System Capital Management, known as the country’s largest holding company, continues to lead the drive toward greater transparency, as big Ukrainian businesses increasingly try to attract more investment from abroad.

However, the sharp rise in recent valuations of SCM’s assets shows just how much the Donetsk-based holding company used to be in the shadows.

SCM, owned by tycoon Rinat Akhmetov, announced March 31 the completion of an audit by top-four international accounting firm PricewaterhouseCoopers, which put SCM’s consolidated assets at over $5.2 billion at the end of 2004.

The 2005 audit was held in line with International Financial Reporting Standards and includes information on all SCM subsidiaries, the holding’s department for corporate communications reported.

According to SCM, PricewaterhouseCoopers put it’s consolidated gross earnings at $4.191 billion, and its consolidated pure profits at $1.075 billion.

In February, the weekly U.S. business magazine Forbes included Akhmetov on its annual list of international billionaires for 2005, placing him 451st. But the Donetsk billionaire’s net worth was reported to be only $1.7 billion dollars.

Experts believe Akhmetov has long been worth much more.

Concorde Capital, a Kyiv-based securities brokerage house, estimates Akhmetov’s net worth at around $7.5 billion, which matches the SCM assessment of PricewaterhouseCoopers, plus another roughly $2.3 billion in other assets.

According to John Suggitt, managing partner of Concorde Capital, Ukrainian enterprises have often underestimated their value to avoid crippling taxes.

“But now they need Western money,” he added. “They can’t keep milking their Soviet assets forever.”

Suggitt expects the valuations of companies like SCM to “go up higher and higher.”

With 155,000 employees, SCM controls assets in metallurgy, machine building, energy, coal, telecommunications, banking, insurance, media and other areas.

Akhmetov was recently elected to parliament with the Donetsk-based Regions Party, headed by the loser in the 2004 presidential elections, Viktor Yanukovych.

It was after President Viktor Yushchenko came to power in the wake of the Orange Revolution that SCM began its campaign toward transparency in earnest.

At the end of last summer, SCM started to announce bold investment plans backed by unprecedented advertising campaigns.

In early September 2005, SCM unveiled plans to invest $4 billion into an impressive list of companies it controls in various industries, including steel, mining and telecommunications.

The announcement was preceded by an advertising campaign with prestigious Western media like CNN, BBC and The Economist.

SCM emphasized in its recent press release that it is the first major Ukrainian company to have publicized a consolidated financial report conducted by an international accounting firm.

But Akhmetov has not always been a model of transparency.

In 2004, through a consortium with fellow tycoon Viktor Pinchuk, the president’s son-in-law at the time, the Donetsk billionaire took part in the purchase of Ukraine’s prized Kryvorizhstal steel mill for $800 million.

Late last year, under Yushchenko, the mill was repossessed and resold for $4.8 billion to international steel giant Mittal Steel. Now privatizations and financial reporting are becoming more transparent.

“Before, everything was secretive,” said Oleksandr Ryabchenko, a privatization expert.

“Now all top Ukrainian entrepreneurs want to join the world business community to be like everyone else,” he added.

Like Suggitt, Ryabchenko expects the valuations of Ukrainian enterprises to keep rising.

“Right now, it’s not possible to evaluate the assets of Akhmetov or other top Ukrainian entrepreneurs,” he said. “But, in the near future, the value of these assets will grow greatly.”

Even though Kryvorizhstal was sold for only $800 million, it was estimated to be worth only $2 billion at the time of the first privatization, Ryabchenko said. “No one expected that it would bring in $4.8 billion.”

Investor interest, and thus the price tags of companies, grows in direct relation to the willingness of owners and management to reveal their books.“The very desire to be transparent in itself raises the value of their assets,” said Ryabchenko.
By John Marone, Kyiv Post Staff Writer


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