Top 3 innovations in the legislation on privatization.
The President of Ukraine signed the document, changing national legislation on privatization. What positive innovations in its laid and how it will affect the interest of strategic investors to the Ukrainian assets?
The budget of Ukraine for 2016 laid the revenues from privatization of state property in the amount of 17.1 billion UAH.
The government plans privatization of at least 25 companies, which have already expressed an interest in foreign strategic investors, however, expressing a number of concerns, which called the main barriers to the success of privatization in Ukraine. Among them, the demand for the sale of the shares on the stock exchange for the asset pricing, imperfect mechanisms for the protection of investors’ rights, in particular the procedure for dispute resolution.
A step towards the investor and the “green light” for the privatization of large projects in Ukraine should become a new Law “On Amendments to Some Laws of Ukraine on the improvement of the privatization process” № 1005-VIII on February 16, 2016 (hereinafter – the “Law”), which entered into force March 6, 2016.
One of the main innovations of positive law is the abolition of rules on compulsory sale of 05.10% shares of the enterprises group “B” and “G” on the Ukrainian stock exchanges before privatization.
By the enterprises of the two groups focused attention of investors. After all, they work in the most promising sectors of the economy, such as agriculture, energy and infrastructure. The group “B” consists of large enterprises with the number of employees more than 100 people and revenue of 70 million USD. By the enterprises of the “G” are enterprises of strategic importance to the economy and national security.
The norm of compulsory sale of shares on the Ukrainian Stock Exchange was introduced as a tool for determining the fair value of all shares. However, it was doubtful effectiveness. In particular, the price of the stake was simply to manipulate because of the low liquidity of the Ukrainian stock market. Also it should be noted that, as a rule, one share of the controlling stake in the company is worth more than one share of 5-10 per cent share. Moreover, the compulsory sale of a minority stake to the privatization of several reduced the interest of potential investors.
Thus, the abolition of this rule makes it possible to prevent the fragmentation of shares, resulting in the simplification and acceleration of the privatization process of enterprises.
The law provides for the possibility of considering privatization disputes between the buyer and seller in international arbitration. For foreign investors the opportunity to resolve disputes in recognized international arbitration institutions (such as the Arbitration Institute of the Stockholm Chamber of Commerce, the International Centre for Settlement of Investment Disputes, etc.), rather than as part of the national judicial system is extremely important.
As you know, historically one of the key vulnerabilities of foreign investors is the fact that the object of investment and investor subject to the jurisdiction of the receiving state investment. In this situation, investors justifiably fears discriminatory action by the host country that has repeatedly happened in the world.
That is why foreign investors are demanding clear guarantees and obligations of the receiving State to avoid the slightest possibility of manifestation of arbitrariness on the part of government agencies, the use of discriminatory measures in respect of the investment object.
Resolution of disputes that arise in relation to the purchase and sale of objects of privatization contracts, with the help of international arbitration provides additional protection of investor rights. This is achieved thanks to the high professionalism of arbitrators and the process of independence of the dispute. Sometimes international arbitration also makes it easier to come to a final resolution of the dispute than when taken in the national courts.
The law provides for a ban on participation in the privatization of the individuals and organizations registered in the state-aggressor or those subject to sanctions.
This regulation on the one hand a few narrows the range of potential investors, but on the other hand gives the promise of Western, Asian, Middle Eastern investors that Ukraine seeks to diversify foreign investment and international standards of the privatization procedure.
Greater transparency procedures, by the way, and contributes to a provision that makes it possible to attract foreign advisers in the preparation of enterprises for privatization.
