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Home > Privatization Alert - November 2008
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Privatization Alert - November 2008
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Focus: Financial crisis and economic recession: Implications for privatization
The current financial turmoil and forecasted global economic recession does not bode well for privatization initiatives currently under way. Already several upcoming deals have been postponed, re-evaluated, or deferred for a later date on account of the global crisis. Recent examples in emerging markets include the sale of Kuwait Airways Corporation, Serbia’s Telekom Srbija, Russia’s Svyazinvest, Thailand’s Krung Thai Bank and Siam City, and the Korea Development Bank and Woori Finance Holdings in Korea. Industrialized countries are not immune either, with Germany announcing the postponement of the ongoing partial privatization of Deutsche Bahn until February 2009.
There are several reasons for this. First, the credit crunch has already reduced funds available to investors for participating in privatizations. Second, low stock market valuations are discouraging IPOs. Third, in many cases foreign investor interest in companies slated for divesture is not very strong, forcing governments to cancel tenders rather than selling them at unacceptably low prices. Fourth, as regards privatizations in the banking sector, some governments are postponing the sale of state-owned financial institutions because they provide a vehicle for channeling funds to businesses and consumers during the financial crisis.
At the same time, some countries are accelerating existing privatization plans or are re-invigorating dormant ones to shore up dwindling government revenues. Serbia has been one example of a country that has strived to maintain the momentum of its privatization drive, despite the current financial turmoil, with the objective of winding down the process in the near future. In recent months, however, a few tender offers have failed to attract investor interest, most notably the tender for the sale of the state’s controlling share in JAT Airways and JAT Tehnika and the chemical company Zupa. This can exacerbate the country’s economic picture as companies that fail to attract bids may declare bankruptcy and liquidate, with negative effects on employment. In October 2008 Serbia adopted a new payment scheme for purchasing privatized enterprises, which allows foreign buyers to pay only 30 percent of the total purchasing power immediately. The remainder can be paid in five equal installments subject to an interest rate equal to EURIBO plus 2 percent. The objective of this new policy is to encourage foreign investors to participate in the privatization process by overcoming possible risk aversion and liquidity constraints.
Status and upcoming transactions
Europe and Central Asia: Kosovo has launched the 32nd wave of privatization, with six companies/land properties listed and a bid submission deadline in early December 2008. Serbia is seeking a strategic partner for RTB BOR Group, the country’s largest cooper mine and smelter company, through a tender (deadline: January 30, 2009).
>> Complete list of regional project opportunities
>> Detailed country analysis by region
Middle East and North Africa: Egypt is planning to transfer shares in state-owned enterprises to its citizens as part of the finalization of its privatization plan. The Government is drafting a new law (presidential decree) that will create a new privatization institution that will manage the process. The government will continue to hold controlling equity stakes in state-owned companies in sectors it considers key, such as cement, pharmaceuticals, fertilizers and textiles.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
Sub-Saharan Africa: Kenya has announced plans to privatize all state-owned sugar mills to boost production and improve management. The country’s Privatisation Commission is planning a new round of sales of state-owned enterprises, expecting to raise US$105 million.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
South Asia: Pakistan’s Cabinet Committee on Privatisation has given the go ahead for the sale of 37% of the shares of the Oil & Gas Development Company Limited's (OGDCL) Qadirpur Gas field with transfer of operational control. The Government has explicitly asked that all concerns of stakeholders should be taken into account prior to initiating the privatization process. Privatisation will continue to be the corner stone of the country’s economic agenda.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
Latin America: Mexico’s Congress has voted an oil reform bill that allows the privatization of PEMEX, the country’s state-owned petroleum company. The bill basically allows private contractors to participate in PEMEX oil business, but does not offer enough incentives for private companies to undertake new oil exploration.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
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