Auctions for Privatization Property Certificates
What are certificate auctions?
A certificate auction is the open sale of shares in medium-sized and large state-owned enterprise for «privatization papers». Certificate auctions are held simultaneously, usually for several hundred enterprises, in every region of Ukraine. They consist of three stages:
- Interested bidders submit applications for shares along with their certificate(s) (see below) –one month.
- Applications are processed, the share price is calculated, and winners are determined and informed about the auction results –one month.
- The resulting shareholder lists are transferred to independent share registrars (for companies with more than 500 shareholders) or the issuer itself.
There are two types of certificate auctions in Ukraine:
- Certificate auctions for Privatization Property Certificates (PPCs). PPC auctions start on the 1st day of each month and last through that month – the first PPC auction took place in February 1995.
- Specialized certificate auctions for Compensation Certificates (CCs). CC auctions start on the 15th day of each month and end on the 14th of the next month – the first CC auction began on April 15, 1996.
Who conducts certificate auctions?
Certificate auctions are conducted by the Ukrainian Auction Center Network (UACN). The UACN was established in 1995 by the State Property Fund of Ukraine (the official seller of the Ukrainian State property) with technical and financial assistance from the U.S. Agency for International Development.
The UACN is headquartered in Kyiv at the Ukrainian Center for Certificate Auctions (UCCA). The UCCA collects data on all applications received at the Regional Centers for Certificate Auctions (RCCAs), which are housed in each of Ukraine’s regional capitals. The RCCAs, in turn, collect bids submitted at one of the 2,000 bid reception sites scattered throughout the regions. The UCCA is also responsible for auction calculation and distribution of results (via its regional network).
Who can participate in a certificate auction?
Participants in PPC auctions may include:
- Any citizen of Ukraine, who has not used his/her PPC before.
- Any financial intermediary (investment fund or company, trust company) with a license issued by the State Property Fund of Ukraine.
Participants in CC auctions may include:
- Any physical person (including foreigners).
- Any legal entity.
What types of applications for certificate auction participation exist?
There are two types of applications for participation in PPC auctions:
- Type A application: an application stating the highest acceptable price for which the applicant agrees to buy shares.
- Type B application: an application compiled with no price limitation, i.e., the applicant agrees to buy the enterprise’s shares for any auction price, which will be formed during the auction.
Financial intermediaries can submit both type A and type B applications. Ukrainian citizens may submit applications of type B only. Auction participants may not withdraw their application once it has been accepted by the UACN. In CC auctions, only type B applications are accepted.
What is the «auction price» and how is it determined?
The total nominal (par) share value, which is the initial offering price for the shares, is determined based on a pre-auction asset valuation of the enterprise. The UCCA performs the calculation that leads to the auction price for which shares are eventually sold and determines the winning bidders separately for each enterprise offered for sale:
- The auction price is formed according to the balance between supply of/demand for shares by dividing total value of certificates bid by total amount of shares offered.
- The final auction price may be higher or less than the original nominal (par) value of the shares.
- Only an integer number of shares can be purchased for each certificate. If necessary, the rounding to the nearest smaller integer value is applied.
- If the ratio between the auction price of a share and value of certificate is such that more than 10% of PPC value (5% of CC value) is not covered by shares, a share split is performed. New (smaller) par value of shares is established and auction price is recalculated respectively.
- Winning applications get shares at actual auction price.
Who becomes the winner at a PPC auction?
The winners are all type B applications (with no price limitations) and only those of type A applications in which declared price limitation is higher than actual auction price.
Who becomes the winner at CC auctions?
All applications are winners because they have no price limitations.
Which documents confirm the auction results?
Results of the auction are represented in the following documents:
An official protocol from the Auction Committee, approved by the State Property Fund, containing a nominal list of all auction winners and number of shares purchased by each of them. This protocol serves as grounds to enter the winners’ names into a shareholder registry of the enterprise.
- Extracts from the above-mentioned protocol are issued separately to each winner, detailing the number of shares he/she has won