In October last year, the central government sold its stake in Coal India in the largest IPO ever in India. Rather than being the exception in executing the largest privatisation transaction (at least going by the proceeds of the IPO), this year, India happens to be part of a larger trend in the year 2010. 2010 was unlike any other in financial history, and particularly in the history of privatisation, in that it saw the largest share offering ever?indeed the largest security offering of any type?as well as the largest IPOs across the world. Apart from this being a landmark year with respect to the size and number of privatisation transactions, there are some new trends emerging, particularly with respect to privatisation of infrastructure companies.
The year 2010 set the record for the most active quarter ever for IPOs (and the second highest annual total) and for the largest annual value of privatisation sales ($213.6 bn) since the phenomenon of state divestments began over four decades ago. To top off this amazing year, the US reprised its surprising role as the world?s largest privatiser for the second year running, while China, Brazil, France, Turkey, Poland and India accounted for ranks two through seven. The Brazilian government entered the record books with the largest ever stock sale in September 2010, when Petrobras executed a seasoned equity offering that raised approximately $70 bn. This deal included both capital-raising public issues of voting and non-voting shares?the privatisation parts of the offering?and a $42.5 bn grant of Petrobras stock to the Brazilian government in exchange for rights to 5 bn barrels worth of recently discovered oil. The two largest IPOs of state-owned enterprises happened this year?the $22.1 bn Agricultural Bank of China IPO in July and November?s $20.1 bn sale of shares in GM. The Malaysian government also executed the nation?s largest ever share offerings, with the IPOs of Petronas Chemicals ($4.1 bn).
As has been true for the past several years, the 27 nations of the EU accounted for a small minority of the aggregate global number and value of privatisation deals during 2010. There were 99 EU privatisations that raised $44.2 bn, but this represents only 20.6% of the worldwide total, far below the long-run average EU share of 47.1%. As usual, France raised more privatisation revenues than any other EU country, but Poland?s ranking as the second most active privatiser was far more surprising, and reflected the country?s much more robust rate of economic growth and greater financial dynamism. As usual, privatisation proceeds raised by EU governments through private sales in 2010 ($29.2 bn) were roughly double those raised through public offerings ($15.1 bn), and the $22.6 bn of utilities sales once more accounted for over half (51.1%) of all EU privatisations.
Several large infrastructure privatisations were executed by EU and non-EU governments alike during 2010. European deals included (1) the British government?s November auction of a 30-year concession to operate the High-Speed Rail One trains from London to the Channel Tunnel?which was expected to raise about ?1.5 bn ($2.4 bn), but instead brought in ?2.1 bn ($3.4 bn); and (2) the German government?s auctions of 4G mobile broadband spectrum, which raised $5.5 bn in May. Non-EU infrastructure privatisations were even larger, which included: (1) Turkey?s sales of the Istanbul electric grid, the Ankara Gas Works, and three other utilities, which collectively raised $12.3 bn; (2) two massive sales by Australia?s Queensland regional government in November?the IPO of a 60% stake in QR National that raised A$4.0 bn ($5.1 bn) and the auction of rights to operate the Port of Brisbane for 99 years, which was won by a consortium including the sovereign wealth fund Abu Dhabi Investment Authority and Global Infrastructure Partners, operators of London?s Gatwick Airport.
The US once again topped the rankings of global privatisers, with total proceeds of $49 bn. Over half ($28.1 bn) of this total was raised through a series of small sales of government-held shares in Citigroup over the course of the year, followed by the single largest ever accelerated seasoned offering in history, the $10.5 bn sale of Citi shares in December, which was completed in less than two hours. The November IPO of GM, which cut the federal government?s stake to 33%, was the largest stock offering of any kind ever sold on US markets. If the Treasury follows through on its expressed plan to sell shares in Ally Financial (formerly GMAC, GM?s financial arm) during 2011, the US might well rank high in the privatisation league tables for a third straight year.
Despite many successes, 2010 also witnessed a number of failed and cancelled privatisations. None was larger or more embarrassing than the third attempt at selling a controlling stake in Nigerian Telecom (Nitel), which collapsed in March 2011 after an almost farcical series of mis-steps throughout 2010. The consortium that won the first Nitel auction in October 2010 offered a $2.5 bn bid, more than twice the expected sale price, but listed as a member of the consortium a company (China Unicom) that soon thereafter announced it was not involved. The reserve bidder, which had offered $1 billion, failed to come up with the required 30% cash down payment in March 2011, after which the Nitel sale was cancelled. Other failed deals of 2010 include: (1) the completed but ultimately cancelled (due to anti-trust concerns) $2.6 bn sale of 84% of Poland?s Energa electricity company, (2) the unconsummated auction of the Polish electricity company Enea?first to the country?s richest man, Jan Kulczyk, and then to Electricit? de France, and (3) the Korean government?s fumbled sale of 59% of Woori Financial Group, which failed because no qualified buyers (financial institutions and local private equity funds) chose to bid and because non-financial (Chaebol) firms and foreign private equity groups are barred from acquiring more than a 10% stake in Korean banks.
The message over the last four decades has been that privatisation is overwhelmingly highly correlated with improvements in the financial and operating performance of divested state-owned enterprises. The global trend towards increased privatisation this year should motivate the central government to renew its commitment to privatising our inefficient public sector enterprises.
The author is a PhD in finance from the University of Chicago and is currently faculty in finance at the Indian School of Business
https://www.financialexpress.com/columnists_landing_page.php?pg=1&username=krishnamurthyvsubramanian
