In the previous educational material we dwelled upon how small-scale privatization takes place and how one can buy a small-scale privatization object from the state, for example, a non-working workshop or a mothballed building for the development of your business. Today we will tell you how to become an owner of a large-scale privatization object.
To objects of large-scale privatization belong state and municipal enterprises which are not strategic but at the same time have a significant value: the book value of each of these enterprises exceeds UAH 250 mln.
The main difference between large-scale privatization and small-scale privatization is that the sale of such enterprises takes place with the involvement of investment advisors. These are usually large consulting, audit, and investment companies. The key tasks of such consultants include not only preparing the object for auction (evaluation, audit, putting all documentation in order, etc.) but also developing a sales strategy and finding potential investors.
Theoretically, there is a possibility of large-scale privatization for municipal property objects. But there have never been such successful cases in the history of Ukraine. Therefore, we will consider the stages of large-scale privatization in the context of the sale of state-owned objects.
Stage 1: preparing and including the object in the list of large-scale privatization objects.
At this stage, the matter of selling the object is agreed upon at the level of various ministries. As management bodies, they prepare letters of proposal for the inclusion of a state-owned enterprise in the list of large-scale privatization objects. The final result is the approval of this list by an order of the Cabinet of Ministers of Ukraine.
Stage 2: making a decision on privatization and forming an auction commission.
After approving the list of sales of “large objects,” a decision is made on privatization and transfer of enterprise management functions to the State Property Fund of Ukraine (SPFU). Subsequently, an auction commission is created which selects an investment advisor. The approval of these advisors is recorded by the relevant order of the Cabinet of Ministers of Ukraine.
Stage 3: preparing for the auction
At this stage, investment advisors begin their work, collecting information about the company, analyzing the work of the state enterprise and the market. During this stage, a sales strategy is also developed, the cost of conducting a financial audit is estimated, and the starting price for the sale of the object is determined. Based on the results of their work, as well as taking into account the recommendations of the SPFU, the auction commission forms the conditions for the privatization of the object after which they must be approved by the Cabinet of Ministers of Ukraine. Next, the commission develops an information notice about the auction and submits it for approval to the SPFU.
After the notice is published, potential procuring entities can send their price offers. Before the auction, the SPFU also provides procuring entities with the opportunity to amend the draft purchase and sale agreement. In the last week before the auction, the commission reviews the procuring entities’ documents and makes a decision on their admission or non-admission to the auction.
Stage 4: conducting the auction
Auctions for large-scale privatization have not yet been transmitted into electronic format and are conducted in the classic way with the announcement of prices and raising cards by participants. Media outlets are allowed at the auction. The highest bid wins the auction. If only one participant takes part in the auction, then the option of object redemption can be activated, as in the case of small-scale privatization.
An auction for the sale of a large-scale privatization object can also be conducted three times. The difference is that during the second auction, the price is reduced not by 50%, but by 25% of the starting price. During the third auction, the price is already reduced to 50% but in the future, the cost of the object does not decrease — only an increase in the bid by participants is possible.
Stage 5: concluding the agreement
Within 10 working days after the auction is completed, the SPFU concludes an agreement with the winner of the auction and publishes a notice about the auction results on its official website. The procuring entity receives the rights to the object within 3 days from the date of payment of the full amount under the agreement. Payments must take place within 30 days from the date of conclusion of the purchase and sale agreement.
Procuring entities are subject to the same restrictions as with small-scale privatization.
Procuring entities can be both ordinary people and private entrepreneurs, or businesses. Employees of the SPFU and its regional branches, persons, and enterprises of the aggressor country, or those who have been sanctioned by Ukraine cannot be procuring entities of state property. In addition, those persons with whom a privatization agreement was previously concluded which was then terminated due to their violation of the terms, as well as related persons, cannot be procuring entities.
In general, the entire procedure of large-scale privatization of one object can take place within 11-12 months from the auction date.
The list of large-scale privatization objects can be found on the website of the State Property Fund at the link.
This material was prepared by Transparency International Ukraine with the support of the USAID project Economic Development, Management and Growth of Entrepreneurship (EDGE) and State-Owned Enterprises Rapid Response Activity (SOERR). The authors’ views expressed in this article do not necessarily reflect those of the United States Agency for International Development or the United States government.