Ukraine Sets Steel Auction, PM Predicts Big Price

KIEV, Ukraine -- Ukraine on Wednesday announced the date and conditions for a re-run of its largest and most contested privatisation, the vast Kryvorizhstal steel plant, and the prime minister predicted the sale would fetch a big price.

Prime Minister Yulia Tymoshenko

The new auction, with the starting price set at 10 billion hryvnias ($2 billion), comes after President Viktor Yushchenko denounced the original sale as "theft". Several foreign companies have expressed interest in buying the mill.

Yushchenko made the selloff a major issue in last year's presidential campaign, which he eventually won after a new vote was ordered over electoral fraud.

His radical prime minister, Yulia Tymoshenko, speaking to reporters after the State Property Fund set the auction for Oct. 24, predicted at least five bidders would be in the running. She suggested the sale could bring in more than $3 billion.

"Kryvorizhstal will be sold beautifully," Tymoshenko told a news conference.

At least one steel analyst seemed to agree.

"I think that, on value for money, $2 billion is perfectly fair," Timothy McCutcheon of Aton brokerage in Moscow said, referring to the starting price. "I don't think the Ukrainian government is going to have a problem getting people to bid."

The new sale of 93.02 percent of Kryvorizhstal, set for Oct. 24, was announced in the State Property Fund's official gazette. Court rulings overturned last year's sale for $800 million, which was below other offers, to a group of businessmen closely linked to Ukraine's previous authorities.

PRODUCERS CONFIRM INTEREST

Two major producers -- Mittal Steel (ISPA.AS: Quote, Profile, Research) and Arcelor (CELR.PA: Quote, Profile, Research) -- confirmed their interest in the steel works, which has annual capacity of 7 million tonnes.

"We are obviously ready to continue to grow. That is the nature of our company, the nature of our business," said Mittal Steel's Chief Financial Officer Aditya Mittal.

"I can confirm that we have expressed our interest, and nothing has changed," said Arcelor spokesman Luc Scheer.

Russia's Evrazholding (HK1q.L: Quote, Profile, Research) and Severstal (CHMF.RTS: Quote, Profile, Research), which have both expressed interest in Kryvorizhstal in the past, both declined to comment.

Revenue from any sale is key for a government saddled with huge social obligations. It will also show whether foreign investors are willing to come to Ukraine after months of rows within the administration and confusion over economic strategy.

"This is an important event from various viewpoints, above all the legal situation," said Zsolt Papp, emerging market strategist at ABN AMRO in London. "The old owners are still pursuing the case in courts and raises the question whether putting it up for auction could be a bit premature."

Contested post-Soviet privatisation has proved to be one of the most divisive issues tackled by Yushchenko's administration.

Ministers have been bickering for months over what to do with sales conducted in dubious circumstances under the previous government. Courts are deliberating over dozens of cases.

A successful sale would help offset expenditure linked to the doubling of pensions during last year's campaign. The current government, its eyes on a general election next March, introduced a pensions increase of its own.

Privatisation revenues have so far failed to materialise.

"This year's privatisation target is $1.4 billion and so far they have only raised a 10th of that. Obviously the market would love it if they sold the steel assets," Frank Gill, emerging markets strategist at IDEAglobal in London.

But analysts suggested the sale would not be easy. And it could take longer than anticipated.

The plant's former owners, who included metals magnate Rinat Akhmetov, Ukraine's richest man, and Viktor Pinchuk, son-in-law of ex-President Leonid Kuchma, are pursuing court appeals.

The government, which has no investment adviser on the sale, said it will accept applications up to Oct. 17. The State Property Fund said bidders would have to provide proof of long-term activity in Ukraine's metals industry. It ruled out offshore buyers and demanded disclosure of ownership structures.

Winners must also fulfil other demands, including keeping Kryvorizhstal's full product range and capacity, sustaining annual revenues at about $2 billion for five years, covering domestic consumption and modernising equipment.

Source: Reuters

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