power.

The plant was the first large privatization object
sold under a new law, adopted in 2018. Its sale was the biggest deal of the
State Property Fund since 2013, and it contributed 28% to Ukraine’s total UAH
5.1 bln privatization proceeds in 2021.

Alexander Paraschiy: While indeed the selling price of the plant was below experts’
expectations, a pressure of law enforcement bodies on the privatization agency
and the tender winner brings few benefits to the government. In particular, it
decreases the chance for the next privatization of large assets to succeed.
First, the officials of the State Property Fund will have to be overly careful
while approving the appraisal (and thus the starting price at the auctions) of
large assets. In this way, the selling price of large companies might be
unattractive to potential investors. Secondly, the pressure imposed on the
privatization auction’s winner might scare away potential investors from the
next large auctions.