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. Last Updated: 07/27/2016

Ukraine Steel Mill Sold for $4.8Bln

ReutersYushchenko, right, Prime Minister Yuriy Yekhanurov and presidential chief of staff Oleh Rybachuk watching the tender.
KIEV -- Mittal Steel, the world's largest steel producer, bought Ukraine's flagship Kryvorizhstal plant from the state Monday for more than $4.8 billion, more than five times its price last year in a sale that was later annulled.

The high-stakes auction had been a campaign promise of President Viktor Yushchenko, part of his bid to prove to investors that the former Soviet republic is committed to transparency and open for foreign investment.

Mittal Steel Germany bought a 93.02 percent stake in the mill for 24.2 billion hryvna, well above both what analysts had predicted and the $850 million former President Leonid Kuchma's son-in-law and another tycoon had paid for the mill in 2004 -- a sale that Yushchenko called a theft after he became president this year.

"Today, you saw the evidence that if Ukrainian privatization had occurred honestly, we could have received big financial opportunities to solve all kinds of concerns, including social concerns," Yushchenko said.

"What happened today showed that Ukraine is able to conduct an honest privatization."

The sale of Kryvorizhstal, which produces 20 percent of Ukraine's entire metal output, is the largest foreign investment ever in Ukraine -- equivalent to about 20 percent of this year's anticipated budget revenues.

"It is a serious investment. ... We have the largest steel producer in the world paying a very serious price, which surpassed everybody's expectations," said Tomas Fiala, managing director of the Kiev-based Dragon Capital investment house.

Dmytro Arsenenko, deputy head of the State Property Fund, who oversaw the auction, called the price "fantastic, unbelievable. It was even difficult to imagine."

Lakshmi Mittal, CEO of Mittal Steel, admitted that he felt "a little bit nervous" at having made the investment.

Asked if he had overpaid, Mittal said: "I can say that the Ukrainian administration has been very lucky to receive this price."

Mittal tapped into $2.7 billion it had in cash, together with credit worth $5.2 billion to cover the cost, president Aditya Mittal said.

The mill, which produces 8 million tons of steel per year, is an important acquisition for Mittal, increasing its steel production by 15 percent and giving it a nearly self-sufficient operation in the growing Eastern European market, analysts said. Asked when he expected a return on his investment, Mittal said: "The sooner, the better."

Mittal insisted that all 56,000 employees would be retained, and said that plans called for long-term investment and boosting steel production.

Competing against Dutch-based Mittal was the Industrial Group Consortium, which brought together the Industrial Union of Donbass and the world's second-largest steel producer, Luxembourg-based Arcelor, as well as the Ukrainian-registered LLCSmart-Group.


Gleb Garanich / Reuters

A television image of Yulia Tymoshenko congratulating Mittal executives.

The Arcelor consortium offered the highest starting price, 12.6 billion hryvna ($2.5 billion). The sale then went to an open auction, with the bidding feverish. Representatives of the three companies sat at separate desks and raised white placards to hike the price up in 100 million hryvna ($20-million) increments as people in their teams frantically worked the phones. The main bidding soon was between Mittal and the Arcelor consortium.

The auctioneer repeatedly raised his wooden gavel and declared "one ... two ..." before a bidder raised the price again.

Former Prime Minister Yulia Tymoshenko, who had spearheaded the privatization effort, flashed a huge smile when the bidding ended.

But not everyone was pleased. State Property Fund chief Valentyna Semenyuk, a Socialist Party member who had made her opposition to the sale known, submitted her resignation Monday. Yushchenko did not immediately respond.

Some 150 protesters gathered outside the State Property Fund, chanting and holding placards reading: "The People Own Kryvorizhstal."

They set fire to orange T-shirts and other symbols of the Orange Revolution that was ushered in by the outpouring of demonstrators that had backed Yushchenko after he lost a rigged presidential election.

"The new owner will not care for Ukraine, for its people," said Communist lawmaker Oleksandr Golub, whose party opposed the privatization. Parliamentary critics mustered enough votes last week to press the government to halt the sale, but Yushchenko shrugged off the nonbinding resolution, just as he has legal challenges from the mill's former owners.

The consortium led by Kuchma's son-in-law, Viktor Pinchuk, and tycoon Rynat Akhmetov tried to hold onto the mill, but most of their appeals were rejected. One is pending before Ukraine's Supreme Court.

The tycoons have also launched a challenge before the European Court of Human Rights and in the United States through a third party.

The Ukrainian government will return the money that the Pinchuk-Akhmetov consortium paid. Ukrainian officials have not outlined what the mill's proceeds will be used for, but have suggested social programs as well as paying off some domestic debt.