A local court in Kyiv ruled to impound all assets and shares of the aerospace firm Motor Sich, Ukraine’s Security Service (SBU) reported on March 20.

The company has advanced military weapons production capacity and has been subject to a diplomatic tug of war between China and the US, as the former attempted to buy the company but Washington objected and put pressure on the Ukrainian government to prevent the deal.

The Ukrainian government decided early this month to nationalise the company, despite the fact that Chinese state-owned companies control almost three quarters of its shares. The Chinese investors are now demanding billions of dollars in compensation.

The Shevchenkivsky District Court of Kyiv ruled to pass all the property under the management of the National Asset Recovery and Management Agency (ARMA), the SBU stated, without clarifying exactly what property has been passed.

On the same day, state industrial military holding Ukroboronprom announced that it had already sent a letter to ARMA declaring its readiness to operate the assets of Motor Sich.

The SBU stated that it is investigating two different cases concerning Motor Sich. One is related to alleged sabotage and subversive activity in favour of Russia, and the other is related to the possible violation of the law during the company’s privatisation.

Motor Sich, which has been producing aviation engines since 1916, was the leading engine producer in the Soviet era. The company’s privatisation started in 1994 and finished in 2000, when the latest 20% stake was sold by the government.

On March 11, Ukraine’s National Security and Defence Council decided to return Motor Sich “to the Ukrainian people … in a legal, constitutional way.”

“Thus far, the way Motor Sich has been “returned to people” does not look optimal for Ukraine’s investment case, especially taking into account that before mid-2017 the company was a local stock market blue chip with a top-2 free float. No doubt, it is positive that the chance is increasing that Motor Sich will finally receive a controlling owner that will do its best to preserve the company’s business. At the same time, the unresolved ownership issue raises the threat of multiple court battles with the minority shareholders of the company, as well as with the Chinese firms that reportedly purchased a controlling stake in the company in 2016-2017,” Alexander Paraschiy, the head of research at Concorde Capital, said in a note.

The Ukrainian state defence concern Ukroboronprom has written to the Asset Recovery and Management Agency of Ukraine (ARMA), stating its readiness to take control of the assets of the Motor Sich enterprise in order to retain its potential, Ukroboronprom's director-general Yuriy Husev said on March 20.

"I consider preservation of Ukrainian Motor Sich to be a matter of national security. Ukroboronprom already sent a letter to the ARMA of its readiness to act as the manager of assets of the joint-stock company Motor Sich for the purpose of preserving its potential. As a state defence concern, it is important for us that Motor Sich continues operating: keeping jobs, fulfilling obligations under production contracts. And our team is ready to support the enterprise," Husev was quoted by Ukroboronorom's press service as saying, as cited by Interfax.

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 UAH930.2mn ($33.6mn) in net profits in January-September 2020, while it saw net losses of UAH532.7mn in the same period in 2019. The company's net revenue has grown by 20.2% to UAH7.6795bn ($278mn).