Privatization and Financial Markets

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Privatization and Financial Markets

• ?????????? ????????????? 434 55594 29
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Types of Privatization

• Liquidation
• One privatization measure is simply to liquidate
  some SOEs.
• Occasionally, the situation of SOEs is so bad
  that they are simply abandoned without a formal
  liquidation.
• Contracting out
• A number of services can be contracted out to
  private sector, usually through a competitive
  bidding process followed by negotiations.

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Types of Privatization

• Contracting out does not address the need for
  new investment in plant, equipment and technology
  to keep the enterprise competitive.
• An other drawback is that contracting out does
  not transfer ownership to the private sector,
  which is critical for sustained improvement in
  enterprise performance.

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Types of Privatization

• Leasing
• A lease enables a private sector group to control
  a company or assets or both, for a period of
  time.
• Leasing is a more powerful tool than contracting
  out, since the returns to the lessees are more
  directly determined by the lessees success in
  managing the leased assets.

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Types of Privatization

• Deregulation and Demonopolization
• The government removes regulations which had
  previously prevented the private sector from
  competing with a state-own monopoly, or changes
  old regulations or creates new ones to greater
  competition from the private sector.
• Management-Employee Buyouts
• Occasionally, management or employees or both may
  be ideal buyers for an SOEs, especially for small
  enterprises.

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Types of Privatization

• Trade Sales
• A trade sale involves the sale of controlling
  interests in an enterprise to the private sector,
  usually through competitive tendering techniques,
  an evaluation of proposals, and negotiation
  between the government and the potential private
  sector buyer.
• A disadvantage of trade sales is that they may
  effectively limit participation in privatization
  to wealthy local investors or foreign investors.

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Types of Privatization

• Public Share Sales
• Public share sales can overcome the potential
  problems of trade sales by virtue of their
  greater transparency and openness to the public.
• Mass Privatization
• Mass privatization enables countries to privatize
  thousands of enterprises, utilizing standard
  techniques, transparent procedures, and vouchers
  distributed to citizens.

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Types of Privatization

• Build-Operate-Transfer Infrastructure
  Privatization
• This type of privatization involves economic
  infrastructure which would be desirable to
  construct, but cannot be built owing to budgetary
  limitations.
• Using BOT, the government tenders projects to the
  private sector, which assumes responsibility for
  the financing, construction, and operation of the
  infrastructure project.

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Factors for Successful Privatization

• strong political commitment combined with wider
  public understanding and support for the process
• creation of competitive markets to reinforce the
  benefits of private ownership
• transparency in the privatization process
• measures to mitigate the social impact of
  privatization

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Benefits from Privatization

• Greater Efficiency and Productivity of
  Enterprises
• Generation of Revenue to Reduce Deficit and Debt
• Attracting Foreign Investment
• Capital Market Development
• increasing competition among securities firms
• promoting capital markets by increasing the
  supply of and demand for shares

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Privatization Trends
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Privatization Trends
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Privatization Trends
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Privatization by Share Sale and Capital Markets
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• This method,pioneered in the 1980s by the United
  Kingdom,has been implemented and modified in
  other Western European countries and in the
  emerging markets of Latin America and Asia.

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Privatization by Broad-Based Share Sales

• A public,broad-based sale of shares is used to
  privatize a limited number of blue-chip SOEs.
• Many developing countries already have,or are
  eager to replicate,the broad-based approach to
  privatization.(Argentina, Chile, Jamaica, Korea,
  Malaysia, Sri Lanka, Turkey, Tunisia, Portugal,
  Venezuela,Mexico and Thailand)

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Broad-Based Privatization and Capital Market
Development

• Attractive Share Pricing
• Increasing the Number of Shareholders
• Developing Investment Banking and underwriting
• Transparency

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Mass Privatization and Capital Markets
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Types of Mass Privatization

• Rapid case-by-casethe former German Democratic
  republic(East Germany).
• Mass privatization through intermediary mutual
  fundsPoland and Kazakhstan.
• Voucher mass privatizationThe Czech and Slovak
  federal Republic,Russia,Lithuania,Moldova,and
  Kyrgyzstan.

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Issues and Techniques in Mass Privatization by
Vouchers

• Voucher Design Creating the Demand for Mass
  Privatization
• Enterprise Preparation Creating the Supply of
  SOEs for Mass Privatization
• Auction Techniques Unpriced Bids
• Linking Mass Privatization with Capital Markets

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The links between capital market development and
mass privatization
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• Capital markets create a liquid market in which
  the newly create shareholders and intermediaries
  can buy and sell shares.
• Capital markets can play a critical role in
  providing corporate governance to the newly
  privatized SOEs.
• Capital markets play a key role in the
  post-privatization restructuring of enterprises.

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• Capital markets allow ownership and capital
  structure to change over time and serve as a
  vehicle for foreign direct and portfolio
  investment.
• As capital markets develop further,companies are
  able to issue new shares to raise equity capital
  to finance expansion and modernization,and avoid
  an excessive reliance on debt capital.

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