On February 11, 2021, the President of Uzbekistan signed decree no. 6167 (Decree) promoting ongoing privatization processes in the country. Specifically, the Decree aims to put up for sale two sets of state assets to be sold through a bidding process starting in March and April. Furthermore, the Decree widens the competence of the State Tender Commission (STC), a ministerial collective body in charge of the privatization of state assets of special importance.

Pricing mechanism

 The STC has the authority to set the initial price of the asset, by employing one of the following pricing bases:

•  Book value;
•  Registered (nominal) value;
•  Quoted price for shares at the stock exchange;
•  Net asset value; or
•  Appraisal value of the state assets, which can be reduced by STC to 70 percent.

 The Decree reiterates the general order, according to which the state assets (save for stakes in joint-stock companies) shall be subject to processing through an electronic platform. The general procedure will not apply to the state assets to be sold through special processes following the acts of the President, government, or STC.

Special mechanics for certain entities

For the entities specified in the annexes to the Decree (i.e., hotels, resorts, shares in large manufacturing facilities), the State can engage international consulting firms, financial advisers, and investment banks involved in the sale process, to recommend the value of the state assets as a benchmark price or a price range. The recommended value does not need to follow national appraisal standards.

Furthermore, the Decree has cancelled the requirement for the starting price of a state asset within the specified entities to follow appraisal reports.

State unitary enterprises

It is common for state unitary enterprises (SUE) to hold state assets (usually buildings, equipment, hotels, etc.) in Uzbekistan. When privatizing a SUE, the State may not simply put the share up for sale due to certain restrictions deriving from the SUE’s special status under Uzbek law. For this, the State needed to transform the SUE into a private corporate form, i.e., a limited liability company or a joint-stock company.

Uzbek law requires the transforming entity to carry out an inventory and valuation of its assets and liabilities, to determine its charter capital after being transformed. However, the Decree has cancelled this requirement for SUE. Instead, the net book value of assets will be employed as a basis for the determination of a charter capital in the transformed entity, a stake in which will be further privatized.

Pre-emption right

The STC now has the authority to disregard a pre-emption right of shareholders in companies, in which the State holds a stake. The Decree empowers STC to apply this power if a net assets value of a company does not exceed 100 million Uzbek soums (approx. US$9,500), prorated to the percentage of the state’s stake. If so, the Decree requires that the value of the sold stake should be equal to the proportional share of the company’s net assets. If the net assets of the company are worth less than the registered charter capital of the company, then the state stake shall be sold at the registered (nominal) value.

There is however uncertainty as to how the government could circumvent the statutory pre-emption right by applying this rule in practice. We would note that further guidance will be needed to monitor how the government addresses this inconsistency in its implementation of the law.