The state seeks normal ways to manage its property
The Presidential Administration and the Cabinet of Ministers are eyeing the possibility of renewing the so-called golden share rule at strategically important enterprises, deputy head of Presidential Administration’s economic department Yevhen Hryhorenko told The Day. The golden share entitles the state, regardless of its share in the statutory capital of a joint-stock company, to have a hand in developing its personnel, financial, and production policies. In other words, with 99.99% of stock in private hands, the state still plays an important role in running a given firm. First used in Ukraine in mid 1990s, the golden share was canceled in the wake of protests by private shareholders.
The golden share concept exists in many countries, although in Ukraine it has a slightly different sense. Let us take the example of a family in Great Britain that has been involved in its private business for generations. At some point the family might decide to sell the business, say, to the Japanese. The family can include a provision on the golden share in the terms of a sale contract, which will make it possible for the family to retain some corporate traditions, block decisions of the board, and have preemptive rights in the distribution of dividends. But the inclusion of such a provision, understandably affecting the company’s selling price, will require approval by the Japanese. In Ukraine, to continue with the analogy, no one seems to be going to ask the Japanese. A corresponding decision might be approved by Verkhovna Rada or the Cabinet as the major body holding state property.
Yevhen Hryhorenko explains the need to renew the golden share principle by the unprecedented upsurge of shadow privatization, with state property sold cheap into private hands on dubious terms. One of them is additional emissions of stock despite protests from the State Property Fund and government. The emissions of additional stock will provide funds for investment, company directors typically maintain. By contrast, stock exchange market experts believe that not a single additional emission of stock in Ukraine has ever been carried out to attract investment. It is merely a way for state property to change hands, while companies in need of investments prefer to issue increasingly popular corporate bonds.
In a way, the proposal to return to such an archaic instrument as the golden share can be viewed as an indication of despair, with all earlier attempts to put a stop to shadow privatization by turning to the courts or passing new laws being a resounding failure. As a result, the government’s legal privatization targets are threatened. The sale of state-run parcels in oblenerhos, oblast electricity utility companies, will hardly be smooth as almost every oblenerho has dubious debts to private companies. A wave of bankruptcy suits has already flooded the energy sector, with scandals involving Naftohaz Ukrayiny subsidiaries, already heavily bogged down in six-figure debts, just around the corner. Even Ukrnafta, one of Ukraine’s most successful companies, is faced with a bleak prospect of consolidating its debt, let alone smaller enterprises, which do not so attract the public eye. There, SPF experts claim, the accumulation of debts and additional stock emissions have long gotten out of hand and led to complete chaos. Given the circumstances, the golden share looks to many like the only way to retain control over strategically important enterprises.
The golden share idea, however, has already got a rebuff from Verkhovna Rada’s Financial Committee, with Deputy Serhiy Teriokhin predicting more problems than benefits from its comeback, “The SPF should first assess the positives and negatives of retaining the 25% state-run stakes. This done, there are two realistic options: either to allow additional stock issues and say goodbye to any control over enterprises, or to buy new stock to replenish the state-run stake. You can’t make an omelet without breaking eggs.” It is worthwhile recalling that the SPF has repeatedly appealed to the government to allocate funds to buy new stock issues with the Finance Ministry unfailingly referring to the lack of an appropriate item in the budget.
The same critical stance has been taken by the deputy head of the State Commission on Securities and the Stock Exchange, Oleksandr Biriuk, who argues that the return of the golden share will significantly jeopardize the interests of private shareholders. “What if the company is 100% privatized? Do you mean in this case the state can continue to run it?” he exclaims.
Given such opinion, the chances for the return of the golden share are quite slim. On the other hand, it is obvious that the State Property Fund will continue to look for ways to curb sales of state-run property for debts and uncontrollable additional stock emissions. Meanwhile, according to Yevhen Hryhorenko, the SPF is doing what it can to prevent the artificial minimization of state-run stakes in each particular case. “We stubbornly block new emissions of stock even if we feel they may be beneficial to companies,” the Deputy Head of Presidential Administration’s Economic Department says. It seems the tidal wave of shadow privatization is rising but it looks unlikely that anything will be done to reduce it before the parliamentary elections. And there are no doubts that the perpetrators of shadow privatization deals, especially in the Donbas, enjoy strong political support.
