China asks Ukraine to properly resolve the conflict issue surrounding the purchase of Motor Sich shares by Chinese investors, Chinese Foreign Ministry Spokesperson Hua Chunying said at a briefing, answering a question from the RIA Novosti Russian state agency about the reaction to possible nationalization enterprises by decree of the President of Ukraine.
“China asks the Ukrainian side to protect the legitimate rights and interests of Chinese enterprises and investors in accordance with the law and properly resolve the relevant issues,” Chunying said in a transcript of the March 25 briefing on the Chinese Foreign Ministry’s website.
The spokesperson said that the Foreign Ministry was informed about the relevant documents on Motor Sich.
The Shevchenkivsky District Court of Kyiv, based on materials of the SBU, seized the integral property complex and 100% of the shares of JSC Motor Sich.
According to the SBU press center, based on the results of the judicial review, the property was transferred to the management of Asset Recovery and Management Agency of Ukraine (ARMA) with the obligatory determination of a state-owned management company.
At present, the Main Investigation Department of the SBU carries out pretrial investigations of Motor Sich in two directions.
The first is on the grounds of crimes provided for in Articles 14, 15, 111 and 113 of the Criminal Code of Ukraine (regarding sabotage and subversive activities in favor of the Russian Federation).
The second – on the grounds of crimes provided for by Articles 209, 212 and 364 of the Criminal Code of Ukraine. It examines violations of the law during the initial privatization and subsequent illegal concentration of shares.
“This is not only about the fate of one enterprise, but about how the state is able to protect its own interests. Since the security of the Ukrainian Motor Sich is a matter of national security,” the press center quotes head of the SBU Ivan Bakanov.
The state-owned enterprise JSC Motor Sich will continue its work in accordance with requirements of the current legislation, with the preservation of jobs and fulfillment of obligations within the framework of production orders, the SBU reports.
As reported, on March 12, Secretary of the National Security and Defense Council of Ukraine Oleksiy Danilov said that at a meeting of the National Security and Defense Council on Thursday, March 11, it was not about the nationalization of Zaporizhia Motor Sich enterprise, but about its return to the ownership of the Ukrainian people in accordance with the current legislation.
Chinese Foreign Ministry Spokesperson Zhao Lijian, in turn, stated that China requires Ukraine to protect the legitimate interests of Chinese investors in connection with the decision to nationalize the Motor Sich JSC, more than 50% of which is owned by Chinese companies.
The Chinese shareholders of Motor Sich initiated an arbitration against the state of Ukraine in December 2020 for $3.6 billion. They claim that the Ukrainian authorities expropriated their investments, as well as violated their other rights provided for by the intergovernmental agreement on the encouragement and mutual protection of investments between Ukraine and China from October 1992. The interests of the Chinese plaintiffs are represented by international law firms WilmerHale, DLA Piper and Bird & Bird.
According to a source in Ukrainian government, currently about 75% of Motor Sich shares are already owned by a group of Chinese owners, and some part of the disputed block of shares acts as collateral for financing provided, among other things, by China Development Bank.
Motor Sich is one of the world’s largest manufacturers of aircraft engines and industrial gas turbine units. It exports its products to more than 100 countries. Motor Sich reported UAH 930.2 million in net profits in January-September 2020, while it saw net losses of UAH 532.7 million in the same period in 2019. The company’s net revenue has grown by 20.2% to UAH 7.6795 billion.
Motor Sich PJSC will soon be legally returned to the ownership of Ukraine, said Oleksiy Danilov, Secretary of the National Security and Defense Council (NSDC) of Ukraine.
“… We are talking about the Motor Sich enterprise in Zaporozhia. To date, a decision has been made according to which the Motor Sich enterprise will be returned to the Ukrainian people. It will be returned to the ownership of the Ukrainian state in a legal, constitutional way in the near future,” Danilov said at a briefing on Thursday following the results of the NSDC meeting.
Every case of Ukrainian defense industry enterprises “miraculously ending up in private hands” will be considered separately, he said.
