On June 15, the State Property Fund of Ukraine and Austria’s Raiffeisen Investment AG signed a contract stating that the Austrian company will render consulting services on sale of a state-owned 68.01% interest in public joint-stock company Zaporozhye Alu
CONSULTANT ON SALE OF A MONOPOLIST
On June 15, the State Property Fund of Ukraine and Austria’s Raiffeisen Investment AG signed a contract stating that the Austrian company will render consulting services on sale of a state-owned 68.01% interest in public joint-stock company Zaporozhye Aluminum Smelter. Raiffeisen Investment AG has won a privatization consultant tender beating several renowned international and Ukrainian investment banks.
Alexander Bondar, chairman of the State Property Fund, calls this a remarkable event because just recently the President of Ukraine has signed and approved the 2000-2002 National Privatization Program. Spadework is done to make execution of this Program a success. Afterwards, strategic enterprises will be put up for sale and professional consultants will become involved. The new Privatization Program, which has already received political approval of the Parliament for the very first time in the history of the privatization process in Ukraine, targets at attraction of investments in the Ukrainian economy.
A consultant advises – the State sells
Foreigners have not taken part in the Ukrainian privatization as professional consultants on sale of state property yet. According to Mr. Bondar, sale procedures are becoming transparent from now on. The State is ready to say goodbye to controlling interests in vitally important companies in order to raise the desperately needed investments in the country’s economy. Privatization experience of quite a few post-communistic countries shows that sale of companies yields more money if professional consultants are involved.
Usually, consulting services are provided by globally known investment banks that have irreproachable names and extensive applicable business experience.
Consulting services are costly enough, while the ultimate fees depend on the final results of privatizing a specific company. Besides, professional consultants work only for the sake of the party that entered into contract with them.
At this point of time, Ukraine works with three privatization consultants. It is planned to sell the companies subject to privatization via public auctions and tenders. Tenders involving some of the companies have already taken place, while the others are scheduled for the near future. Notably, application bids for participation in the auction on shares in Zaporozhye Aluminum Smelter are accepted till November 2000.
The Crimean Malt Plant can be mentioned among the Ukrainian companies that are privatized with professional consultants’ assistance. An international syndicate headed by Germany’s Commerzbank AG takes part in the tender for a 89.47% stake in this plant. Syndicate members include such investment companies as Citigate Dewe Rogerson, DFC S.A. BDO Corporate Finance B.V., and Frishberg & Partners Ltd. The tender process has already revealed serious competition among buyers. Money from this deal is expected to come in the nearest future.
Since potential investors have failed to reach a final decision on their participation, the State Property Fund will postpone the tender for stakes in Khartsyzsk Tube Works, which also takes advantage of professional consultants. Besides, consultants are making preparatory efforts for privatization of public joint-stock companies Rivneazot and Kherson Oil Refinery.
Privatization tenders for 7 regional power companies will become the next stage in joint work with consultants (Switzerland-based Credit Suisse First Boston, which is actually the eldest foreign professional consultant doing business in Ukraine, will render consulting services to the State Property Fund on this undertaking). It will take two months to get ready for the tenders. Mr. Bondar mentioned that Pres. Leonid Kuchma supported the CSFB proposal to run further consultant tenders after the results on the first group of companies become known.
THE Aluminum smelter as it is
Public joint-stock company Zaporozhye Aluminum Smelter (formerly, Dneprovsky Aluminum Plant) started making aluminum on June 12, 1933, making use of electric power coming from the newly-built DneproGES (the Dnieper Hydroelectric Power Plant). Since 1934, Zaporozhye Aluminum Smelter has been making alumina on its own. Construction of the smelter was completed in 1935.
This company holds a monopoly on the Ukrainian markets for aluminum, aluminum-based alloys, and crystalline silicon.
The Smelter has a full metalmaking cycle and owns the following engineered capacities for:
• 100,000 tonnes of aluminum per year in electrolytic shop;
• 263,500 tpy of alumina;
• 22,000 tpy of crystalline silicon.
The principal products made by the Smelter are:
• ?-00, ?-0, and ?? grade alumina applied to make high-quality aluminum, brown fused aluminum oxide, refractory materials, specialty ceramics, etc.;
• ?? 00, ?? 0, and ?? 1 grade aluminum hydroxide that finds application in production of cryolite, aluminum fluoride, and mineral fertilizers;
• aluminum-silicon alloys ??10?2?, ??12?2???, ??7?2, and ??12??;
• crystalline silicon for the needs of semiconductor-making.
The Smelter exports 83% of its manufacturing output. In 1999 the company smelted 112,400 tonnes of primary aluminum, 5.4% more than in 1998.
In the year 1999 the Smelter earned UAH 783.5 million from sale of its products, incurred production costs of UAH 594.96 million, held accounts receivable for UAH 98.33 million, and accounts payable for UAH 402.486 million.
Authorized capital of Zaporozhye Aluminum Smelter equals UAH 155,682,280. About 6.9% of shares in the company have been sold on preferred terms, while some more 25% are retained by the State.
