Rinat Akhmetov’s SCM has filed for bankruptcy of ESU, a part of SCM group that owns 93% of Ukrtelecom. It appears that ESU is 100% owned by Akhmetov. A similar claim from another plaintiff has been pending since 2022.
These processes affect Ukrtelecom, which is one of the three largest home Internet providers along with Kyivstar and Datagroup-Volia. This was reported by Forbes.
Acquisition of Ukrtelecom
The sale of Ukrtelecom looked like a covert financial deal during the Yanukovych era to privatize the nation’s largest telecommunications company on the cheap.
As a reminder, the State Property Fund of Ukraine sold 92.79% of Ukrtelecom in 2011 for UAH 10.57 billion to ESU LLC, a subsidiary of Raga Establishment Limited. The transaction was financed by a UAH 4.6 billion bond issue by ESU, most of which (UAH 4 billion) were purchased by Oschadbank and Ukreximbank. The relevant securities were supposed to be redeemed in March 2017, but this did not happen.
In 2013, Rinat Akhmetov’s SCM Group bought ESU for $860 million, but paid only a part of it – $100 million. SCM claimed that Raga had failed to fulfill its investment obligations under the privatization agreement, which was to create a special-purpose telecommunications network for Ukrainian government agencies.
In this regard, SCM attempted to terminate the purchase agreement and asked for a refund of the $100 million prepayment. Raga initiated arbitration proceedings in the London Arbitration Court against SCM demanding to pay the remaining $760 million. The London Arbitration Court ruled in favor of Raga. After that, the companies reached a settlement agreement on Ukrtelecom.
Return to state ownership
Since 2017, the State Property Fund has been trying to return Ukrtelecom to state ownership. The reason is that the company has not fulfilled its investment obligations. ESU was supposed to invest at least $450 million in the development of the network over five years. The fourth round of the case is scheduled for March 19.
It is clear that SCM has filed a bankruptcy lawsuit against its parent company Ukrtelecom to stop the privatization process. After all, Ukrainian law does not provide for any compensation to the investor for this. This is the opinion of Concorde Capital’s head of research Alexander Paraschiy.
“If there is a liquidation procedure of the ESU, Ukrtelecom shares will be put up for auction and divided among all creditors according to the amount of loans,” says Anatoliy Lola, director of Ukreximbank’s recovery department.
He believes that the bankruptcy procedure could last for years. Currently, Ukrtelecom’s operations are more affected by the SPFU case. The operator’s parent company cannot dispose of its corporate rights or make any decisions on significant asset purchase or investment deals.
Ukrtelecom’s positions
Ukrtelecom recently reported on its performance in the military year of 2023.
In 2023, the company’s total revenue amounted to over UAH 5 billion, which is 10% less than in the previous year.
- EBITDA amounted to over UAH 1 billion.
- The EBITDA margin is 21.1%.
- Capital investments in 2023 will amount to almost UAH 500 million.
Ukrtelecom, the largest taxpayer among fixed-line operators and providers in Ukraine, paid over UAH 1.35 billion in taxes and duties to the budgets of all levels in 2023.
Ukrtelecom continues to develop its optical network by investing in the FTTH/P network based on GPON technology. In 2023, the company laid almost 5.3 thousand kilometers of fiber optic cable. By the end of 2023, the company provided more than 2 million households in all regions of the country with the opportunity to use modern optical network services.