“People who have invested in these enterprises will certainly receive proper compensation. This is being done for our country’s national security,” Danilov said.
Motor Sich is one of the world’s largest manufacturers of aircraft engines and industrial gas turbine units. It exports its products to more than 100 countries. Motor Sich reported UAH 930.2 million in net profits in January-September 2020, while it saw net losses of UAH 532.7 million in the same period in 2019. The company’s net revenue has grown by 20.2% to UAH 7.6795 billion.
As reported earlier, Chinese shareholders of Motor Sich initiated arbitration proceedings worth $3.6 billion against the state of Ukraine in December 2020. They argued that the Ukrainian government expropriated their investments and violated their other rights guaranteed by the October 1992 intergovernmental agreement between Ukraine and China on the encouragement and mutual protection of investments. The international law firms WilmerHale, DLA Piper, and Bird&Bird are representing Chinese investors’ interests in the claim.
According to a government source, about 75% of Motor Sich’s stock already belongs to Chinese investors, while a portion of the disputed stake is being used as security for financing provided, among other investors, by China Development Bank.
Wang Jing’s Beijing Xinwei said in early August 2020 that it had abandoned attempts to obtain permission to buy Motor Sich jointly with Ukroboronprom and that Oleksandr Yaroslavsky’s company DCH was its new partner in the deal. The companies have filed four applications with Ukraine’s Antimonopoly Committee to approve the deal, the last time in December 2020, but none of them have been granted yet.
Another attempt to hold a shareholders meeting on January 31 also failed in view of the fact that a 41% stake in the company was frozen at the Ukrainian Security Service’s initiative in 2017, and the freeze was later expanded to the entire stock. On January 29, 2021, Ukrainian President Volodymyr Zelensky enforced a National Security and Defense Council decision to impose sanctions on Chinese citizen Wang and companies Beijing Xinwei Technology Group Co., Ltd; Beijing Skyrizon Aviation Industry Investment Co., Ltd (both Beijing-based); Skyrizon Aircraft Holdings Limited (the British Virgin Islands); and Hong Kong Skyrizon Holdings Limited (Hong Kong), which are associated with Wang and which have been trying over the past several years to exercise the Motor Sich shareholders’ rights in Ukraine. In the wake of this decision, China forwarded a note to the Ukrainian Foreign Ministry.
Former U.S. National Security Advisor John Bolton said at the end of August 2019 that the U.S. was concerned about Motor Sich’s possible sale to Chinese investors. U.S. Charge d’Affaires ad interim to Ukraine William Taylor said at the end of 2019 that the U.S. expected a new deal to be concluded to invite a U.S. or some other investor to Motor Sich to prevent its sale to Chinese buyers.
The Bureau of Industry and Security at the U.S. Department of Commerce put the Chinese company Skyrizon on its Military End User list in early January 2021, meaning that cooperation with it requires special authorization. “Skyrizon – a Chinese state-owned company – and its push to acquire and indigenize foreign military technologies pose a significant threat to U.S. national security and foreign policy interests,” U.S. Commerce Secretary Wilbur Ross was quoted as saying.
Chinese buyers of shares in Motor Sich (Zaporizhia) violated their obligation to invest $250 million in 2018 and obtain permission from the Antimonopoly Committee of Ukraine (AMCU), but it is impractical to completely nationalize the enterprise and it is worth leaving 35% to the Chinese and the controlling stake to the state, President of Motor Sich Viacheslav Bohuslayev has said.
“They deceived us… There are no Chinese investors and there is no investment program. There are promises: in the agreement for the acquisition of shares in 2018, they [should have paid] $250 million – not a kopiika [was seen],” journalist Igor Solovey posted a video on his Facebook with a speech of Bohuslayev at a meeting of the national security, defense and intelligence parliamentary committee on March 4.
Bohuslayev said that in such a situation he and the trade union support the decision of the country’s president to impose sanctions against the Chinese shareholders of Motor Sich.
“I hold daily teleconferences with Chinese customers. I explain to them: if I, Bohuslayev, violate Chinese laws on the territory of China, what would you do to me? So your dear Wang Jing [was sanctioned by Ukraine] should not violate Ukrainian laws on the territory of Ukraine,” the president of the company said.
