TUESDAY, OCTOBER 12, 2010

UKRAINE BUSINESS NEWS - EIGHT ARTICLES
Ukraine suddenly drops legal case against ArcelorMittal steelmaker
Looked & smelled too much like government sponsored corporate raidership
Private business & investment sector breathes huge sigh of relief

INDEX OF ARTICLES  ------
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1.  UKRAINE PROSECUTOR DROPS CASE AGAINST STEELMAKER
By Pavel Polityuk, Reuters, Kiev, Ukraine, Tue, Oct 12, 2010
 
2.  ARCELORMITTAL SAYS UKRAINIAN GOVERNMENT DROPS LAWSUIT OVER INVESTMENT IN KRYVORIZHSTAL MILL
By Associated Press, Kiev, Ukraine, Tue, Oct 12, 2010

3.  UKRAINE DROPS CASE AGAINST ARCELORMITTAL 
By James Marson, The Wall Street Journal, NY, NY, Tue, Oct 12, 2010  
 
4.  UKRAINE: ARCELOR WON'T LOSE PLANT
By James Marson, The Wall Street Journal, Fri, Oct 8, 2010

5.  ARCELORMITTAL FEARS OVER UKRAINE 
World's biggest steelmaker, country's leading steelmaker, crying foul
By Neil Buckley in Kiev, Financial Times, London, UK, Sun, Oct 3 2010

6.  ARCELOR MITTAL, WORLD'S LARGEST STEELMAKER, SAYS UKRAINIAN GOVERNMENT COULD SEIZE CONTROL OF ITS $4.8 BILLION STEEL PLANT
By Robert Guy Matthews, The Wall Street Journal, NY, NY, Thu, Oct 7, 2010

7.  UKRAINIAN PROSECUTORS GO AFTER ARCELORMITTAL MILL
Graham Stack, Kyiv Post, Kyiv, Ukraine, Fri, Oct 7, 2010

8.  ARCELORMITTAL MAY CURB UKRAINIAN INVESTMENT ON LEGAL CHALLENGE
By Thomas Biesheuvel and Kateryna Choursina, Bloomberg News, New York, NY, Wed, Oct 6, 2010 
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1.  UKRAINE PROSECUTOR DROPS CASE AGAINST STEELMAKER

By Pavel Polityuk, Reuters, Kiev, Ukraine, Tue, Oct 12, 2010

KIEV - Ukraine's state prosecutor on Tuesday dropped a legal action against steelmaker ArcelorMittal (ISPA.AS: Quote) which the company had feared could lead to the renationalisation of a plant it bought for $4.8 billion.

The case had prompted speculation President Viktor Yanukovich could roll back privatisations undertaken during the presidency of predecessor Viktor Yushchenko, to favour Ukrainian entrepreneurs.

"The commercial court has taken the decision to end the case because of the withdrawal of the suit," said commercial court judge Oleh Khripun, reading out his decision.

Rinat Starkov, chief executive of the Kryvy Rih steel mill, welcomed the court's decision, saying it would help restore the ex-Soviet republic's image as a place to invest. "At first, one can say, its image suffered.

But today's decision, the speed of the hearing and the speed with which the decision was taken suggest that (Ukraine's) image has been restored," he told reporters.

The state prosecutor's representative declined to comment.

Shares in ArcelorMittal pared losses after the news and traded down 1 percent after earlier sliding as much as 3.3 percent.

The court's decision coincided with a government statement on the sell-off of Ukraine's biggest telecommunications firm, Ukrtelecom UTEL.PFT, at a starting price of $1.3 billion, in line with plans announced late last month. Some commentators had said foreign investors would be scared of participating in any auction of Ukrtelecom if the court case had gone against ArcelorMittal.

DELAYING INVESTMENT
The prosecutor had alleged that ArcelorMittal violated terms of its 2005 purchase of the eastern Ukrainian plant by subsequently delaying investment in it without valid permission.

ArcelorMittal said it reached a legal agreement with Ukraine's State Property Fund to put off investment commitments after declaring force majeure in the global downturn of 2008-9.

Some commentators had linked the case to the political change of guard in Ukraine, in which Yanukovich took over last February from Yushchenko, and speculated that the plant could be renationalised and put up for sale again.

