The Legal Industry Reviews Ukraine, July 2023
Ukraine has redefined the phrase "necessity is the mother of invention". In a display of resilience amidst war, the country has expedited the privatization process of state assets, a task that had previously been caught in the gears of bureaucracy since the 1990s. The intensifying conflict has prompted the government to shed hesitations of securing the optimal price, as the urgency to finance the war effort overshadows all else.
A history of delaying privatization, in anticipation of ideal market conditions for achieving maximum asset prices, led to the State retaining a substantial portfolio of loss-making assets. However, the harsh realities of war necessitated a radical change in strategy.
2022: Privatization Accelerates
The reactivation of privatization in July 2022, following a brief pause in March 2022 due to the war, marked a significant shift in Ukraine's approach. The rules were dramatically simplified: audits and appraisals of state assets were rendered optional, auction periods were trimmed, the starting prices were slashed, and the paperwork required for auction participation was digitalized.
The outcome of this audacious strategy has been impressive. Despite the ongoing war, Ukraine has successfully auctioned off assets amounting to approximately USD 46 million in 2022, and a further USD 50 million in the first half of 2023. The resulting inflow of nearly USD 100 million to the state budget is a testament to the success of the wartime privatization.
Most importantly, those results attribute solely to the the so-called "small scale" privatization of assets not exceeding USD 7 million, while the "large scale" privatization was suspended until recently.
2023: The Rise of Large-Scale Privatization
As of July 2023, Ukraine has unlocked the large-scale privatization. With this move, major state-owned assets will be offered to potential bidders under new privatization rules. Now, privatization auctions in respect of "large scale" assets will be held digitally without the involvement of investment bankers at an accelerated pace The starting bids for these assets could be as low as their balance sheet values.
It implies that the destinies of Ukrainian state behemoths such as the Mining and Chemical Company (one of the largest titanium producers in the world) and the Odesa Portside Plant (a strategic producer of ammonia and carbamide) will be decided in the open market.
Although a detailed timeline for large-scale privatization has not been officially laid out, the State Property Fund of Ukraine has hinted that the first auctions could commence as early as the third quarter of 2023.
Over 3,600 state-owned assets remain in Ukraine, with the State Property Fund of Ukraine overseeing more than 2,300 of them. However, over 1,200 of these entities are due for liquidation, and approximately 700 are located in temporarily occupied territories, leaving a scant 400 items up for privatization.
The pace of privatization suggests that these assets may soon be snapped up. Investors eyeing these state-owned assets must act swiftly, or risk missing the boat in what has become Ukraine's war-fueled privatization marathon.