He confirmed that in 2016, Chinese partners provided a $100 million loan at a critical juncture, which must be repaid in 2026, and the company is preparing to do so.
At the same time, Bohuslayev, who before the deal with the Chinese was one of the largest shareholders of Motor Sich, after the committee meeting spoke out against the proposal to completely nationalize the enterprise, as this would entail significant budgetary expenditures.
“We need to negotiate with the Chinese: allow them to have 35%, the rest needs to be sold to the state, in a civilized manner. The ambassador must be explained (that) our state does not allow a foreign citizen to manage our enterprise,” he said, while insisting that a controlling stake belonged to the government.
“You can’t just break off relations with Chinese friends… For no reason in particular, (so that) we don’t give a damn about China, it is better not to behave like that,” Bohuslayev said.
Shareholder of Motor Sich PJSC, Chinese Beijing Skyrizon Aviation Industry Investment Co. considers the sanctions imposed by Ukraine against Skyrizon and related persons for three years to be unreasonable and calls them the main goal of preventing investments in Motor Sich.
Skyrizon, as a shareholder of Motor Sich, will be unlawfully deprived of its legal rights, obligations and commitments, and the company will also be forced to interrupt the generally accepted business relationship with the Ukrainian Motor Sich company, which will entail huge irreversible losses, the company said in a statement on the website, created to attempt to hold a meeting of shareholders of PJSC on January 31, which turned out to be unsuccessful.
Skyrizon also believes that such actions by Ukraine coincide with the goal of the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce, which on January 14 this year put Skyrizon on the Military End-User (MEU) List.
The state of Ukraine rejected the results of the previous negotiations and completely ruled out any possibility of reconciliation between the two sides, the company said.
Skyrizon said that, starting in July 2017, it began negotiations with the state of Ukraine in the hope of “settling misunderstandings and amicably resolving the investment dispute,” but on December 9, 2020, it began international investment arbitration against Ukraine and has already received an official response. “The parties are negotiating and plan to participate in the arbitration process,” the company said.
The Chinese company also said that on January 13, it succeeded in challenging the refusal of an investigator from the State Bureau of Investigation to recognize Skyrizon as an injured party in the Pechersky District Court on January 13 in the case initiated early November last year on its complaint against the SBU.
According to the company, such actions on the part of Ukraine may scare off other potential investors and worsen the situation in the aircraft industry.
The son of Motor Sich’s Honorary President Oleksandr Bohuslayev has bought the Gallinara Island in the Ligurian Sea near the Italian Riviera from several owners for more than EUR 10 million.
According to the Italian newspaper Corriere della Sera’s website, the deal on the acquisition was concluded by the Galinette company from Monaco, belonging to a 42-year-old native of Zaporizhia with Grenada citizenship, Oleksandr Bohuslayev, allegedly the son of PJSC Motor Sich’s honorary president, MP Viacheslav Bohuslayev.
According to the publication, the turtle-shaped island, about 0.5 km long, is located 1.5 kilometers from the coast between the towns of Albenga and Alassio and is a nature reserve closed for tourists. The island was previously owned by wealthy Italian bankers.
“Significant debts to the tax authorities, partners’ economic problems – the sale [of the island] is overdue. Bohuslayev entered into negotiations in May, and on July 17 the deal went through. Ideally, Bohuslayev can now plant a Ukrainian [or Grenada] flag on the top of the turtle island,” the article says.
PJSC Motor Sich is one of the world’s largest manufacturers of aircraft engines, as well as industrial gas turbine plants. The company delivers its products to more than 100 countries worldwide.
Until recently, the largest individual shareholder of PJSC Motor Sich was the company’s Honorary President, MP Viacheslav Bohuslayev, who in 2016 declared the reduction of his stake in Motor Sich from 15.8% to 1%. He also included in the income earned in 2016 the investment income from the securities trader Motor-Dealer owned by PJSC Motor Sich in the amount of about UAH 1.07 billion.
