Ukraine parliament adopts “Ukrnafta law”

Ukraine’s parliament (the Verkhovna Rada) adopted a law that reduces the quorum for shareholder meetings from 60% to 50%+1 of voting shares, the Rada website reported on Jan. 13. The available draft of this law stipulates that it will be valid only for companies in which the state is the owner of a 50%+1 stake. The final version of the law has yet to be published, but MP Mustafa Nayyem clarified in his blog that the final version will reduce the quorum for all joint stock companies as of 2016 and for state-controlled enterprises immediately.

The law is aimed at increasing the government’s control over Ukrainian oil giant Ukrnafta (UNAF UK), in which the state, via Naftogaz, controls a 50%+1 stake. The private holders, linked to Privat Group of Ukrainian tycoon Igor Kolomoisky, control about 42% of the company’s shares and have operating control via its management, whom the state cannot replace. Under the current 60% quorum, the private shareholders have an option to block any Ukrnafta shareholder meeting should its agenda contains items they do not like (e.g. management replacement, paying high dividends, etc).

Alexander Paraschiy: Clearly, we should wait to see the version of the law that’s ultimately approved by the Rada to confirm whether the government indeed gained a chance to achieve operating control over Ukrnafta. If so, this would be an important step towards increasing the state’s manageability over its holdings and a good signal to the international community that shows that the government is effective in challenging powerful oligarchs like Kolomoiskiy.

Recall, Kolomoiskiy is not only one of the richest people in Ukraine, but he is also a powerful politician as governor (state oblast administration head) of the Dnipropetrovsk region, which is the most economically powerful at the moment. Legislative initiatives to change the quorum have been attempted by different politicians – including former Prime Ministers Tymoshenko and Yanukovych – many times in the past, but they all failed.

Ukrnafta shares jumped 16.2%, indicating that investors support the move. At the moment, however, it is hard to estimate the effect of possible management replacement at Ukrnafta on the company’s fundamentals. It might not necessarily be positive.