Ukraine announces sale of 25% stakes in eight utilities for USD 160 mln

The State Property Fund of Ukraine announced on July
24 the privatization of the state’s 25% stakes in eight electricity distrubtion
and generating companies. The public auctions will be held on Aug. 15-18, with
total starting price of the stakes being UAH 4.14 bln (USD 160 mln at the
current exchange rate).

The list contains power DisCo Odesaoblenergo (ODEN UK,
starting price USD 24 mln), which is controlled by the VS Energy business group
with Russian roots; power GenCo Donbasenergo (DOEN UK, starting price USD 26
mln); and power DisCo Sumyoblenergo (SOEN UZ,  starting price USD 14 mln)
controlled by Igor Kolomoisky and Kostiantyn Grigorishyn.

It also contains stakes in five companies controlled
by DTEK (DTEKUA) at a total starting price of USD 95 mln: power GenCos
Zakhidenergo (ZAEN UK) and Dniproenergo (DNEN UK), power DisCos Dniprooblenergo
(DNON UK) and Donetskoblenergo (DOON UK), and integrated utility Kyivenergo
(KIEN UK).

Alexander Paraschiy: The
privatization of “some” stakes in power distribution companies was mention by
the IMF in its April memorandum with Ukraine, but we believe the IMF has in
mind other energy companies in which the state has controlling stakes. That
would mean even successful tenders won’t allow Ukraine to claim it’s fulfilling
the IMF’s requirements. But nevertheless, it would be a good result if the Fund
will be able to sell in August at least two of the announced eight stakes. That
will allow the government to boast of the best privatization result in the last
four years (in 2014-2016, annual proceeds from privatization were just USD 7-39
mln).

Of all the stakes, we see a high chance for only
Odesaoblenergo, whose key shareholders have been trying to buy the state’s
stake for more than a decade. Interestingly, the key shareholder in VS Energy
holding, Alexandr Babakov, is on the Crimea-related sanctions lists of the EU
and the U.S., while Ukraine imposed no sanctions against him. 

There is some modest chance that outsider investors
will be interested in the privatization of power DisCos for speculative
purposes (as the planned implementation of RAB-based regulation should boost
their value), including SOEN, DNON and KIEN. But we see no reason for anybody
to participate in tenders for ZAEN and DNON – power generation companies
controlled by DTEK. In our view, they are empty shells, with all their power
plants being directly managed by DTEK’s generating division.

DTEK, the only party that can buy them, is unlikely to
do so, given its tough financial position. At the same time, we do not rule out
their privatization, particularly if there is an under-the-table deal between
DTEK and current power brokers. The starting prices of all DTEK-related assets
are much lower than the prices DTEK paid (in dollar terms) for their
privatization in 2011-2012.