A cloud was cast over the latest stage of Ukraine’s marathon campaign to privatise Ukrtelecom, a state telephone company, as officials announced on Tuesday that only one bidder had registered for the auction.
Epic, an Austria-based investment firm, emerged as the sole bidder for a 93 per cent stake in Ukrtelecom, Ukraine’s fixed-line telephone monopoly, for $1.3bn. Ukrtelecom’s shares on Ukraine’s stock market plunged by nearly 9 per cent on the news, a clear negative reaction to what was supposed to be the first big privatization tender run by Viktor Yanukovich since he took over as Kiev’s president last February.
The sale was closely watched to gauge how transparently privatisation will be conducted under his leadership. Concerns remain that valuable assets could be sold off at below market prices to well-connected oligarchs, as happened when Yanukovich served as prime minister in 2004.
The government owns 93 per cent of the company and the privatisation auction was originally planned for December 28. But with only one bid registered, government officials said the sale will be put off until early next year, so that an appraiser could establish a final sale price in the absence of a competitive tender. If Epic agrees to the price set, it could be chosen as the tender winner.
But experts already fear that Ukraine’s government missed its opportunity to sell Ukrtelecom transparently and for its fair worth.
Analysts questioned the transparency of the sale from the get go, when it was launched in October amidst controversy. Tender rules restricted leading global telecoms companies from the bidding. Many top European telecoms companies that have to various degrees expressed interest in Ukrtelecom over the years – including Deutsche Telekom and Norway’s Telenor – were prohibited from taking part in the tender because they are more than 25 per cent government-owned.
A second tender condition prevented bidding by telecoms that had more than a 25 per cent share on the Ukrainian fixed-line and mobile telecom market.
On Tuesday, speculation loomed that Epic was acting as a front for Ukrainian or Russian oligarchs.
Referring to Epic, Tomas Fiala, managing director of Kiev-based investment bank Dragon Capital, said: “They are most likely acting on behalf of a Ukrainian or Russian group. I don’t think Epic has the financial resources to make such a sizable investment on their own.”
Speaking with the Financial Times by telephone, Epic’s managing partner Peter Goldscheider insisted his firm was “bidding alone,” and hoped to raise financing from banks to wrap up the purchase.
“This would be our biggest investment by far,” he said.
“There are no strings attached, no hidden interests,” he added.
In the months after the sale was announced this fall, analysts had expected bids from Ukrainian oligarch Rinat Akhmetov, a close backer of Yanukovich, and Russia’s telecom groups such as Sistema.
Officials at Sistema and its regional mobile phone network operator MTS said their group decided not to bid, concluding that the starting price of $1.3bn was overpriced. An official at System Capital Management, Akhmetov’s holding company, was less clear. Asked if his group could take part in the tender as a partner of Epic via a consortium, he said on condition of anonymity: “not presently.”
“Given the circumstances, how long the company has been on the block and poorly managed, selling it for the starting price to any private investor is progress,” Fiala said. “But if it was competitive tender, Ukraine could have raised up to 1.8bn,” he added.
Ukrtelecom controls about 80 percent of the fixed-line market in Ukraine, a country of 46m citizens. A highly-bureaucratic and mismanaged corporate dinosaur, experts say Ukrtelecom has lost much of its value in the past decade, falling decades behind European peers in terms of introducing new telecom technologies. It has been slated for privatisation for more than a decade but the tender has been repeatedly delayed amidst political squabbling.
Ukrtelecom holds the country’s sole 3G licence and has a relatively small mobile business but it earned only $6m in the first half of this year. Corporate and private clients have increasingly turned to better quality services provided by privately-owned mobile and fixed-line operators.
(c) Roman Olearchyk, ft.com