But Yanukovich, speaking last Friday on an official visit to Paris, appeared to rule this out. He said there was no question of "any rupture in the privatisation agreement of this factory".

The company had warned that if the court case went against it, foreign investor confidence could be shaken in Ukraine which is striving to get its economy back on its feet after being hit hard by the global crisis.

RE-NATIONALISED, THEN RE-PRIVATISED
Ukraine first privatised Kryvy Rih in 2004 selling it to local industrialists for $800 million in a move that drew sharp criticism from the opposition and fanned the flames of the "Orange Revolution" which brought Yushchenko to power.

In 2005, acting on its anti-oligarch agenda, Yushchenko's government re-nationalised the plant after a court ruled that the initial sale had been made at an artifically low price.

It was subsequently bought by Mittal Steel, now known as ArcelorMittal, for more than five times the $800 million which oligarch groups had paid. CEO Starkov said after Tuesday's hearing that the company was ready to discuss fulfilment of its obligations with the Ukrainian government.

"We are ready to return to a normal dialogue and if the Cabinet of Ministers has any proposal or criticism we are always ready to sit down at the table for open dialogue and work out a compromise. "What does not suit us is administrative pressure ... and an attempt to settle things through the court," he said. (Writing by Richard Balmforth)

LINK:  http://af.reuters.com/article/metalsNews/idAFLDE69B0WT20101012?sp=true

NOTE:  ArcelorMittal is a member of the U.S.-Ukraine Business Council, Washington, D.C., www.usubc.org.
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2.  ARCELORMITTAL SAYS UKRAINIAN GOVERNMENT DROPS LAWSUIT OVER INVESTMENT IN KRYVORIZHSTAL MILL

By Associated Press, Kiev, Ukraine, Tue, Oct 12, 2010

KIEV -- Ukrainian prosecutors on Tuesday withdrew a lawsuit against ArcelorMittal that could have stripped the world's largest steelmaker of a $4.8 billion privatized mill, the company said.  ArcelorMittal, which had in 2005 agreed to renovate the Kryvorizhstal steel mill in eastern Ukraine, in 2009 postponed the investment because of the global financial crisis.

That triggered a lawsuit by the government, whose prosecutors say that Arcelor's deal to postpone the investment lacked the approval of the Cabinet of Ministers. The company says such an approval from the Cabinet was not necessary and cited the example of coal companies that have been allowed to delay their investments.

Arcelor charged that the prosecutor's lawsuit was the government's illegal attempt to renationalize the plant and that it would badly hurt Ukraine's investment climate.  Arcelor spokeswoman Anna Honcharyk said prosecutors withdrew their lawsuit Tuesday. The Prosecutor's office declined immediate comment.

The move comes after Ukraine's President Viktor Yanukovych said Friday that ArcelorMittal would not lose the plant.

ArcelorMittal praised the prosecutor's decision.  "Now we can get back to dialogue, sit down and have a normal conversation," said Renat Starkov, head of the Kryvorizhstal mill.

Starkov said the company was committed to fully completing the investment plan and was ready to discuss new deadlines and conditions with the government. "We will fulfill all our commitments," Starkov told The Associated Press.

The plant was sold to Mittal Steel, which is now known as ArcelorMittal, in 2005 in the country's biggest and most profitable privatization auction ever.

LINK:  http://www.whnt.com/business/sns-ap-eu-ukraine-arcelormittal,0,5164011.story
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3.  UKRAINE DROPS CASE AGAINST ARCELORMITTAL 

By James Marson, The Wall Street Journal, NY, NY, Tue, Oct 12, 2010 

KIEV -- A Ukrainian court on Tuesday closed a case against ArcelorMittal, which the company had said threatened to overturn its purchase of a steel mill in 2005.
The judge formally ended the case against the world's largest steel producer after the general prosecutor, which had brought the case, withdrew its claim.

ArcelorMittal and the State Property Fund, the state privatization body, had been accused of violating the terms of a 2005 agreement on purchasing a steel mill in Kryviy Rih in eastern Ukraine for $4.8 billion.

The company said it had reached an agreement in 2009 with the SPF to postpone investment commitments made in the purchase agreement. "We're pleased with the result," an ArcelorMittal spokesman said. "They're no longer trying to annul the agreement."  —Devon Maylie in London contributed to this article.

