Global Insight Perspective | |
Significance | The reported move to sell five small stakes in the incumbent operator is the latest twist in the saga. Details of the process are due to be publicised on 28 March. |
Implications | The move seems a cautious one, geared towards gauging the value of the operator, before any larger scale divestment at a later date. |
Outlook | Such a move is unlikely to attract major foreign parties, and will therefore not generate the significant investment needed by the operator and the Ukrainian government. |
Ukraine's State Property Fund (SPF) is planning to sell small stakes in fixed-line incumbent Ukrtelecom through the separate sale of five 1% stakes, according to press reports. The news was disclosed to reporters at an SPF press conference. Official details of the sale of the first 1% stake are likely to be published on 28 March, with a sale to take place within 30 days. All five 1% shareholdings will be put for sale before the second half of April, with sales likely to be completed by the end of May. However, no final decisions have yet been made regarding the terms of the contests or prices of the shareholdings.
Outlook and Implications
A Further Twist in the Ukrtelecom Soap Opera: The sale of Ukrtelecom, with its twists and turns, is reminiscent of a television soap opera. The sale was originally mooted back in 2004, but was only given the green light in January 2007. The issue has strong political undertones, as President Viktor Yushchenko had been anxious not to have his authority on the matter undermined by parliament (see Ukraine: 29 January 2007: Ukrtelecom Privatisation Finally Approved). Transport and Communications Minister Nikolai Rudkovsky has already spoken out against the move, arguing that the privatisation of Ukrtelecom would see 70,000 job losses within three years, and that a higher sum would be fetched for the operator if the sale were delayed by 12 to 18 months (see Ukraine: 31 January 2007: Telecoms Minister Speaks Out Against Privatisation of Ukrtelecom). The next issue to become a source of dispute was the size of the stake to be sold. Ukraine's Transport and Communications Ministry had initially suggested that a 50% stake in the operator could fetch as much as US$3 billion. The SPF then indicated that plans were in place to sell an initial 10.0% stake on the local market, for around 2 billion hryvnias (US$413.9 million), with around 32.8% later to be sold to foreign investors and the remaining, controlling stake to remain in state hands (see Ukraine: 2 February 2007: Plans Outlined for Sale of 10% Stake in Ukrtelecom). The latest plan, to sell five, separate 1% stakes, is subject to the approval of a government committee, and history suggests that further hitches could be in the offing before a sale goes ahead.
Would the Sale of a Larger Stake Be More Beneficial? There are reasons to question whether the sale of small stakes is more beneficial to those involved than the sale of a larger stake. Part of the reason for President Yushchenko's eagerness to see Ukrtelecom privatised was to raise money, through significant foreign investment, to offset the country's large budget deficit. It is unlikely that 1% stakes will appeal to major foreign companies, and such stakes certainly will not generate the billion-dollar sums initially talked of by the Transport and Communications Ministry. On a practical level, Ukrtelecom needs substantial investment. Its infrastructure is reportedly in need of upgrading, and as it struggles in the face of increasing mobile uptake it has been controversially awarded a 3G licence, which again will require financial input. A new majority owner would reinvigorate the company, providing strategic direction and motivation as well as funds.
Why the Small Stakes? So what is the reasoning behind the sale of five small stakes, rather than a single 5% stake, a 10% stake, or a larger, majority stake? It seems that the motivation is to gauge the value of Ukrtelecom through the initial sale of smaller stakes, amid fears that the stock market may refuse a 10% stake. However, this notion was flatly rejected by presidential office executive Alexander Shlapak, who pointed out that Ukrtelecom's market value can already be gauged as the operator is listed on the country's bourses (see Ukraine: 5 March 2007: Ukrtelecom Stake for Initial Sale Could Be Reduced from 10% to 5%—Reports). Another motivation behind the sale of a smaller stake might be that such a move would help to increase the value of the operator, prior to a larger sale further down the line. Ultimately, the sale of smaller stakes could simply be a cautious method of easing into the privatisation process, assessing the interested parties and likely sums of money involved, before any decision is taken on the sale of more significant stakes.