Business Deal Casts Doubt Over Ukraine Transparency
Ukraine\'s wealthiest man, Rinat Akhmetov, has significantly increased his interest in a large electricity generating company through a controversial debt-for-equity transaction that has cast a shadow over Kiev\'s ability to privatise state assets transparently.
With snap parliamentary elections just weeks away, the deal has taken on political overtones. Opposition parties have cried foul, alleging the sale was fixed in favour of a businessman close to Ukraine\'s premier, Viktor Yanukovich, and have pledged to challenge it.
Foreign investors who had their shares diluted through the deal are also upset.
The deal is not expected to scare off the record amounts of foreign investment flowing into Ukraine in recent years. However, it has left many wondering if Kiev will improve its record on privatisations and put foreign investors on an equal footing.
Officials representing the state\'s interest in Dnipro-energo agreed last week to a 52 per cent share capital increase, boosting Mr Akhmetov\'s interest more than four times to about 40 per cent. The stake has been valued at $400m to $500m.
In return, energy companies controlled by Mr Akhmetov agreed to cover $200m of Dniproenergo\'s debt to creditors, mostly state enterprises.
The government\'s interest in Dniproenergo was diluted by a third to 50 per cent. Minority shareholder interests were also diluted.
Proponents of the deal, including Mr Yanukovich\'s government, point to the need to pay off Dnipro-energo\'s debts.
A top manager at Mr Akhmetov\'s DTEK energy holding said the transaction was \"completely transparent\" and legal, adding that his company would invest an additional $200m into the debt-ridden company.
Critics argue the deal was conducted exclusively in the interests of Mr Akhmetov. Some analysts said the government could have covered Dniproenergo\'s debts and raised funds for state coffers by selling shares in an open tender.
Tomas Fiala, director of Kiev-based investment bank Dragon Capital, said: \"It\'s kind of an inside deal and not very transparent. Mr Akhmetov was allowed to buy at $100 per share, a big discount to the market price.\"
Opposition politicians, with an eye on the snap parliamentary elections at the end of September, have said the deal illustrates how Mr Yanukovich\'s government kowtows to the interests of allied business tycoons. Mr Akhmetov is an influential member of Mr Yanukovich\'s Regions party.
\"We see how this government is working in tandem with business,\" said Yulia Tymoshenko, a former prime minister and leader of the opposition BYuT bloc, which trails closely behind Regions with 25 to 30 per cent of voter support.
The government has denied giving preferential favour to Mr Akhmetov, who was not available for comment.
Viktor Yushchenko, Ukraine\'s pro-western president, has sharply criticised Mr Yanukovich\'s handling of privatisation.
The Dniproenergo transaction is the latest in a string of controversial privatisation tenders through which domestic and Russian businessmen have grabbed prized assets at fire-sale prices.
Ms Tymoshenko\'s bloc warned that the government might tender prized assets to allies through rushed sales during the political campaign before being swept out of power.
The government has recently announced plans to sell several large enterprises this autumn, including a vast chemical plant valued at $1bn and minority stakes in six electricity utilities.
Ms Tymoshenko said her party would seek to reverse bogus sales as she did during her brief 2005 tenure as premier following the Orange Revolution, when her government reversed the sale of Ukraine\'s flagship steel mill, Kryvorizhstal, sold controversially in 2004 during Mr Yanukovich\'s first tenure as premier.
Mr Akhmetov and a partner bought the Kryvorizhstal mill for $800m in a tender process that excluded foreign bidders. It was resold in 2005 to Mittal Steel for $4.8bn.