LINK: http://online.wsj.com/article/SB10001424052748703440004575547740157228102.html?KEYWORDS=ukraine
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4.  UKRAINE: ARCELOR WON'T LOSE PLANT

By James Marson, The Wall Street Journal, Fri, Oct 8, 2010

KIEV - Ukrainian President Viktor Yanukovych said Friday that the question of taking away a steel plant belonging to the world's largest steel maker ArcelorMittal "will not arise."

ArcelorMittal had said Wednesday that the Ukrainian government could take back into state control its $4.8 billion steel plant in the east of the country based on charges that the steelmaker violated its 2005 purchase agreement.

"In my opinion, it will not develop further. In any case, I told [French] President Nicolas Sarkozy yesterday that this question will most likely not reach court, and the question of reprivatizing or canceling the agreement on ... this plant will not arise," Mr. Yanukovych said at a meeting in Paris.

ArcelorMittal says it reached an agreement in 2009 with the state body responsible for privatization to postpone investment after declaring a force majeure because of the global economic crisis. A court in Kiev will hear a challenge Tuesday that the steel maker wasn't granted valid permission to postpone investment.

The Kryvorizhstal steel mill was first privatized in 2004, when it was sold for $800 million to Rinat Akhmetov, Ukraine's richest man, and Viktor Pinchuk, son-in-law of then-President Leonid Kuchma. The deal prompted an outcry and was reversed after a new government was swept to power following mass protests against alleged electoral fraud in a presidential election later that year.

The plant, now called the ArcelorMittal Kryviy Rih steel plant, was resold to Mittal Steel, now known as ArcelorMittal, for $4.8 billion in 2005. (Write to James Marson at j.r.marson@gmail.com)

LINK:  http://online.wsj.com/article/SB10001424052748704657304575539570473723114.html?KEYWORDS=ukraine
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5.  ARCELORMITTAL FEARS OVER UKRAINE
World's biggest steelmaker, country's leading steelmaker, crying foul

By Neil Buckley in Kiev, Financial Times, London, UK, Sun, Oct 3 2010

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.

LINK:  http://www.ft.com/cms/s/0/dc85d3f0-cf19-11df-9be2-00144feab49a.html

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., www.usubc.org
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6.  ARCELOR MITTAL, WORLD'S LARGEST STEELMAKER, SAYS UKRAINIAN GOVERNMENT COULD SEIZE CONTROL OF ITS $4.8 BILLION STEEL PLANT

By Robert Guy Matthews, The Wall Street Journal, NY, NY, Thu, Oct 7, 2010

KIEV, UKRAINE - ArcelorMittal, the world's largest steelmaker, said the Ukrainian government could seize control of its $4.8 billion steel plant there after charging it with violating terms of a 2005 purchase agreement.

The dispute, which will be taken up during an Kiev court hearing Tuesday, centers on whether ArcelorMittal was granted valid permission in April 2009 to delay a $200 million investment in the massive plant, which is one of the company's largest facilities.

ArcelorMittal claims it reached an agreement with Ukraine's State Property Fund, which is responsible for privatizations, to postpone investment commitments through early next year after the steelmaker declared force majeure in 2009 due to the global economic slowdown.
ArcelorMittal says the Ukrainian government has challenged the validity of the State Property Fund agreement.

Serhiy Tihipko, Ukraine's deputy prime minister for the economy, could not be reached for comment. The Ukrainian government has consistently stressed its commitment to attracting foreign investment and carrying out needed business reforms to improve its business climate.

Mittal Steel, now known as ArcelorMittal, bought the plant in Kryvyi Rih during the upturn in global steel demand, spending $4.8 billion to get a toehold in then fast developing Eastern Europe market. The purchase agreement outlined how much the steelmaker would invest in the plant and social programs.

While the economy has slowed since then and steelmakers around the world have been idling inefficient capacity, it would be a huge blow to ArcelorMittal if the assets were seized. "We are concerned that there is an attempt to take back our asset and return it to the state," said Nicola Davidson, a spokeswoman for ArcelorMittal. "Somewhere, someone is creating a false reason that we have broken our sales purchase agreement."

If the court rules against ArcelorMittal, the company said it would appeal the decision.

