Ukraine investigates sale of Motor Sich shares, suspects sabotage

A local Kyiv court ruled to freeze 41% of the shares
of aircraft engine producer Motor Sich (MSICH UK) that have been accumulated by
six offshore companies allegedly controlled by a Chinese citizen, according to
media reports on Sept. 11. The court ruling was issued on Sept. 7 as part of a
State Security Service (SBU) investigation of possible sabotage (as defined by
actions aimed at damaging assets that have importance for the economy or
defense sector). According to court materials, a Ukrainian citizen (most
likely, Motor Sich president Viacheslav Boguslayev) sold in 2016 some of the
48.8% of shares in the company that he owned to a Chinese citizen (identified
in court documents as the owner of Chinese company Beijing Skyrizon Aviation
Industry Investment). This has led to the concentration of a 56.01% stake in
Motor Sich in the hands of a Chinese citizen, without the permission of
Ukraine’s Antimonopoly Committee, as required by law. According to court
documents, the seller was aware of the “possibility of weakening Ukraine as a
state” from ruining the Motor Sich enterprise by reallocating Ukraine’s
production assets abroad.

Motor Sich is a monopoly producer of engines for most Russian helicopters and Ukrainian civil and military/cargo airplanes.

Alexander Paraschiy: The
possible gain of control over Motor Sich by a Chinese entity indeed adds the
risk that some of the company’s orders and assets will be reallocated to China
(which is clearly negative for Motor Sich’s future fundamentals). All this is in
line with our view that there is no clarityabout the company’s long-term future.

Boguslayev, a current member of parliament with the
Opposition Bloc, is known for his staunch pro-Russian positions. Therefore, the
SBU’s suspicion of sabotage might have some grounds. Nevertheless, this story
looks more like pressure exerted by the Poroshenko administration on a
political rival. The only visible violation in the alleged purchase by a
Chinese citizen of Motor Sich shares is a breach of anti-monopoly regulation.
We can’t find any crime in the possible sale of a stake in a public company by
the 78-year-old Boguslayev.