Ukraine pitches high returns in wartime fire sale of state firms

Ukraine is looking for investors brave enough to bet that it will beat back Russia’s invasion with a simple pitch: high risk can offer high reward.

As it fights to defend itself in a war that has killed tens of thousands of its people and devastated the economy, the country is preparing to sell big government-run firms at distressed prices. The aim is to shore up the aid-dependent budget and end a decades-old, post-communist legacy of corruption and mismanagement that has undercut the economy.

If politicians agree on changes at a session slated for the start of May, Kyiv could earn more than $400 million (€364m) in a best-case scenario by selling enterprises ranging from a fertiliser producer to utilities, smelters and an insulin maker. Another $190 million could come from leasing farmland, Rustem Umerov, the head of the state property fund, said in an interview.

“There are emerging markets, and there is an emergency market, and as an emergency market, we are one of a kind,” he said last week at his office in Kyiv. While he’s aware most investors couldn’t fathom putting money into a country under attack, he tells those “brave” enough to consider Ukraine that “this should be a 20x story for you in the future.”

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The need for urgency is at least threefold.

First, Ukraine must help fund its war effort and keep institutions dependent on foreign aid above water. Secondly, capital injections and management overhauls in state-owned companies can help revitalise the economy. Finally, the companies on the fund’s balance sheet, most of which were built in the middle of last century, are rapidly losing value.

“If we don’t sell them this year, then next year their only value will be real estate, and in the following year, just the land they stand on,” Umerov said.

Umerov (41), is the eighth person to take over the state property fund since the so-called Revolution of Dignity toppled the pro-Russian government of Viktor Yanukovych in 2014.

It’s a tough job. None of his predecessors were able to achieve the goal of selling big swathes of the state-run economy. Two died by reported suicide, while a former chairman is being investigated for embezzlement charges that he denies.

Russia’s invasion has made it harder. Nearly every Ukrainian has lost a friend, a relative or someone else they know in the violence. The war has driven more than a quarter of the country’s 40 million people from their homes and devastated entire sectors of the economy by wiping out producers in occupied areas such as the eastern Donbas region and the port city of Mariupol.

While the government expects to get 6 billion hryvnia (€148 million) from selling state companies this year, Umerov said he could potentially garner four times that amount if sales and leasing plans can go ahead.

But that hinges on MPs, who must first approve legislation to restore the privatisation of large companies and allow the fund to consolidate state-owned farmland that could be leased. The legislators are broadly divided into two groups between those who want to sell everything and those that don’t, he said.

If parliament pushes through the laws – as Umerov and his colleagues at the fund expect – companies including ammonia maker Odesky Pryportovyi Zavod, titanium producer United Mining and Zaporizhzhya Titanium-Magnesium Plant, insulin manufacturer Indar, and power generator Centrenergo PJSC should start no later than the third quarter, he said.

If the assembly doesn’t push through the laws, the alternative would be to shift toward joint ventures with other state-run companies to ease burden on public finances, he said.

Another source of potential revenue is to confiscate companies with links to Russia in Ukraine, he added. One example is Russian-controlled JSC Sense Bank, one of Ukraine’s largest lenders, which the government is considering nationalising.

Despite the unprecedented obstacles, Umerov said Ukraine had another advantage: the solidarity of investors and allies who want to support the country in driving Russia from its territory.

“Most of the investors I have spoken to – these are corporate and institutional investors – have said that, for them, Ukraine’s market isn’t attractive at all,” he said. “But from the point of view of justice, of the desire to support Ukraine, that’s it.” - Bloomberg