Monday, October 24, 2005

Mittal Steel Wins Crucial New Auction of Ukraine Giant

KIEV, Ukraine -- With a bid of 4.8-billion dollars, the world's top steel maker Mittal Steel won a re-run auction of Ukraine's Kryvorizhstal giant, in a sale the "orange revolution" government hopes will calm investor jitters and attract foreign investment.

Kryvorizhstal steel mill in Krivoy Rog

Mittal was declared the winner of the 93.02-percent stake in Ukraine's largest steelworks after a bidding war with a consortium led by France's Arcelor pushed the price up by more than one billion dollars in an auction televised live on two national channels.

President Viktor Yushchenko, for whom the sale was a key test of his government's avowed commitment to transparency and free market, hailed the result, saying that the sale price exceeded by 20 percent all privatization proceeds in post-Soviet Ukraine.

"What happened today shows that Ukraine is capable of holding an honest privatization," Yushchenko, who was present in the building where the auction took place though he did not attend the sale itself, said in televised comments.

At his side, a jubilant Prime Minister Yury Yekhanurov echoed the sentiment.

"International investors today have felt that the climate in Ukraine has changed," he said.

The winning price far exceeded expectations that the plant would be sold for slightly higher than three billion dollars.

"It was a huge sum... a fantastic sum," a beaming Dmytro Parfenenko, deputy head of the State Property Fund who oversaw Monday's auction, told reporters afterward.

After the sale, Yushchenko met with Lakshmi Mittal, the Indian-born British billionaire whose family owns the Netherlands-based Mittal, whose German affiliate was the buyer during Monday's auction.

Mittal told reporters later in the day that the new owners intended to raise annual production to 10 million tons, up from current seven million tons, and that the mill's entire 56,000 workforce would keep their posts.

"I'm really a bit nervous," he said. "We're a foreign company, we have to learn more about the country, more about the people... (but) we're very confident of what we're doing, we're the most successful steel company in the world."

Kryvorizhstal's current output boosts by 10 percent Mittal's worldwide production capacity, which stood at 70 million tons before the sale. In 2004, the giant delivered 42.1 million tons to the international markets.

The stakes of Monday's highly-scrutinized sale for Yushchenko and his team are high.

The authorities hope to use the funds to plug a budget deficit and to increase social spending ahead of a key parliamentary vote next year, and also aim to convince foreign investors to put aside doubts and pour badly-needed funds into the country.

Analysts hailed the auction as a major victory for Yushchenko ahead of crucial legislative elections next March.

"The sale of Kryvorizhstal demonstrates that... Ukraine is entering a post-oligarchal era," said Vadim Karasyov, a political analyst in Kiev. "The position of the president and the new government are quite strong."

Yushchenko came to power early this year after leading last year's "orange revolution" on vows of fighting corruption and carrying out reforms necessary to set ex-Soviet Ukraine firmly on a pro-Western path.

But despite massive positive sentiment that followed the "orange revolution," investors have stayed away, spooked by contradictory messages from the government on reviewing past questionable privatizations, and foreign direct investment dropped by 14 percent during the first half of this year.

Kryvorizhstal was initially privatized last year in a contest that saw the nation's largest steelworks sold to two top insiders of the former regime for 800 million dollars.

The sale became a symbol of the corruption and cronyism that was rampant under former president Leonid Kuchma, and Yushchenko vowed to review the auction after he assumed power earlier in the year.

A court in April ruled last year's auction unlawful and ordered the stake returned to the government.

The repeat sale has been vigorously opposed by several factions in parliament, including opposition Communists and the Socialists, which have several members in the current government.

Last week the chamber passed a non-binding resolution demanding the steelworks remain in state hands, and following Monday's auction the chief of the State Property Fund Valentina Semenyuk, a Socialist, said she was resigning from her post in protest of the sale.

Source: AFP

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