On 9 November 2017, a brand new draft law No. 7066 On Privatisation of State-Owned Property (the “Draft Law”) was adopted at the first reading by Ukraine’s Parliament (the “Parliament”). The Draft Law has been developed by various Ukrainian authorities and the European Bank for Reconstruction and Development, and has previously been considered and approved by Ukraine’s Government (the “Government”). The key objective of the Draft Law (which will consolidate numerous existing privatisation-related laws) is to facilitate the privatisation procedure in Ukraine, and make the overall process more investor-friendly. In particular, the Draft Law proposes the following updated regulatory regime: 

Categories of assets

The Draft Law reduces the existing number of privatisation categories down to two, being:

  • Large-scale assets, such as asset complexes of state enterprises and shares in companies, at least 50% of which shares are owned by Ukraine as a state, and in relation to which the total asset value exceeded UAH 250 mln. (approximately EUR 8 mln.) in the previous financial year. A list of large assets is approved by the Government upon a motion of the State Property Fund of Ukraine (the “Fund”, and together with its local departments and representative offices, the “Privatisation Authorities”); and
  • Small-scale assets, in particular all those not considered to be large assets (and whose privatisation should only be undertaken via an online privatisation auction).The Law specifically prescribes that the proceedings before the Constitutional Court should be mainly in writing and establishes that the general duration of such proceedings is six months. At the same time, one- month term is established for certain types of cases (e.g., review of constitutionality of draft laws aimed at amending the Constitution of Ukraine, etc.).

Privatisation Methods

The Draft Law reduces thnume ber of privatisation methods to just two, being:

  • a privatisation auction (which can be conditional (i.e. with certain privatisation conditions being imposed on investors), unconditional, on the basis of a step-by-step reduction of the starting purchase price and further submission of tender bids, on a reduced price basis, and on a price survey basis (i.e. when an auction is held in two stages, the first being to collect and analyse existing bids with a view to determining the starting purchase price)); and
  • a sell-out (in the event that just one bidder participates in the auction, then the privatisation asset may be sold to such bidder at its proposed price, as long as it is not less than the starting purchase price (with certain exceptions)).

Qualification requirements for bidders

The Draft Law extends the list of persons banned from participating in Ukrainian privatisations, which list includes the following companies or individuals (among others):

  • state enterprises owned by Ukraine;
  • companies, at least 10% of the shares of which belong to, or a ultimate beneficial owner of which is (A) resident in a country recognised by the Parliament as a state-aggressor (currently, the Russian Federation), or (B) the state-aggressor itself;
  • companies which, or the related persons of which, are (A) incorporated in a country recognised by the Parliament as a state-aggressor, or (B) subject to sanctions imposed by Ukraine;
  • individuals who, or the related persons of which, are (A) citizens of a country recognised by the Parliament as a state-aggressor, or (B) subject to sanctions imposed according to Ukrainian law;
  • (A) companies incorporated in offshore jurisdictions (as defined by the Government, which list currently includes the Isle of Man, BVI, Guernsey, Cayman Islands, to name a few) (“Off-Shore Companies”), or companies, at least 50% of shares of which are owned directly or indirectly by such Off-Shore Companies, or (B) companies incorporated in non-cooperative jurisdictions (as defined by the Financial Action Task Force (FATF);
  • external advisers that have been engaged in preparation of the asset for privatisation; and
  • entities that have been parties to a privatisation SPA, which has been terminated on account of its breach by such entity. 

Privatisation procedure

According to the Draft Law, privatisations of small-scale assets should be carried-out via online privatisation auctions only, and the Government should prepare a separate detailed regulation in this regard.  In turn, a more complicated procedure is envisaged for large-scale privatisations, which essentially replicates the current privatisation procedure (subject to minor changes), and which, as a general rule, should be carried-out via conditional privatisation auctions.  The key steps of a large-scale privatisation are expected to be the following (with the Government yet to prepare a separate regulation dealing with the same in greater detail):

  • The privatisation may be initiated, among others, by an interested bidder (being one of the innovations of the Draft Law);
  • Not later than 30 days after approval of the list of assets to be privatised, a Privatisation Authority should adopt and subsequently publish a decision on privatisation of a particular asset;
  • Preparation of the target asset for its further privatisation may include its valuation, audit, restructuring, etc.;
  • The Privatisation Authority forms an auction committee to be responsible for determination of the starting purchase price and further preparation of the privatisation terms;
  • The Privatisation Authority prepares and publishes a privatisation information note containing various information, including information about the privatisation terms, conditions and the starting purchase price;
  • The privatisation auction should then take place within 30 - 60 days following the publication date (the “Auction Date”);
  • A bidder who wishes to participate in the auction will be required to submit a set of tender documents, and provide confirmation that it has deposited 5% of the purchase price into a bank account of the Privatisation Authority (alternatively, it can submit an irrevocable bank guarantee in lieu of the deposit);
  • Following publication of the privatisation information note and execution of a non-disclosure agreement, a potential bidder receives a set of documents with detailed information on the target asset;
  • A potential bidder may submit its comments on the draft of a privatisation sale and purchase agreement (the “SPA”), and the Privatisation Authority should, not later than 10 days prior to the Auction Date, provide the final draft of the SPA to the potential bidders;
  • On the Auction Date, an auction will be deemed to have taken place if at least two bidders have been present, and at least one bidding step (being not less than the starting purchase price) has been made.  In case there is a single bidder, the auction is deemed not to have occurred, but Government may, upon a motion of the Fund, decide to sell-out the target asset to such bidder nevertheless (provided that its proposed purchase price should not be lower than the starting purchase price);
  • The winning bidder will have to transfer the purchase price funds to a designated account of the Privatisation Authority within 30 days from the date of signing the privatisation SPA;
  • In the event the target asset is not sold during the initial conditional auction or the sell-out stage, then the Government may, upon a motion of the Fund, decide to sell such asset at an unconditional auction or an auction on a reduced price basis (with a 25% or a 50% discount).  Finally, an auction on a price survey basis may be held if none of the above results in the actual sale of the target asset.

Governing law and dispute resolution

The Draft Law proposes to introduce one of the most awaited instruments that may potentially boost investor interest in Ukrainian privatisations, namely the ability (in the event of a large-scale privatisation) to potentially apply (up until 1 January 2021) a foreign law to govern the SPA (it is common practice in Ukraine to apply English law in M&A contexts) – though the actual share transfer mechanics will of course remain subject to mandatory local law requirements. The parties may also agree to refer disputes arising from the SPA to international commercial arbitration, with the Arbitration Institute of the Stockholm Chamber of Commerce being a default forum (if the parties fail to reach an agreement on the arbitration forum).


Graham Conlon , Partner, Acting Managing Partner, graham.conlon@cms-cmno.com

Vitaliy Radchenko , Partner, vitaliy.radchenko@cms-cmno.com

Maria Orlyk , Partner, maria.orlyk@cms-rrh.com

Tetyana Dovgan , Senior Associate, tetyana.dovgan@cms-cmno.com