|
 Government sponsored corporate raidership? Bad headlines for Ukraine's international
business image. World's biggest steelmaker, country's leading steelmaker, crying foul.
"The Ukrainian government has consistently stressed its commitment to attracting foreign
investment and carrying out needed business reforms to improve its business climate."
What is really going on?
U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Friday, October 8, 2010
INDEX OF ARTICLES ------
Clicking on the title of any article takes you directly to the article.
Return to Index by clicking on Return to Index at the end of each article
1. ARCELOR MITTAL, WORLD'S LARGEST STEELMAKER, SAYS UKRAINIAN GOVERNMENT COULD SEIZE CONTROL OF ITS $4.8 BILLION STEEL PLANT
By Robert Guy Matthews, The Wall Street Journal, NY, NY, Thu, Oct 7, 2010
2. UKRAINIAN PROSECUTORS GO AFTER ARCELORMITTAL MILL
Graham Stack, Kyiv Post, Kyiv, Ukraine, Fri, Oct 8, 2010
3. ARCELORMITTAL MAY CURB UKRAINIAN INVESTMENT ON LEGAL CHALLENGE
By Thomas Biesheuvel and Kateryna Choursina, Bloomberg News, New York, NY, Wed, Oct 6, 2010
4. ARCELORMITTAL FEARS OVER UKRAINE
World's biggest steelmaker, country's leading steelmaker, crying foul
By Neil Buckley in Kiev, Financial Times, London, UK, Sun, Oct 3 2010
=============================================================
1. ARCELOR MITTAL, WORLD'S LARGEST STEELMAKER, SAYS UKRAINIAN GOVERNMENT COULD SEIZE CONTROL OF ITS $4.8 BILLION STEEL PLANT
By Robert Guy Matthews, The Wall Street Journal, NY, NY, Thu, Oct 7, 2010
KIEV, UKRAINE - ArcelorMittal, the world's largest steelmaker, said the Ukrainian government could seize control of its $4.8 billion steel plant there after charging it with violating terms of a 2005 purchase agreement.
The dispute, which will be taken up during an Kiev court hearing Tuesday, centers on whether ArcelorMittal was granted valid permission in April 2009 to delay a $200 million investment in the massive plant, which is one of the company's largest facilities.
ArcelorMittal claims it reached an agreement with Ukraine's State Property Fund, which is responsible for privatizations, to postpone investment commitments through early next year after the steelmaker declared force majeure in 2009 due to the global economic slowdown.
ArcelorMittal says the Ukrainian government has challenged the validity of the State Property Fund agreement.
Serhiy Tihipko, Ukraine's deputy prime minister for the economy, could not be reached for comment. The Ukrainian government has consistently stressed its commitment to attracting foreign investment and carrying out needed business reforms to improve its business climate.
Mittal Steel, now known as ArcelorMittal, bought the plant in Kryvyi Rih during the upturn in global steel demand, spending $4.8 billion to get a toehold in then fast developing Eastern Europe market. The purchase agreement outlined how much the steelmaker would invest in the plant and social programs.
While the economy has slowed since then and steelmakers around the world have been idling inefficient capacity, it would be a huge blow to ArcelorMittal if the assets were seized. "We are concerned that there is an attempt to take back our asset and return it to the state," said Nicola Davidson, a spokeswoman for ArcelorMittal. "Somewhere, someone is creating a false reason that we have broken our sales purchase agreement."
If the court rules against ArcelorMittal, the company said it would appeal the decision.
Christopher Cornier, a management board member at ArcelorMittal who is involved in overseeing the Ukrainian mill, said the worst-case scenario would be that the mill would be sold and the proceeds given to ArcelorMittal. The problem, he said, is that ArcelorMittal would likely lose billions in a sale because there are few buyers and the market is weak.
In addition to the $4.8 billion purchase price, the steelmaker has spent an additional $500 million in the plant. Mr. Cornier estimated that the sale of the plant would net less than $1 billion. "The price will be very low," he said.
The huge steel complex employs 35,000 people and includes an iron ore mine. It produces mainly construction grade steel products, such as wire rod and rebar. Its costs increased significantly this year after the government raised natural gas prices 50%. —James Marson and Alex MacDonald contributed to this article.
Write to Robert Guy Matthews at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
LINK: http://online.wsj.com/article/SB10001424052748704689804575536211717622250.html?KEYWORDS=ukraine
NOTE: ArcelorMittal is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org
----------------------------------------------------------------------------------------
[return to index] [U.S.-Ukraine Business Council (USUBC), www.usubc.org]
========================================================
2. UKRAINIAN PROSECUTORS GO AFTER ARCELORMITTAL MILL
Graham Stack, Kyiv Post, Kyiv, Ukraine, Fri, Oct 7, 2010
KYIV - Another Ukrainian court is set to turn back the clocks, this time threatening a landmark, five-year-old privatization deal that brought state coffers $4.8 billion in the cleanest state auction ever held.
