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ARCELORMITTAL MAY CURB UKRAINIAN INVESTMENT ON LEGAL CHALLENGE
By Thomas Biesheuvel and Kateryna Choursina
Bloomberg News, New York, NY, Wed, Oct 6, 2010
LONDON/KIEV -- ArcelorMittal, the world’s largest steelmaker, said a legal challenge that may see it stripped of its $4.8 billion plant in Ukraine threatens future investment in the country.
“If you make an agreement and then the process is not followed by the government, it’s a big problem,” Christophe Cornier, ArcelorMittal Group management board member, said today by telephone. “All investors will have to think about it.”
ArcelorMittal, which bought the VAT ArcelorMittal Kryvyi Rih unit in 2005, is being challenged by the Ukrainian General Prosecutor’s Office after delaying investments at the plant in 2009. ArcelorMittal said it agreed with the State Property Fund to alter its purchase agreement and postpone investments after declaring force majeure during the global financial crisis.
An Oct. 1 court hearing on the case “demonstrated a biased approach and total neglect for the existing legislation,” the company said in a statement. The purchase agreement states that all disputes be settled by the International Commercial Court of Arbitration, it said. The case will return to court in Ukraine on Oct. 12.
“We have in the pipe a lot of other ideas for Ukraine in the mining sector, which of course could be a lot of money if we proceed,” Cornier said. “It is very clear that if I go to Mr. Mittal to spend $1 billion on a coal mine, I’m not sure it will be welcome” if that mine is in Ukraine, he said.
MINING EXPANSION
The Luxembourg-based steelmaker, the largest foreign investor in Ukraine, plans to spend $4 billion over the next five years to increase iron-ore production globally and is “reviewing opportunities” to expand its coal-mining output, ArcelorMittal said Sept. 16. Lakshmi Mittal is chief executive officer and 41 percent shareholder of ArcelorMittal.
“Taking into consideration ArcelorMittal’s weight in the world and in Ukraine, and taking into consideration the size of its investments in Ukraine, it would be very undesirable for other investments if the authorities seek to dispute the plant’s sale,” said Andriy Bespyatov, head of research at Dragon Capital in Kiev. “The wisest way is to reach an agreement.”
Ukraine is seeking to revive its economy to plug a 2010 budget deficit that it expects to reach 5.5 percent of gross domestic product, after the economy shrank a record 15.1 percent last year. The former Soviet republic received $15.2 billion from the International Monetary Fund in July.
GOVERNMENT VIEW
The government hasn’t communicated its official position on the dispute, said Oleh Kucher, head of directorate at the prosecutor’s office, citing a Justice Ministry representative. The representative had earlier expressed his “personal view” that the interests of the state weren’t damaged by the company’s decision to delay investments, Kucher said by phone from Kiev.
ArcelorMittal won a state auction in 2005 for 93 percent of VAT ArcelorMittal Kryvyi Rih, or Kryvorizhstal as it was then called, after former President Viktor Yushchenko’s government annulled a previous auction, won by the billionaire son-in-law of former President Leonid Kuchma with an $800 million bid.
ArcelorMittal will appeal any court ruling against the company, Cornier said today.
To contact the reporters on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net. To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net.
