Ukraine Plans to Cut Price for Ammonia Maker to Lure More Bids

  • State fund sees starting price at $100 million-$150 million
  • Four potential bidders have shown interest in buying OPZ

Ukraine plans to lower the price limit for a rerun of the privatization tender for ammonia maker Odesky Pryportovy Zavod after a failed attempt to sell the indebted company, according to the state asset management company.

The State Property Fund sees the reduced starting price for the plant, also known as OPZ, between $100 million and $150 million, Chairman Ihor Bilous said in an interview in Kiev on Thursday. The government has to approve the price limit by October to allow for a new auction to take place in November, he said.

"We are talking about a starting price that will spur competition," Bilous said. "I see four potential bidders now and if the starting price is low, we may have two or more additional bidders."

Selling state companies is a key part of efforts to overhaul the $90 billion economy that has shrunk by half, in dollar terms, since 2013 as the government engaged in an armed conflict with pro-Russian separatists in the east of the country. The state canceled a tender to sell OPZ in July after it received no bids when the starting price was set at 13.2 billion hryvnia ($510 million).

Debt Restructuring

The property fund and the government are looking for ways to restructure OPZ’s $251 million debt owed to tycoon Dmytro Firtash’s Group DF for gas, Bilous said without elaborating on the plan. Group DF said earlier this month it planned to bid for the ammonia maker.

Odeskyi’s total debt now stands at $303 million, according to State Property Fund data. The new owner will also have to provide around $100 million of working capital to support the plant’s operations after it swung to a 235 million hryvnia loss in the first half of the year as prices for gas went up and prices for its products, ammonia and urea, declined.

This week’s approval of an aid tranche from the International Monetary Fund is a positive sign for investors and potential financial institutions, including the European Bank for Reconstruction and Development, that may provide financing for the OPZ auction, according to Bilous.

"As long as we have this momentum, we have to take advantage of it,” Bilous said. “The debt will not go anywhere and will only accumulate because the plant is making a loss,” which could make it more difficult to sell the company in the future if the planned auction isn’t successful, he said.