The general prosecutor’s office is suing ArcelorMittal, Ukraine’s biggest foreign investor, which purchased the country’s largest steel mill in Kryviy Rih back in 2005.
The world’s largest steel company denies alleged irregularities to a 2009 agreement to delay investments because of the financial crisis. The case could deal a major blow to the government’s attempts to project itself as open to foreign investment.
The commercial litigation comes amid backsliding in the political arena, too. On Oct. 1, the Constitutional Court ruled to significantly augment the powers of Ukrainian President Viktor Yanukovych by canceling changes to the Constitution agreed in late 2004, during the height of the pro-democracy struggle.
The current Yanukovych team consists of many of the same officials who served before the Orange Revolution, when Kryvorizhstal (now ArcelorMittal KryviyRih) was first sold under former President Leonid Kuchma to his son-in-law Viktor Pinchuk and billionaire Rinat Akhmetov, a major financial backer of Yanukovych, for a meager $800 million.
Now, if prosecutors are successful, the Dnipropetrovsk Oblast mill purchased by Mittal Steel, now ArcelorMittal, will return to state hands – and maybe eventually back to Pinchuk and Akhmetov.
A top ArcelorMittal executive, Christophe Cornier, said that the first hearing of the case by the Kyiv Economic Court on Oct. 1 was more disappointing than even the company’s worst expectations.
“We are taking this very seriously,” said Cornier, a 25-year veteran of the company flown in from London to confront the emergency situation. “We paid $4.8 billion for this plant, and put $500 million worth of capital expenditures into it. We feel it is a very good plant and we don’t want to lose it.”
“But it is very difficult to assess what the outcome will be,” acknowledged Cornier, who said he will be meeting with German and French ambassadors in Kyiv. “We are outside the boundaries of a normal law and order situation.”
The steel plant is a defendant along with privatization agency the State Property Fund (SPF). Prosecutors are disputing a 2009 agreement between ArcelorMittal and the SPF that declared a force majeure in view of the global economic crisis, allowing the company to postpone investment commitments made under the terms of the original share purchase agreement of 2005.
“The dispute is that the addendum is not legal because it was not signed by the cabinet of ministers,” Cornier said. “But when you look at the original share purchase agreement [of 2005], it is not written anywhere that it has to be signed by the cabinet.”
Furthermore, according to Cornier, the plant’s shareholder, ArcelorMittal Duisburg GmbH, has not been informed of the lawsuit, an apparent breach of the law. And thirdly, according to Cornier, both the original share purchase agreement and the additional agreement of 2009 specify the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (a non-state independent arbitrage court) as the place of jurisdiction for all disputes.
NOTE: Kyiv Post staff writer Graham Stack can be reached at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
.
LINK: http://www.kyivpost.com/news/business/bus_general/detail/85482/#ixzz11jYKG2sd
----------------------------------------------------------------------------------------
[return to index] [U.S.-Ukraine Business Council (USUBC), www.usubc.org]
========================================================
U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
From 8 members in 2005 to over 140 Members Today
========================================================
3. ARCELORMITTAL MAY CURB UKRAINIAN INVESTMENT ON LEGAL CHALLENGE
By Thomas Biesheuvel and Kateryna Choursina, Bloomberg News, New York, NY, Wed, Oct 6, 2010
LONDON/KIEV -- ArcelorMittal, the world’s largest steelmaker, said a legal challenge that may see it stripped of its $4.8 billion plant in Ukraine threatens future investment in the country.
“If you make an agreement and then the process is not followed by the government, it’s a big problem,” Christophe Cornier, ArcelorMittal Group management board member, said today by telephone. “All investors will have to think about it.”
ArcelorMittal, which bought the VAT ArcelorMittal Kryvyi Rih unit in 2005, is being challenged by the Ukrainian General Prosecutor’s Office after delaying investments at the plant in 2009. ArcelorMittal said it agreed with the State Property Fund to alter its purchase agreement and postpone investments after declaring force majeure during the global financial crisis.
An Oct. 1 court hearing on the case “demonstrated a biased approach and total neglect for the existing legislation,” the company said in a statement. The purchase agreement states that all disputes be settled by the International Commercial Court of Arbitration, it said. The case will return to court in Ukraine on Oct. 12.
“We have in the pipe a lot of other ideas for Ukraine in the mining sector, which of course could be a lot of money if we proceed,” Cornier said. “It is very clear that if I go to Mr. Mittal to spend $1 billion on a coal mine, I’m not sure it will be welcome” if that mine is in Ukraine, he said.
MINING EXPANSION
The Luxembourg-based steelmaker, the largest foreign investor in Ukraine, plans to spend $4 billion over the next five years to increase iron-ore production globally and is “reviewing opportunities” to expand its coal-mining output, ArcelorMittal said Sept. 16. Lakshmi Mittal is chief executive officer and 41 percent shareholder of ArcelorMittal.
“Taking into consideration ArcelorMittal’s weight in the world and in Ukraine, and taking into consideration the size of its investments in Ukraine, it would be very undesirable for other investments if the authorities seek to dispute the plant’s sale,” said Andriy Bespyatov, head of research at Dragon Capital in Kiev. “The wisest way is to reach an agreement.”
