According to Arzinger Managing Partner Timur Bondaryev, competition investigations, investment disputes, and white-collar crime matters have been keeping his team particularly busy these last few months. CEE Legal Matters sat down with him to learn more about the driving forces behind these areas in Ukraine.
CEELM: Let’s start with an overview of 2021. What would you point to as the busiest practices for your firm for 2021?
Timur: While the last few months have been solid in terms of the pipeline of transactions we’ve been working out, the main three areas, where I would say we’ve been particularly well-positioned in, were competition matters, in particular in terms of investigations and litigations, investment dispute arbitrations, and white-collar crime matters.
CEELM: Looking at each of the three, what do you feel drove up your work in those areas?
Timur: Taking them in order, I see competition investigations as something that reflect a global trend, with agencies actively pursuing players all over the world at all levels – may it be globally, regionally, or locally. That’s also compounded with competition agencies sometimes being used as a means to advance some political agenda, and Ukraine is no exception in this regard. What I think is something particular to the Ukrainian market is the tendency of state agencies to try and regulate the prices of what they deem as socially important goods or services. There is a case to be made for that, sure, given the relatively weak Ukrainian economy – despite massive progress over the last few years – but I still see the state as having the bad habit of trying to involve itself a bit too much, in terms of regulating the market.
CEELM: Is this a rather new trend?
Timur: Not at all. You need to keep in mind that these kinds of investigations tend to last a very long time – and litigations that might result from them might take even longer. For example, we recently represented Imperial Tobacco, which received one of the largest fines for an alleged cartel. The fine was challenged, and it took years before it got to the Supreme Court, which finally canceled the fine.
CEELM: While on the topic of competition, are clearances keeping you busy these days?
Timur: Yes, but I expect (and hope!) that will change. Ukrainian merger control is simply outdated in terms of thresholds at the moment, despite the fact that the threshold for requiring a merger clearance was increased 4-5 years ago. It seems they will be streamlining the process further, so we hope things will be better on this front soon.
CEELM: Why do the current thresholds disadvantage you, though? Don’t they simply represent more work for the firm?
Timur: That is the case, yes. For us, as a law firm, the current thresholds generate some nice bread and butter work, but that’s not what we’re targeting – we’d prefer freeing up our resources to focus on larger matters, to cease working on a mass product, and focus more on the sexy work.
CEELM: You mentioned a lot of work on investment dispute arbitration as well.
Timur: Ukraine has certainly been a very litigious ground recently. One of the main reasons for this is the huge stakes involved in the Government’s decision to significantly reduce green energy tariffs. Following this move, many companies have already filed their claims, with several others at a level of trigger notice. There are still some that are hesitating, because their corporates need to decide if they will attempt to negotiate with the Government.
I am not surprised it got to this point. Ukraine was extremely generous towards green energy – primarily as a result of the drive to get rid of the dependency on Russia. It simply did not count on such an influx of projects and, when they drew a line and realized it wouldn’t be sustainable from a budget perspective, they decided to retroactively reduce their incentives. You can imagine that all involved, from the developers to banks offering the financings for these projects, were not too happy with the call.
CEELM: What about the white-collar crime work? What’s been the main driver there?
Timur: It is, in many ways, similar to the competition investigations we spoke about. There’s certainly a huge push towards cleaning up the market, but there are also a few cases resulting from the state coming up with... let’s call them creative solutions to block certain transactions, especially if a merger control mechanism is not feasible.
CEELM: You also mentioned a healthy pipeline of transactional work. What’s behind it?
Timur: The main element is the privatization program. I can now comfortably say that the Government is finally serious about selling state assets. Several alcohol plants have already been sold off as well as several smaller assets, such as hotels.
This push has certainly built a solid pipeline of transactions, especially because it was complemented by a number of consolidations in the agricultural market, a few private equity deals in healthcare/pharma, international interest in real estate apparently returning to the country, and, last but definitely not least, a boom in the IT sector – both in terms of consolidations of teams, but also in terms of basic elements such as investments in larger real estate for office spaces (despite the COVID-19 pandemic).
CEELM: Who are the most important buyers in the country in terms of this transactional pipeline?
Timur: I wouldn’t really say it’s private equity firms – there’s only really around two-three firms that are strong locally. The risk appetite of the types of hedge funds you’d see in other countries in the region tends to be quite low, and they are built to try to leverage a transaction in such a way that they end up looking at an almost risk-free deal. Based on that, it comes as no surprise then that they barely have a pipeline.
When it comes to the privatizations we spoke about, we’re traditionally seeing interest from the local guys. These strategic buyers don’t just have a different risk appetite, but they also know the pitfalls of the market, as well as any skeletons in the closet of the companies they look at.
But I think they will benefit massively from the clean-up push we’re seeing at the moment. Within the current context of white-collar crime investigations booming, I think these local players have a great opportunity to take these companies and clean them up, in terms of corporate governance, thus making them far more attractive in a market that I hope will be progressively less perceived as plagued by corruption and a lack of transparency.
CEELM: Taking a step back, is there a legislative update in the works that you believe would further enhance the country’s attractiveness and/or your transactional pipeline?
Timur: Probably most noteworthy is that the moratorium on agricultural land sale is to be lifted. As of July 2021, agricultural land can start exchanging hands, which will definitely add to our workload, despite the fact that FDI will still not qualify to purchase such land. The hope is that, with this huge amount of land coming to the market, we’ll also see a huge cash influx.
Beyond that, FDI screening is being discussed and will likely be enacted soon. Sure, opponents to the idea argue that it will be an obstacle for investors, but it is a global trend and Ukraine is one of the last few exceptions in Europe that don’t employ it. I believe the market will remain very much open to investments, irrespective of this screening – except for competition clearances, that is.
CEELM: Overall, would you say you are optimistic over the outlook of the next 12 months? Why/why not?
Timur: I believe there are plenty of reasons for which to have a positive outlook. The Government seems to have a very, very, very, positive attitude towards privatizations. I see them being done in a truly proper manner. If in the past these sales seemed to always be tailored to some local guy, I find the current ones to be carried out in a very transparent and well-structured manner – they are conducted online, and all can see that the highest bid truly ends up being the winning one.
And it’s not just about the process. The state seems set to put up any reasonable asset – even a prison was privatized recently, again, in a very transparent manner.
Between this drive, a potential game-changing land reform, and the ongoing judicial reform, I believe we’re in a prime position to witness a skyrocketing economy in the next few months.
Of course, there are always pitfalls that one must be on the lookout for. The biggie in my mind is that the political class may not fulfill all it has promised. I have gotten used to seeing skepticism in the eyes of my clients, resulting from years of them seeing a lot of good promises that were not delivered on. This, of course, is an issue everywhere and not just in Ukraine, but I feel it is all the more important for us not to disappoint those looking at the country at the moment. We’re in a pivotal place where we have the opportunity to prove that we can do it.
This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
