While Ukraine’s presidential election campaign continues to command center stage, fewer eyes are focusing on an important trend in business under way.
Over a billion dollars in lucrative, strategic assets has changed hands since the beginning of this year. And the receiving hands of promising but often recession-distressed assets are savvy Ukrainian and Russian buyers with ample, post-crisis liquidity.
Max Nefyodov, vice president of investment banking at Kyiv-based investment bank Dragon Capital, estimates that the volume of all merger and acquisition deals conducted in recent weeks already exceeds last year’s total of $1 billion; however most of these transactions were not publicly disclosed so exact estimates are hard to come by.
“Now is the time to think three or four steps ahead. Before Ukrainian companies could just take out debt to grow. Now, only those that make bold decisions will survive. There will be a premium on speed this year,” said Peter Vanhecke, CEO in Ukraine and the Central-Eastern European region for Renaissance Capital.
Seizing the moment to quickly snap up distressed or promising assets in Ukraine is precisely what a handful of cash-rich Ukrainian and Russian billionaires are doing.
Deals to sell off one of the country’s two major television channels, 1+1, and top-30 international steel maker Industrial Union of Donbass (ISD) were sealed during the holiday calm before the storm of the first vote on Jan. 17.
A 50 percent stake in ISD, which following the global financial and economic crises found itself mired in billions of dollars of debt it had taken on to finance modernization plans, went to Russians. In a purchase valued by Dragon Capital at $1 billion, Russia’s Alexander Katunin (along with partners) took a 25 percent stake, while unnamed Russians took an equal amount in ISD, buying out the interest from Ukrainian billionaires. ISD, which controls Ukraine’s modernized Alchevsk Metallurgical Plant, along with another Ukrainian mill, and factories in Hungary and Poland, was valued by the deal at more than $2 billion.
During the same holiday lull, Ukrainian oligarch Ihor Kolomoisky got hold of 1+1 and a few less important Ukrainian television channels for $300 million. The vendor, NASDAQ-listed CME, itself owned by American billionaire Ronald S. Lauder, exited the Ukrainian market to concentrate on its media investments in the rest of Central and Eastern Europe.
Other M&A deals clinched this month in Ukraine, where headlines have been dominated by the raucous campaign tactics of the nation’s top presidential contenders, include the ongoing sale of a controlling stake in Ukrainian agro major Allseeds Group to compatriot company Kernel Group for $42 million, and the more recent announcement that Russian-British petrol conglomerate TNK-BP was purchasing a string of Ukrainian gasoline stations for an estimated minimum price of $50 million.
Kolomoisky and Kernel owner Andriy Verevsky, a lawmaker in Prime Minister Yulia Tymoshenko’s camp, are two rare examples of domestic businessmen who had strong enough cash positions to close such bargain acquisitions. But when the flurry of M&A activity ends, Russian billionaires, the bigger sharks by size, could end up snapping up a larger share of the Ukrainian business pie. As they move fast, Western investors that are waiting out to see how the election dust settles could lose out on some hot buy opportunities.
“Because of the negative view of Ukraine, investors outside the region have been slow to respond to the changing environment. Ukrainian and Russian investors are on the ground and can read the situation better. If you are further away, you are likely to wait a bit longer before resuming investment,” Renaissance Capital’s Vanhecke said.
That said, Vanhecke cautioned that it would be a mistake to see these deals as a fire sale, or a pull-out of Western investors. Instead, he said, the global economy in general is picking up, and Ukraine is looking good from a mid-term perspective.
“Last year, Ukraine was the ugly kid in school and there was no good news. But now people have taken another look and are saying: it’s not that bad.”
“First investors look at Russia, and as prices go up there, they move on to Ukraine,” Vanhecke added.
In addition, some believe that the presidential elections, which will end in a runoff on Feb. 7, offer hope of long-awaited political stability, Vanhecke said.
So is Ukraine in for another round of high-stake foreign investment, like we saw in 2008? Vanhecke says we can at least expect a serious round of consolidation.
“It’s historically unavoidable.” Cash-rich companies could indeed return to gobbling up attractive market leaders, or the latter could look for financing on international exchanges in a new wave of initial public offerings, or IPOs.
As for less attractive companies – those still hoping to be swept up by a foreign prince with deep pockets – they could merge, develop a market niche or simply fade away, Vanhecke said.
Kyiv Post staff writer John Marone can be reached at [email protected].
