SSU, sanctions and a claim against Ukraine for 3.5 billion: how the war for Motor Sich will affect the plant

Author

Kirill Danilchenko

In addition to sanctions against channels from the Medvedchuk pool that were largely received favorably in Ukraine, other personal restrictions were signed by President Zelensky.

In particular, against the citizen of the People's Republic of China Wang Jing and the Beijing Skyrizon company, where he de jure is the owner of a controlling stake. On January 31, the SSU carried out operational measures, using force to prevent the Motor Sich shareholders' meeting that was initiated by the Chinese. The SSU press center in the Zaporizhzhia region published an explanation that the hostile takeover of the enterprise had been suppressed.

The conflict has been going on for quite a long time—the Chinese acquired a 56% stake in Motor Sich in December 2019, promising to invest a quarter of a billion dollars in modernization ($100 million of grant funding has already arrived in Ukraine), and acquired a license to assemble engines in Chongqing province. However, the deal was blocked by the Security Service of Ukraine, and proceedings are also underway in the Antimonopoly Committee. In addition, the National Securities and Stock Market Commission found certain irregularities during the organization of the shareholders' meeting.

After the deal was concluded, the Chinese side involved Kharkiv businessman Oleksandr Yaroslavsky and his DCH company to represent their interests in the region. They submitted a joint application to the Antimonopoly Committee to buy the plant, and in return DCH was to receive a quarter of the stake. The Chinese, obviously, decided that it was better to get at least something, and then it just depends.

But it all ended with sanctions for 3 years and the forceful suppression of the meeting. Plus strong guys of athletic appearance with posters at the entrance "We will not let you rob our native plant." Probably, these were the guys of Boguslayev, who is not happy with the idea of changing the supervisory board and management of the plant while the shares are under arrest and the register of shareholders is blocked.

In response, Skyrizon turned to an international arbitration tribunal set up specifically for this litigation. Now Ukraine is facing a lawsuit for $3.5 billion. And the Ministry of Foreing Affairs of China issued a sharp note on February 1, in which it protested against unilateral sanctions. International scandal, court, blocking of shares, sanctions... What was the stumbling block and was there really an attempt of hostile raider takeover?

Motor Sich is without big words is a unique strategic enterprise. Engines for aircraft, helicopters, cruise missiles, gas turbine engines, and power plants—$300 million a year in net profit from exports. MS-400—the "heart" of the Ukrainian anti-ship missile Neptune— was developed in Zaporozhye.

AI-450T—the "heart" of the Turkish strategic attack drone Bayraktar Akinci in 450 horsepower—is also from here. Products are supplied to dozens of countries around the world, including Germany, Poland, Canada, and Austria, and not only to the "banana republics". And in China, 13 types of MS engines are operated simultaneously.

Naturally, Beijing wants both the import of technology and a reduction in the infusion of currency into services. Asians have everything: money, orders, human resources. There is no school yet. After all, in Zaporizhzhia, back in 1916, engines for the Russian imperial army were assembled for the Ilya Muromets aircraft.

Since then, the plant has actually worked continuously—experience was passed on, a school was formed. And it is important—Indians, for example, having invested over $2 billion in the development of the 4th generation Tejas combat aircraft, have not received either a large-scale series or a modification capable of landing on an aircraft carrier.

But Chinese are not going to make the same mistake and want to supply hands and brains to their specialists first under a license, and then, having mastered the technical process, to move on.

Therefore, they acquired a controlling stake through Wang Jing and his company. Boguslayev was saddened by the fact that the Russian market had peeled off because of the war and the supply of up to 250 engines per year for the Mi-24 "Crocodiles", Mi-28 "Night Hunters", and Ka-27 anti-submarine helicopters.

And a dozen of re-motorizes Mi-8s per year for the Armed Forces of Ukraine could not become an equivalent replacement—the question of layoff and a three-day working week arose. Chinese looked like a great deal back then.

Until January 14, 2021, when they were included in the US sanctions list along with the China Offshore Oil Corporation. The so-called Military End-User list, when state-owned companies disguise themselves as private businesses, cooperating with the PRC army as the ultimate beneficiary.

The reason was the next skirmishes with Vietnam over artificial islands that Beijing is creating for the production of gas and oil in the South China Sea.

"Skyrizon is a Chinese state-owned company and its drive to acquire and implement foreign military technology poses a serious threat to US national security and foreign policy interests," a literal quotation from a press release. Since then, the business of the Chinese in Ukraine has not gone well.

But the question is broader than the usual tongue twisters about "external management" and "overseas owners." Our strategic partner, who brings $700 million per year in aid here, has interests. We also have interests—at least not to send 27,000 workers and engineers of Motor Sich on vacation at their own expense in winter. Despite the propaganda about the "agrarian superpower" and "toilets in Poland", Ukrainian technologies are used in dozens of countries in ambiguous situations.

BTR-3 are involved in a military coup in Myanmar. BTR-4 are fighting in the Sunni triangle in Iraq. Engines produced by Ivchenko-Progress will launch Turkish cruise missiles Traveler—an analogue of Tomahawk. And Chinese military pilots are trained on combat training aircraft with the participation of Motor Sich. Sometimes the price for all this is getting into the sanctions lists or a claim for $3.5 billion. Let’s prepare for the trial and have eyes on the subject—it will not be boring here.