On 22 June 2023, the Law of Ukraine No. 3137-IX “On the Introduction of Amendments to Some Legislative Acts of Ukraine Regarding the Optimisation of the State Property Fund of Ukraine, Improvement of State Property Management and Effectiveness of the Sanctions Policy” came into effect with provisions of this law related to the management of sanctioned assets to be effective on 22 September 2023.
The law enables large-scale privatisation of state assets and state companies while martial law is in place, enhances the centralisation of the State Property Fund of Ukraine, extends the powers of the State Property Fund of Ukraine to managing the sanctioned assets and simplifies the appointment of deputy heads of the State Property Fund and directors of state enterprises.
These developments resulted from Ukraine's successful resumption of small-scale privatisation in 2022, are described in our previous materials.
Relaunch of large-scale privatisation
A large-scale privatisation relaunch was awaited given the burden of state enterprises on public funds, and the attractiveness of the large state assets to institutional investors in contrast with small ones. Consequently, the law grants the State Property Fund the authority to sell large assets both to domestic and foreign investors even during the martial law regime.
In recent interviews, Property Fund head Rustem Umerov pledged to launch the first large-scale privatisation auctions no later than the third quarter of 2023. The following assets are expected to be the first ones auctioned:
- Odesa Portside Plant PJSC – producer of ammonia and carbamide;
- United Mining and Chemical Company JSC, specialising in the development of titanium-zircon deposits and the production of rutile, ilmenite and zircon concentrate;
- Zaporizhzhya Titanium and Magnesium Plant LLC – producer of high-quality titanium products;
- Indar PRJSC – a company with a complete technological cycle of production of genetically engineered insulins from substance to finished dosage forms; and
- Centrenergo PJSC – one of the leading power generators within Ukraine.
More detailed information on state enterprises and assets subject to large-scale privatisation may be found via the web-site created by the Property Fund.
Centralised Property Fund and simplified appointment procedures
The regional branches will no longer exist as separate legal entities and will operate on behalf of the Property Fund. The law grants the head of the Property Fund, but not the President as previously stipulated, the authority to appoint deputy heads. In addition, the Law enables the appointment of directors for state-owned companies under the control of the Property Fund and heads of regional branches without the local authorities' approval.
Management of sanctioned assets
Starting 22 September 2023, the Property Fund will be empowered to determine the enforcement procedures for court decisions on the recovery of assets belonging to an individual or a legal entity subject to sanctions.
The Property Fund will also manage sanctioned assets and will be entitled to dispose of sanctioned assets belonging residents of the states that carry out armed aggression against Ukraine (i.e. the Russian Federation).
Sovereign fund, a land bank and a state REIT
Property Fund head Umerov also recently revealed plans to establish a sovereign fund, a land bank, and a real estate investment fund, all of which will be under the Property Fund's control.
All strategic enterprises and assets not subject to privatisation will be transferred to the sovereign fund by the Cabinet of Ministers of Ukraine. The asset list will include defence-related enterprises and objects of strategic importance, such as buildings of state and municipal authorities, subsoil, nationally significant minerals, objects of the national natural reserve fund, systems for creating and maintaining foreign exchange reserves and national registries. To establish the sovereign fund, on 10 June 2023, Property Fund signed a Memorandum of Understanding with Contango consultancy company, which supported the famous ADQ sovereign wealth fund established in the United Arab Emirates.
The State Property Fund has also undertaken other initiatives, including the establishment of the land bank and the real estate investment fund. The land bank is contemplated to serve as a unified entity with the authority to consolidate all state agricultural land parcels currently held by various entities that amount to approximately 750,000 hectares. In addition, the Property Fund plans to establish the real estate investment fund that will lease out infrastructure properties, such as ports, transportation and gas facilities, and forest land.
For further information on large-scale privatisation in Ukraine, contact your CMS client partner or the following CMS experts: Natalia Kushniruk and Anna Pogrebna.
Legislation:
Law of Ukraine (Ukrainian text) suspending a large-scale privatisation
Law of Ukraine (Ukrainian text) relaunching a large-scale privatisation
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