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Additional guarantees are needed to protect investors for the successful privatization auction of JSC UMCC

03/ 11/ 2021
  The Advisor and the State Property Fund performed a thorough preparatory work on privatization of JSC UMCC (the - Company), and together with the international offices of BDO International, communicated with more than 100 international strategic investors and investment funds. 29 potential investors, of which 16 are foreign, were interested in the asset and signed a confidentiality agreement. Most of them refused to participate in the auction not only because of the pressure on time to conduct Due Diligence and pass approval procedures in their corporations, but also because of high investment risks in Ukraine. During the Due Diligence for JSC UMCC by investors, there was interference of law enforcement agencies in the economic activities of UMCC, blocking the work of the companys main office, risks of legal proceedings were identified, and so on. JSC UMCC is one of the worlds largest producers of titanium raw materials, which has 4% of the world market and is among the top 10 in the world in terms of production volumes, is a leader in the production of ilmenite, rutile and zircon concentrates in Ukraine and Europe, and is attractive for international investors. During the Companys preparation for privatization and auction, the indicators of JSC UMCC improved: new licenses for the study and development of titanium deposits were obtained and extended, including a special permit for the development of the Malyshevskyi field for 20 years; reserves of the Vilnogirsk branch of JSC UMCC increased almost twice; sales volume for 9 months of 2021 amounted to UAH 3.05 billion (this indicator was UAH 2.08 billion in 2020) - an increase comprised 147%; the Companys products are now sold transparently at electronic auctions and with a counterparty verification procedure; information about the Companys raw materials reserves, which is necessary for assessing of the Company by potential investors, has been declassified. All this made it possible to increase the starting price of this large-scale privatization object from UAH 2.1 billion to UAH 3.7 billion and attract international investors. It is necessary to maintain the interest of reputable international investors, who, in case of successful privatization of JSC UMCC, will bring billions of hryvnias of direct revenues to the state budget and additional investments in the Companys development. Based on the appeals of international investors, we, as an adviser on privatization of JSC UMCC, appealed to the Government of Ukraine about the need to provide guarantees for the protection of future investments for bidders for the privatization of JSC UMCC. BDO Corporate Finance LLC specializes in M&A transactions, fund raising and strategic consulting, and together with BDO LLC and BDO Consulting LLC in Ukraine makes up a part of BDO International Network. In 2020, BDO International entered in and participated in more than 1,500 M&A transactions worth about USD 83.5 billion and according to PitchBook rating it has become No. 1 in the world among M&A Advisors. BDO in Ukraine is a leading audit and consulting group, a member of the worlds 5th international association of independent audit and consulting firms. The company provides a wide range of services of audit, business restructuring, business and IT consulting, cybersecurity, business process automation, tax and legal practice, accounting outsourcing, evaluation practice, sustainable development, etc. About 200 employees work in the companys offices located in Kyiv and Dnipro. BDO International has more than 1,650 offices in 167 countries, with a total sales volume of USD 10.3 billion in 2020.

The Advisor and the State Property Fund performed a thorough preparatory work on privatization of JSC UMCC (the – Company), and together with the international offices of BDO International, communicated with more than 100 international strategic investors and investment funds.

29 potential investors, of which 16 are foreign, were interested in the asset and signed a confidentiality agreement.

Most of them refused to participate in the auction not only because of the pressure on time to conduct Due Diligence and pass approval procedures in their corporations, but also because of high investment risks in Ukraine.

During the Due Diligence for JSC UMCC by investors, there was interference of law enforcement agencies in the economic activities of UMCC, blocking the work of the company’s main office, risks of legal proceedings were identified, and so on.

JSC UMCC is one of the world’s largest producers of titanium raw materials, which has 4% of the world market and is among the top 10 in the world in terms of production volumes, is a leader in the production of ilmenite, rutile and zircon concentrates in Ukraine and Europe, and is attractive for international investors.

During the Company’s preparation for privatization and auction, the indicators of JSC UMCC improved:

  • new licenses for the study and development of titanium deposits were obtained and extended, including a special permit for the development of the Malyshevskyi field for 20 years;
  • reserves of the Vilnogirsk branch of JSC UMCC increased almost twice;
  • sales volume for 9 months of 2021 amounted to UAH 3.05 billion (this indicator was UAH 2.08 billion in 2020) – an increase comprised 147%;
  • the Company’s products are now sold transparently at electronic auctions and with a counterparty verification procedure;
  • information about the Company’s raw materials reserves, which is necessary for assessing of the Company by potential investors, has been declassified.

All this made it possible to increase the starting price of this large-scale privatization object from UAH 2.1 billion to UAH 3.7 billion and attract international investors.

It is necessary to maintain the interest of reputable international investors, who, in case of successful privatization of JSC UMCC, will bring billions of hryvnias of direct revenues to the state budget and additional investments in the Company’s development.

Based on the appeals of international investors, we, as an adviser on privatization of JSC UMCC, appealed to the Government of Ukraine about the need to provide guarantees for the protection of future investments for bidders for the privatization of JSC UMCC.

BDO Corporate Finance LLC specializes in M&A transactions, fund raising and strategic consulting, and together with BDO LLC and BDO Consulting LLC in Ukraine makes up a part of BDO International Network. In 2020, BDO International entered in and participated in more than 1,500 M&A transactions worth about USD 83.5 billion and according to PitchBook rating it has become No. 1 in the world among M&A Advisors.

BDO in Ukraine is a leading audit and consulting group, a member of the world’s 5th international association of independent audit and consulting firms. The company provides a wide range of services of audit, business restructuring, business and IT consulting, cybersecurity, business process automation, tax and legal practice, accounting outsourcing, evaluation practice, sustainable development, etc. About 200 employees work in the company’s offices located in Kyiv and Dnipro.

BDO International has more than 1,650 offices in 167 countries, with a total sales volume of USD 10.3 billion in 2020.

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