Back in 1990 the Smelter launched a productive facilities reconstruction and modernization project in order to boost outputs, improve technical performance of products manufactured, introduce resource-saving technologies, and enhance pollution control.
The Ukrainian Investment Newspaper has informed that Zaporozhye Aluminum Smelter is almost ready to phase in the first stage of a new aluminum foil factory with capacity for 36,000 tonnes of packaging materials per year, including 27,000 tpy of plain foil.
Construction of the first stage of this new factory was commenced in 1996 and cost USD 16.9 million. Financing came directly from Zaporozhye Aluminum Smelter. Italy’s FATA firm supplied and assembled the USD 74 million equipment using money coming from the Italian line of credit.
The second productive stage, namely the sheet cold-rolling section, is anticipated to start functioning in late 2000. It is scheduled to fully complete construction of the factory and put into operation the foil-rolling mill (the third stage) in 2001.
The overall project costs come to USD 103 million.
According to the tender’s terms, the new owner, who will get control
over the whole Smelter, will become accountable for the Smelter’s outstanding payables, though he may negotiate debt restructuring with the creditors.
Mr. Bondar believes that shares in Zaporozhye Aluminum Smelter will meet customers’ demand and the results of this deal will be about as good as in case of Nikolayev Alumina Plant or the Crimean Malt Plant. He stressed that, "this is a super-attractive company".
Experts have estimated that the new owner of Zaporozhye Aluminum Smelter will be able to earn profits quickly enough owing to the current auspicious situation on the world aluminum market.
The State Property Fund expects to get the money from Zaporozhye Aluminum Smelter privatization this year. The tender’s terms mention that the highest price bid is the main criterion for the tender’s winner.
Profile of the victorious consultant
Raiffeisen Investment AG (RIAG) is a member of Austria’s Raiffeisen banking group. This company is a specialized investment division that renders services on corporate finance and state property privatization.
RIAG was founded by Austria-based Raiffeisen Zentralbank Osterreich Aktiengesellschaft. Head office of the company is located in Vienna, Austria. RIAG is one the leading European investment companies that does business in 12 Central and East European countries. RIAG has subsidiary companies in Romania, Bulgaria, the Czech Republic, Slovakia, Poland, and Russia, and advises the governments of these countries on restructuring and privatization of different local industrial companies and banking institutions.
Raiffeisen Investment Ukraine, an investment banking division of RIAG in Ukraine, was officially registered in 1999. This company backs execution of Raiffeisen group’s investment projects in Ukraine, renders consulting services to state institutions and companies as regards restructuring and privatization of state-owned enterprises, raising of strategic investors’ capital to arrange financing of industrial enterprises, banking institutions, and other companies.
Participation in Ukrsotsbank’s restructuring and sale of ASKA insurance company are worth to be mentioned among the large RIAG projects in Ukraine.
Besides to RIAG, the syndicate that provides professional consulting services on Zaporozhye Aluminum Smelter’s privatization comprises Kiev-based legal firm Proxen, which gives legal backup to the privatization process, and Kiev-based BDA Balance-Audit company, which runs the audit procedures and appraises Smelter’s assets.
Comments
Peter Gumpel, member of the board with Raiffeisen Investment AG
According to contract with the State Property Fund, the consultant should bring in a strategic partner that would participate in company’s privatization, as well as do its best to get the greatest possible earnings from disposal of shares. Among other tasks, Raiffeisen Investment is going to make the Smelter’s accounting system comply with the International Accounting Standards; assess company’s property; compile recommendations to the State Property Fund as regards realization of the share stake; prepare and hold a public auction; and provide signing of share acquisition contracts with the new owners.
Vyacheslav Yakimuk, director general of Raiffeisen Investment Ukraine
Our company started doing business in Ukraine’s banking sector in 1998. The company is a financial consultant for Ukrsotsbank’s restructuring. When doing groundwork for sale of ASKA insurance company, there was put together an investment memorandum that was forwarded to the leading foreign insurance companies to select ASKA’s strategic partner and shareholder.
Today we have kicked off a new project, namely privatization of Zaporozhye Aluminum Smelter, and I hope that its successful implementation will become the good grounds for our further joint work with the State Property Fund on execution of the three-year privatization program.
I am positive that joint efforts will let us reach a completely new level of mass privatization.
Within the framework of this project, Raiffeisen Investment Ukraine will organize and coordinate efforts of a whole team of experts (such as auditors, lawyers, and technical consultants) in Zaporozhye and Kiev, their contacts with the State Property Fund, and will donate office and technical equipment for execution of the project.
Pierre Heidebroek, director for large projects of Raiffeisen Investment AG
Preparing to the tender, we plan to finish a survey of Zaporozhye Smelter till the end of July. After that, approximately on August 21, we plan to hold one more meeting with the company’s management. By that time, the market should respond to the market value of Zaporozhye Aluminum Smelter’s shares.