Vitaliy Koval, Chairman of the State Property Fund of Ukraine

 

In the second half of the summer of 2024, the State Property Fund of Ukraine (SPFU) plans to hold the first auctions as part of large-scale privatization. The sale of small and medium-sized state assets, which resumed in September 2022, has already brought more than UAH 4 billion to the budget, with over five hundred lots finding new owners during this period. Next in line is the sale of large state-owned assets.

The SPFU will offer participants powerful assets that can attract both domestic and foreign investors with their prospects and the opportunity to acquire resources that will allow them to become significant players in various markets.

The start of large-scale privatization already has a legislative foundation: in the spring of 2023, the Ukrainian parliament passed a bill that renewed this process. Since then, audits, initial valuations, and the preparation of the first objects have been underway. The exact auction dates will be announced later.

Small and Large-Scale Privatization: Similarities and Differences

The mechanisms, limitations, and other aspects of both small and large-scale privatization are generally regulated by the Law of Ukraine “On Privatization of State and Communal Property”.

The main difference in large-scale privatization is that it involves the sale of state or communal property assets with a value exceeding UAH 250 million. For small-scale privatization, the initial value of the property must be less than this amount. Additionally, the list of large-scale privatization objects and their starting prices must be approved by the Cabinet of Ministers of Ukraine upon submission by the State Property Fund of Ukraine.

A common feature of both types of privatization is that they are conducted under the principles of openness, transparency, and accessibility for all interested parties. The auctions take place in the Prozorro.Sale electronic system. The winner is the participant who offers the highest price in the final round. The identities of the auction participants are not disclosed until the results are announced.

The First Lots of Large-Scale Privatization 

The list of large-scale privatization objects will include assets from various markets, featuring historically state-owned properties as well as confiscated sanctioned assets. The first lots that the SPFU plans to auction in a few months are the Ocean Plaza shopping mall, the Hotel “Ukraina”, United Mining and Chemical Company JSC (UMCC), and building materials plant AEROC.

Ocean Plaza shopping mall is effectively owned by Investment Union “Lybid” LLC, which was previously controlled by Russian businessmen Arkadii and Ihor Rotenberg. Due to sanctions, their Ukrainian assets were confiscated and transferred to the management of the SPFU. As of today, the SPFU will offer two-thirds of the authorized capital of Investment Union “Lybid” LLC to investors for privatization.

Ocean Plaza is one of the largest shopping malls in Ukraine and Kyiv, operating for over ten years. Its area is 160,000 square meters, advantageously located near the metro in a developed district of Kyiv, making it nearly 100% leased. It houses 300 stores, an Auchan hypermarket, up to 30 restaurants, an amusement park, a cinema, and a parking lot with 1,400 spaces. On the roof of the mall is the summer recreational complex City Beach Club, covering over 3,000 square meters.

In mid-April, the SPFU held an auction commission meeting where the starting price of this asset was set at UAH 1.65 billion. The final step before preparing and announcing the auction is the approval of this price and the sale conditions by the Cabinet of Ministers of Ukraine.

The state-owned Hotel “Ukraina”, located 200 meters from the Maidan Nezalezhnosti metro station and near many historical landmarks, is poised to be a highly profitable investment for its future owner. It has 365 rooms, 8 conference halls, a business center, a restaurant, and other infrastructure facilities (parking, beauty salon, laundry, etc.). The SPFU has set the starting price for the Hotel “Ukraina” at UAH 1.05 billion.

United Mining and Chemical Company JSC (UMCC) is the largest enterprise in Ukraine for the extraction and processing of titanium ore concentrates. The company includes the Vilnohirsk Mining and Metallurgical Complex in the Dnipropetrovsk region and the Irshansk Mining and Processing Plant in the Zhytomyr region. The enterprise has the potential to become a global leader in the titanium industry. Last autumn, UMCC resumed shipments of ilmenite concentrate to the European market. The SPFU’s auction commission has valued the state-owned shares of the company at UAH 3.9 billion.

Company AEROC is another confiscated asset and one of the first future lots of large-scale privatization. It was previously owned by sanctioned Russian entrepreneur Andrii Molchanov. The enterprise has production facilities in the Kyiv and Lviv regions. The company is one of the most powerful manufacturers of building materials in Ukraine and operates high-tech production lines from Germany and the Netherlands. It has been in the market for almost 20 years. The asset includes two trademarks, 18 real estate objects, 20 vehicles, etc. As of today, the SPFU has completed the asset cleanup process: all arrests on the corporate rights of the enterprise have been lifted, 100% of the share capital is registered with the state represented by the SPFU, and the financial and business documentation and founding documents of the enterprise have been restored and prepared for privatization. The starting price of the asset at the privatization auction could be around UAH 960 million.

Why Large-Scale Privatization is Necessary and Timely

As of the winter of 2024, Ukraine, with its level of destruction and war losses, requires approximately $400-500 billion for post-war reconstruction. The foundation for our economy, which must have these resources, needs to be laid now.

Current needs, including defense forces and social payments, are also increasing and cannot be sustained without external financing. According to the Ministry of Finance of Ukraine, international partners have provided us with over $70 billion in budget support over the past two years. However, this year’s budget deficit will exceed $40 billion, and once again, we rely on the support of our allies.

Under such conditions, Ukraine must responsibly seize every opportunity to fill the budget and stimulate economic development. This includes creating new opportunities for launching and scaling businesses and generating new jobs. All this pertains to privatization in general and its ‘large-scale’ aspect in particular.

The IMF also supports this approach, positively evaluating the direction of our economic movement. Its representatives emphasize that Ukraine must continue reforms and implement the National Revenue Strategy. This will help form resources to support current expenses, maintain debt stability, improve the country’s reputation with donors and partners, and lead us to the EU.

Since large-scale privatization involves major, powerful assets, we cannot allow them to sit idle, deteriorate, operate inefficiently, or ultimately be sold at land value. In the hands of an investor, these assets can reach their full potential, contributing significantly to economic growth and development. Interested in profit, they can generate millions in taxes and overall contribute to the functioning of the economy. The funds from their sale, which can amount to billions of hryvnias, are an extremely necessary support for our budget today. Therefore, the revival of large-scale privatization could become the engine for our state to rapidly move forward economically.