Ukraine is seeking to revive its economy to plug a 2010 budget deficit that it expects to reach 5.5 percent of gross domestic product, after the economy shrank a record 15.1 percent last year. The former Soviet republic received $15.2 billion from the International Monetary Fund in July.
GOVERNMENT VIEW
The government hasn’t communicated its official position on the dispute, said Oleh Kucher, head of directorate at the prosecutor’s office, citing a Justice Ministry representative. The representative had earlier expressed his “personal view” that the interests of the state weren’t damaged by the company’s decision to delay investments, Kucher said by phone from Kiev.
ArcelorMittal won a state auction in 2005 for 93 percent of VAT ArcelorMittal Kryvyi Rih, or Kryvorizhstal as it was then called, after former President Viktor Yushchenko’s government annulled a previous auction, won by the billionaire son-in-law of former President Leonid Kuchma with an $800 million bid.
ArcelorMittal will appeal any court ruling against the company, Cornier said today.
To contact the reporters on this story: Thomas Biesheuvel in London at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
; Kateryna Choursina in Kiev at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
. To contact the editor responsible for this story: Amanda Jordan at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
.
LINK: http://www.bloomberg.com/news/2010-10-06/arcelormittal-may-curb-ukrainian-investment-on-legal-challenge.html
----------------------------------------------------------------------------------------
[return to index] [U.S.-Ukraine Business Council (USUBC), www.usubc.org]
========================================================
4. ARCELORMITTAL FEARS OVER UKRAINE
World's biggest steelmaker, country's leading steelmaker, crying foul
By Neil Buckley in Kiev, Financial Times, London, UK, Sun, Oct 3 2010
KIEV - ArcelorMittal, the biggest foreign investor in Ukraine, is crying foul over a legal case brought by prosecutors that it fears could be the first step in an attempt to strip it of its $4.8bn investment in the country’s leading steelmaker.
If the case continues, analysts warn it could do serious damage to Ukraine’s image, at a time when Viktor Yanukovich, the Russia-leaning president elected in February, has pledged to improve the climate for foreign investors.
The world’s biggest steelmaker bought Ukraine’s Kryvorizhstal for $4.8bn in 2005 when the government reprivatised the steel mill – previously bought by Ukrainian tycoons for $800m – following the 2004 Orange Revolution.
ArcelorMittal later agreed with Ukraine’s State Property Fund, which handles privatisations, to amend its purchase agreement and delay some agreed investments in the plant in 2009 because of “force majeure”. Ukraine’s steel industry was hit particularly hard by the global recession.
Ukraine’s general prosecutor’s office in July launched legal action against both ArcelorMittal’s Ukrainian unit and the State Property Fund claiming the “force majeure” amendment was improperly reached. ArcelorMittal and the SPF deny this.
ArcelorMittal says breaches of procedure and of national and international legislation have raised doubts that it will get a fair hearing.
“If the judge rules that this amendment was illegal . . . we [become] late in our investment obligations,” said Rinat Starkov, chief executive of ArcelorMittal Kryviy Rih, as the unit is now called. “We believe the second step could be to say that we are late in our investment obligations and so the shares have to go back to the state.”
ArcelorMittal would receive the proceeds of any future resale. But it might fetch considerably less than the steel group paid.
Christophe Cornier, a member of parent group ArcelorMittal’s general management board, told the Financial Times this weekend he was “deeply concerned” about the case.
Mr Starkov said he suspected that though the legal action was brought on behalf of the government, business interests rather than the state itself were ultimately behind it.
A judge on Friday accepted the case be heard in the Kiev City Commercial Court – in spite of a clause in ArcelorMittal’s purchase agreement saying that any dispute with the government should be resolved in an international arbitration court. The judge, substituted on to the case at the last moment, scheduled a second hearing for Tuesday. The gap of one working day is far shorter than normal in such cases.
Prosecutors could not be reached for comment this weekend.
Serhiy Lyovochkin, head of Mr Yanukovich’s presidential administration, said he was not familiar with the case and could not comment. But he said Mr
Yanukovich’s coalition remained committed to improving conditions for investors.
LINK: http://www.ft.com/cms/s/0/dc85d3f0-cf19-11df-9be2-00144feab49a.html
USUBC NOTE: Reports indicate there is considerable corporate raidership going on in Ukraine today with the Ukrainian private sector raiding the private sector with very little support to stop such raidership from the Ukrainian government or the Ukrainian legal system. The private business community in Ukraine certainly hopes the government of Ukraine has not decided to also engage in corporate raidership. The private business community is pleased to hear the government remains committed to improving conditions for investors and hopes some real action to improve the conditions for doing business in Ukraine will finally be undertaken soon.
NOTE: ArcelorMittal is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org
----------------------------------------------------------------------------------------
[return to index] [U.S.-Ukraine Business Council (USUBC), www.usubc.org]
======================================================== |
