Ukraine court rules to return Ukrtelecom to state, SCM to appeal

The Kyiv Economic Court satisfied the claim of the
State Property Fund of Ukraine and ruled to cancel the sales-purchase agreement
of a 92.8% stake in Ukrtelecom (UTLM UK), the Fund’s press service reported on
Oct. 19. With that ruling, the stake – sold for UAH 10.6 bln in 2011 – should
be returned to state ownership. On top of that, the court ruled to penalize
Ukrtelecom’s buyer USD 81.9 mln for breaching investment commitments, the Fund
reported. The cited reason for the court’s decision were nonfulfilment by
Ukrtelecom’s buyer of a USD 450 mln investment plan in the five years after
privatization. On top of that, the buyer failed to spin off to the state
Uktelecom’s division that provides special communication services for
government agencies.

The state won’t have to pay any compensation to the
buyer as legislation stipulating such compensation was amended in 2012,
according to the Fund’s acting head, Vitaliy Trubarov.

Ukrtelecom’s main shareholder, ESU, which is
controlled by Ukraine’s biggest business group SCM (controlled by Rinat
Akhmetov), announced it will appeal the decision, according to an
Interfax-Ukraine report. Moreover, it said it will continue its massive
investments in the development of Ukrtelecom’s telecommunications networks.

Alexander Paraschiy: The ruling
won’t take effect once ESU files it appeal. ESU’s comments that it will
continue investments into Ukrtelecom suggest confidence it will be able to
settle the conflict with the government and avoid cancelling the privatization.

In our view, they have a solid chance at compromise,
as cancelling the privatization will bring a lot of trouble to the government.
First of all, the cancelation would harm the image of the government, which is
still planning to privatize dozens of large assets. Secondly, it will generate
losses to state banks Oschadbank and Ukreximbank, the key creditors of ESU with
over UAH 4 bln in outstanding loans. On top of that, there is a risk that the
government will have to return money paid for Ukrtelecom in 2011, depite
Trubarov’s claims.

All this, as well as SCM’s positive experience in
fighting for its privatized assets, suggests the chances for Ukrtelecom
returning to state hands are not high, unless Akhmetov is interested in giving
up the company.