OREANDA-NEWS.On 30 January 2008 the Ukrainian Cabinet decided to set the starting price for the Odessa Portside Plant (OPP) privatization auction at US$ 594 mln. The auction will be officially announced on 6 February. The privatization auction will be held within 75 days of the bid announcement.

OPP is Ukraine’s second largest nitrogen fertilizer producer and has expected 2007 net sales of USD 324.9mn (+14.6 y/y) and net income of USD 44.4mn (+11.0% y/y). The company is currently not very efficiently managed and while Stirol < STIR UZ USD22.22 Accumulate >, Ukraine’s largest nitrogen fertilizer producer, has a NI margin of 20.6%, OPP has only a NI margin of 13.6%.

We see currently the fair value for OPP (without the Togliatti-Odesa ammonia pipeline) based on the latest financials at USD 820mn. But taking in consideration significantly the improved efficiency of OPP under a new strategic investor, the fair value may be at USD 1,240mn. In earlier statements the Cabinet said that it would privatize the ammonia pipeline along with OPP. This strategic asset will of course significantly increase the overall value. We see therefore the starting price as very realistic. OPP had been scheduled to be privatized last year and there were seven bidders from Ukraine (including RosUkrEnergo co-owner Dmitry Firtash) and from abroad. Taking into consideration this relatively low starting price we expect that this year a lot of interested strategic investors will appear once again. This might include STIR.