The State Property Fund has managed to thwart a bold attempt at shadow privatization by laundering state-owned shares in the Zaporizhstal Steel Plant, one of this country’s largest enterprises. “The scandal concerning the next emission of this enterprise’s shares can be considered exhausted,” Oleksandr Bondar, State Property Fund chairman, announced. What became a compromise that suited the Zaporizhstal management, the rattled State Property Fund (SPF), and the frightened new shareholders was the decision to urgently sell the scandal-ridden state-owned stake in the enterprise. This will make it possible for the state to receive planned budget revenue and owners of the second-issue Zaporizhstal securities to retain their deposits. “We will first conduct a full tender, then let them repeat the emission without any consultations with the State Property Fund,” Mr. Bondar assured us.
It will be recalled that in June the steel mill’s board made rather an unexpected decision without consulting the SPF to issue an new emission of shares. It was planned to increase the authorized capital by 33.3% to UAH 374.9 million. Plant general manager Vitaly Satsky announced modestly that the new issue was necessary due to a shortage of funds to retool the thin-sheet hot rolling shop (UAH 90.8 million) and the swaging shop (UAH 2.9 million). Meanwhile, Mr. Bondar never doubted that the true cause of the repeated issue was to wash out the 25% state-owned stake. The scandal gained momentum in the absence of information exchange between the two sides because Mr. Satsky was away on vacation in July.
Following this, the fund requested the government solve the dispute. First Vice Premier Oleh Dubyna, a great authority among metallurgical managers, intervened in this conflict as a cold-blooded arbiter. At first he said it was inadvisable to issue additional Zaporizhstal stock, stating that the enterprise is showing good economic results and so does not need additional investment through a new emission. Then he held closed-door consultations with Zaporizhzhia oblast administrators, where it was decided to seek a compromise in order to keep the wolves well-fed and the sheep intact. Obviously, the wolves did their best to convince the government they had no predatory intentions.
The subscription for the supplementary emission began on June 11 and included two stages: at the first stage (June 11-25) only the enterprise’s shareholders had the right to subscribe for the shares, while during the second stage (June 26-July 10) the subscription could be entered by all corporate and natural persons who wished to do so. A one-third increase in the authorized capital would have resulted in the state- owned stake being washed out from 25% to 18.7%. The issue results were to have been approved by a meeting of shareholders on July 14. But the SPF, of course, canceled its approval of the results. The next meeting was held on August 14, where the fund again showed striking impregnability. A specially-formed shareholders’ commission was assigned a task to settle the scandal before the next meeting, scheduled for October 2, is held. Thus several hundred small investors, who invested about 70 million hryvnias in the new securities, have found themselves in a quite precarious situation. They have already paid money but not received the promised shares. Yet, several weeks of closed-door negotiations have finally led to a compromise.
The main condition set by the fund was that results of the controversial second issue should be approved only after the privatization tender is over. Until the state-owned stake becomes private property, the new Zaporizhstal shareholders, who have invested 70 million, will not obtain their coveted shares. “The issue will be approved in October, when the tender is over,” the SPF says. By a pure coincidence, the 25% state-owned stake’s starting price is also 70 million hryvnias. The tender will be announced next week. It looks like all participants in this scandal are interested that the state- owned block be sold at first try.
Moreover, this should be facilitated by the economic success of Zaporizhstal. The company’s financial result in the first six months was UAH 75.516 million. Simultaneosly, the enterprise transferred UAH 110.211 million as taxes and duties to the budget and off-budget funds. The output of finished rolled metal rose by 8.4% in the first six months against the same period of last year. Zaporizhstal plans to earn UAH 3,208 million as net income and UAH 87 million as profit in 2001 as a result of product sales.
