Austrian investment firm EPIC will pay 10.58bn hryvnia (around $1.3bn) for a 93 per cent stake in Ukraine's state telephone company Ukrtelecom this month. The sale is the first big privatisation since Viktor Yanukovich assumed the presidency in February 2010 and may become a bellwether for the success of further state equity sales.

EPIC’s Ukrainian subsidiary signed the deal with the State Property Fund of Ukraine on Friday, which is planned to close still this month.

The final price is $10m more than the starting price the government set for a planned tender last December, but Ukrainian investment banks argued the government could have generated much more from the sale, up to $1.8bn in their estimations.

The bankers were not the only ones to say so. Former Ukrainian Prime Minister and presidential contender Yulia Tymoshenko said Friday the state had undersold its stake in Ukrtelecom by up to $4bn in a "shadow privatization".

Fears that the telecoms company, which operates more than 10 million telephone lines and is the biggest provider of fixed phones in Ukraine, would be sold at a below market price to well-connected oligarchs, as happened with other state assets when Yanukovich served as prime minister in 2004, have been circulating since the sale was announced last October.

Peter Goldscheider, Epic’s managing partner, denied suspicions that his company was acting as a front for domestic oligarchs and said that the tender was fair in an interview with the FT on Sunday.

The government has been discussing the sale of its stake in Ukrtelecom since the late 1990’s but has been prevented from selling by political wrangling and disputes between state agencies. However, Yanukovich’s government decided to proceed via an auction in December 2010.

Controversial rules restricting companies that are more than 25 per cent government-owned or have a market share in Ukraine of over 25 per cent excluded a number of global telecoms companies from the bidding, including Deutsche Telekom and Norway’s Telenor.

Ukrainian business conglomerate System Capital Management, the holding of Ukraine’s richest man and long-time political backer of Yanukovich, Rinat Akhmetov, and Russia’s AFK Sistema, which owns MTS, were seen as the most likely bidders. In the end only EPIC met the requirements.

But the champagne in Vienna should be kept on ice for at least the next five years, according to Oleksiy Blinov, head of research at Astrum Investment Management in Kiev.

He told FT Tilt: “Not only is the situation in Ukraine is difficult, but fixed line companies have limited investor appeal, and according to our estimates, we don’t see good growth prospects for Ukrtelecom for the next 5 years.”

However, Alexander Paraschiy, an analyst at BG Capital in Kiev, said in a research report that for portfolio investors Ukrtelecom offers exposure to expected growth in capitalisation, which is also the main short- to mid-term goal for EPIC as it plans to exit the investment through a sale or an IPO.

Ukraine’s State Property Fund said earlier this year it plans to sell at least 25 per cent in 162 state enterprises in 2011.

See also:
Epic to acquire 93% of Ukrtelecom for $1.3bn - FT