KIEV - ArcelorMittal, the biggest foreign investor in Ukraine, is crying foul over a legal case brought by prosecutors that it fears could be the first step in an attempt to strip it of its $4.8bn investment in the country's leading steelmaker.

If the case continues, analysts warn it could do serious damage to Ukraine's image, at a time when Viktor Yanukovich, the Russia-leaning president elected in February, has pledged to improve the climate for foreign investors.

The world's biggest steelmaker bought Ukraine's Kryvorizhstal for $4.8bn in 2005 when the government reprivatised the steel mill – previously bought by Ukrainian tycoons for $800m – following the 2004 Orange Revolution.

ArcelorMittal later agreed with Ukraine's State Property Fund, which handles privatisations, to amend its purchase agreement and delay some agreed investments in the plant in 2009 because of "force majeure". Ukraine's steel industry was hit particularly hard by the global recession.

Ukraine's general prosecutor's office in July launched legal action against both ArcelorMittal's Ukrainian unit and the State Property Fund claiming the "force majeure" amendment was improperly reached. ArcelorMittal and the SPF deny this.

ArcelorMittal says breaches of procedure and of national and international legislation have raised doubts that it will get a fair hearing.

"If the judge rules that this amendment was illegal  . . . we [become] late in our investment obligations," said Rinat Starkov, chief executive of ArcelorMittal Kryviy Rih, as the unit is now called. "We believe the second step could be to say that we are late in our investment obligations and so the shares have to go back to the state."

ArcelorMittal would receive the proceeds of any future resale. But it might fetch considerably less than the steel group paid.

Christophe Cornier, a member of parent group ArcelorMittal's general management board, told the Financial Times this weekend he was "deeply concerned" about the case.

Mr Starkov said he suspected that though the legal action was brought on behalf of the government, business interests rather than the state itself were ultimately behind it.

A judge on Friday accepted the case be heard in the Kiev City Commercial Court – in spite of a clause in ArcelorMittal's purchase agreement saying that any dispute with the government should be resolved in an international arbitration court. The judge, substituted on to the case at the last moment, scheduled a second hearing for Tuesday. The gap of one working day is far shorter than normal in such cases.

Prosecutors could not be reached for comment this weekend.

Serhiy Lyovochkin, head of Mr Yanukovich's presidential administration, said he was not familiar with the case and could not comment. But he said Mr
Yanukovich's coalition remained committed to improving conditions for investors.


USUBC NOTE: Reports indicate there is considerable corporate raidership going on in Ukraine today with the Ukrainian private sector raiding the private sector with very little support to stop such raidership from the Ukrainian government or the Ukrainian legal system. The private business community in Ukraine certainly hopes the government of Ukraine has not decided to also engage in corporate raidership. The private business community is pleased to hear the government remains committed to improving conditions for investors and hopes some real action to improve the conditions for doing business in Ukraine will finally be undertaken soon.

NOTE: ArcelorMittal is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C.,