Ukraine’s largest steel maker, Krivorozhstal, is to be resold in October, in the first sign that government wrangling that has lasted for months is beginning to be resolved. The disputes have concerned the extent to which some of the most controversial company privatizations made under the previous administration should be reversed, with the companies in question being put up for sale again. Since president Viktor Yushchenko was swept to power in last December’s Orange Revolution, the president and his prime minister, Yulia Tymoshenko, have been embroiled in public arguments about the number of companies to be reprivatized.
Yushchenko has been trying to calm investors’ fears of a widescale investigation into privatizations running into the thousands by saying the number should be limited to “dozens”.
The Ukrainian authorities have set the minimum asking price for a 93% stake in Krivorozhstal at $2 billion, which would make it one of the largest ever privatizations in the CIS.
The auction date is set for October 24. “Given the Ukrainian steel company’s scale we believe $2 billion is a reasonable starting price and indeed the Ukrainian government may end up fetching more as there is a dearth of such major steel assets in Europe,” says Timothy McCutcheon, a metals and industrials research analyst at Aton Capital.
Mittal Steel, Arcelor, Severstal and Evraz Holding are believed to be preparing bids.
Analysts are waiting to see exactly how transparent the process will be. There is unsubstantiated speculation that Tymoshenko might have struck a private deal with one of the bidding companies that exempts it from meeting all the terms of the tender on condition that it remains loyal to the new government, according to research from brokerage house Troika Dialog.
Troika values the Krivorozhstal stake at about $2.4 billion, although it believes that the price could go as high as $3 billion. “None of the Russian players has enough cash to pay such a price right away, but it should be no problem to arrange ad hoc financing given that Krivorozhstal itself is debt-free,” says Troika analyst Sergey Donskoy.
Krivorozhstal is the most prominent privatization to have been scrutinized by the country’s new rulers. The company was originally sold last year when a consortium of bidders led by former president Leonid Kuchma’s son-in-law was awarded the company after making a bid of $800 million – despite bids from Russia’s Evraz Group of $1.18 billion, Severstal’s $1.2 billion and US Steel’s $1.5 billion.
That deal was officially annulled on June 2, and the shares handed back to the government later in the month.
Kuchma’s son-in-law, Viktor Pinchuk, was also ordered by a court at the end of July to return his consortium’s controlling stake in the Nikopol Ferroalloy Plant, which he had bought for $81 million in 2003, after the sale was declared illegal.
Ukraine’s PFTS index reached new highs last month, posting a record level of 352.51 on August 22, buoyed by foreign buying and the strong performance of Russia’s stockmarket. The news that Raiffeisen Bank has decided to buy a 93.5% stake in Aval Bank, the country’s second-largest bank, and progress with the Krivorozhstal privatization also supported equity prices.
The government had also been due to sell a 1.74% stake in Krivorozhstal on the local market, but has postponed this until the fourth quarter.
