An unnamed Russian group is close to buying control of one of recession-hit Ukraine’s largest steel groups, in a deal that risks causing political controversy in Kiev in the run-up to this month’s presidential election.

The Financial Times has learnt that the debt-laden ISD Corporation, which has plants in Poland and Hungary as well as Ukraine, could be sold later this month in a transaction valuing the group up to $2bn (€1.4bn, £1.3bn) with Vnesheconombank, the Russian state bank, playing a role in the acquisition.

News of the deal could raise political tensions in Ukraine, where Yulia Tymoshenko, the prime minister, and Viktor Yanukovich, opposition leader, are both bidding to succeed the pro-west Viktor Yushchenko as president. Mr Yushchenko, who is fighting a losing battle to retain office, has repeatedly accused both Ms Tymoshenko and Mr Yanukovich of co-operating too closely with Moscow.

They deny the claims. But Mr Yushchenko has kept up the attack and on Sunday said: “Tymoshenko and Yanukovich are the finest representatives of a single Kremlin coalition.”

Analysts said the deal is also evidence of Russia’s bid to expand its industrial grip over former Soviet Union countries.

While Russian companies have invested heavily in Ukraine, mostly without controversy, the timing of the latest deal could prove difficult for Kiev’s politicians. Two creditors familiar with the situation at ISD, which has struggled to restructure more than $3bn in debts amid falling demand, said they were told by the group’s Ukrainian shareholders that the acquisition would close this month.

Vnesheconombank said on Tuesday it was only providing financing for the deal and not taking a stake.

The potential buyers include Alisher Usmanov, the mining magnate, and Evraz, a metals group in which billionaire Roman Abramovich has a stake. Both have in recent years expressed interest in ISD. Representatives of Mr Abramovich and Mr Usmanov were not immediately available for comment.

The creditors said they were told by ISD the Russian group would take a 50 per cent plus one share stake. Sergei Taruta, Ukrainian billionaire, and his partner, Oleg Mkrtchan, would each retain 25 per cent stakes. Their former partner, Vitali Gaiduk, an adviser to Ms Tymoshenko, would fulfil his ambition to exit the business.

Tomas Fiala, managing director of Dragon Capital, a Kiev-based investment bank, put ISD’s enterprise value, equity plus debt, at $4.3bn-$5.3bn.

That is far less than ISD’s owners had sought in previous years “For ISD, this was the best option on getting out of a complicated situation with too much debt,” Mr Fiala said. “From our information, the debt restructuring talks were not going well.” Mr Fiala said ISD’s creditors included Citibank, Austria’s Raiffeisen, Société Générale, ING, Calyon Bank, the European Bank for Reconstruction and Development and the International Finance Corporation, a member of the World Bank Group.

Troika Dialog, an Moscow investment bank which is acting as exclusive financial advisor on the deal, would say only that the stake was being acquired by ”a group of profile and financial investors”.

However, Ruben Vardanian, chairman of Troika, said the deal represented a big move to consolidate metals assets in Russia and Ukraine and boost cooperation between the two countries.

”The deal is aimed at realising a strategy of consolidating metals assets across the territory of the [former Soviet Union] and could potentially lead to an expansion of cooperation between Russia and Ukraine, including in the growth of markets for the distribution and consumption of …coal and iron ore.”

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