Ukraine Scraps Sale of Ammonia Maker After Receiving No Offers

(Bloomberg) -- Ukraine canceled the sale of a majority stake in its largest ammonia maker, Odesky Pryportovy Zavod, after it received no bids, the State Property Fund said.

Seeking cash as a two-year pro-Russian insurgency in the country’s eastern regions saps state finances, the government set a starting price of 13.2 billion hryvnia ($532 million) for the 99.567% stake in the plant, known as OPZ. It was the second failed attempt to sell the company since 2009. OPZ employs about 3,800 workers and had output of 1.1 million tons of ammonia and 950,000 tons of urea in 2015.

The lack of interest underscored the dilemma facing Europe’s largest country by area after Russia. Under pressure to sell state companies to improve efficiency and ease investor concern over widespread corruption, the government is struggling to lure buyers after state enterprises generated a cumulative loss of more than $4 billion in 2014. The cabinet is pursuing the sales to boost revenue as it also seeks as much as $12 billion in international aid this year.

“Potential investors were interested in the plant,” the State Property Fund said in a statement on Monday. “But after they studied the package of documents and studied situation in Ukraine and around the plant they said they were not prepared to take part in the auction under the given conditions.”

Investors balked because of OPZ’s debt, capital controls, the minimum bidding price, and other issues, the Fund said in the statement. Ihor Bilous, the chief of the State Property Fund, said before the sale that if it failed, another attempt could be made in the fall. The sale terms require there be at least two bidders, one of them a non-resident.

Reluctant Sales

“All the risks around the plant and in Ukraine in general have their price,” Bilous was cited as saying in the statement. “I hope the decision to repeat the privatization of Odesky will be made in the near future.”

The disposal of state-owned companies is among the government’s main tasks after postponing sales of some of its main businesses, including power utilities. A new law to improve asset sales was approved by parliament in February after 18 attempts.

“It appears that the Ukrainian authorities are reluctant to auction off their failing companies at any price yet,” Lilit Gevorgyan, a senior economist at IHS Economics in London, said before the sale. Waiting for better market conditions is a “luxury they don’t have at the moment. The sooner these failing enterprises are sold, the better for Ukrainian public finances.”

Odesky posted a net profit of 211 million hryvnia in 2015, according to the state stocks and securities commission. The plant swung to a net loss of 419 million hryvnia in the first quarter, compared with a profit of 90 million hryvnia a year earlier.

Ukraine’s economic recovery is fragile and hinges on international support and investments. While gross domestic product rose 0.1 percent from a year earlier in the first quarter, it shrank 0.7 percent from the previous three months, the first contraction since an 18-month recession ended in the middle of last year.