Christopher Cornier, a management board member at ArcelorMittal who is involved in overseeing the Ukrainian mill, said the worst-case scenario would be that the mill would be sold and the proceeds given to ArcelorMittal. The problem, he said, is that ArcelorMittal would likely lose billions in a sale because there are few buyers and the market is weak.

In addition to the $4.8 billion purchase price, the steelmaker has spent an additional $500 million in the plant. Mr. Cornier estimated that the sale of the plant would net less than $1 billion.  "The price will be very low," he said.

The huge steel complex employs 35,000 people and includes an iron ore mine. It produces mainly construction grade steel products, such as wire rod and rebar. Its costs increased significantly this year after the government raised natural gas prices 50%. —James Marson and Alex MacDonald contributed to this article.

Write to Robert Guy Matthews at robertguy.matthews@wsj.com

LINK:  http://online.wsj.com/article/SB10001424052748704689804575536211717622250.html?KEYWORDS=ukraine

NOTE:  ArcelorMittal is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc
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7.  UKRAINIAN PROSECUTORS GO AFTER ARCELORMITTAL MILL

Graham Stack, Kyiv Post, Kyiv, Ukraine, Fri, Oct 7, 2010

KYIV - Another Ukrainian court is set to turn back the clocks, this time threatening a landmark, five-year-old privatization deal that brought state coffers $4.8 billion in the cleanest state auction ever held.

The general prosecutor’s office is suing ArcelorMittal, Ukraine’s biggest foreign investor, which purchased the country’s largest steel mill in Kryviy Rih back in 2005.

The world’s largest steel company denies alleged irregularities to a 2009 agreement to delay investments because of the financial crisis. The case could deal a major blow to the government’s attempts to project itself as open to foreign investment.

The commercial litigation comes amid backsliding in the political arena, too. On Oct. 1, the Constitutional Court ruled to significantly augment the powers of Ukrainian President Viktor Yanukovych by canceling changes to the Constitution agreed in late 2004, during the height of the pro-democracy struggle.

The current Yanukovych team consists of many of the same officials who served before the Orange Revolution, when Kryvorizhstal (now ArcelorMittal KryviyRih) was first sold under former President Leonid Kuchma to his son-in-law Viktor Pinchuk and billionaire Rinat Akhmetov, a major financial backer of Yanukovych, for a meager $800 million.

Now, if prosecutors are successful, the Dnipropetrovsk Oblast mill purchased by Mittal Steel, now ArcelorMittal, will return to state hands – and maybe eventually back to Pinchuk and Akhmetov.

A top ArcelorMittal executive, Christophe Cornier, said that the first hearing of the case by the Kyiv Economic Court on Oct. 1 was more disappointing than even the company’s worst expectations.

“We are taking this very seriously,” said Cornier, a 25-year veteran of the company flown in from London to confront the emergency situation. “We paid $4.8 billion for this plant, and put $500 million worth of capital expenditures into it. We feel it is a very good plant and we don’t want to lose it.”

“But it is very difficult to assess what the outcome will be,” acknowledged Cornier, who said he will be meeting with German and French ambassadors in Kyiv. “We are outside the boundaries of a normal law and order situation.”

The steel plant is a defendant along with privatization agency the State Property Fund (SPF). Prosecutors are disputing a 2009 agreement between ArcelorMittal and the SPF that declared a force majeure in view of the global economic crisis, allowing the company to postpone investment commitments made under the terms of the original share purchase agreement of 2005.

“The dispute is that the addendum is not legal because it was not signed by the cabinet of ministers,” Cornier said. “But when you look at the original share purchase agreement [of 2005], it is not written anywhere that it has to be signed by the cabinet.”

Furthermore, according to Cornier, the plant’s shareholder, ArcelorMittal Duisburg GmbH, has not been informed of the lawsuit, an apparent breach of the law. And thirdly, according to Cornier, both the original share purchase agreement and the additional agreement of 2009 specify the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (a non-state independent arbitrage court) as the place of jurisdiction for all disputes.

NOTE: Kyiv Post staff writer Graham Stack can be reached at stack@kyivpost.com.

LINK:  http://www.kyivpost.com/news/business/bus_general/detail/85482/#ixzz11jYKG2sd
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8.  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.

LINK: http://www.bloomberg.com/news/2010-10-06/arcelormittal-may-curb-ukrainian-investment-on-legal-challenge.html
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