Article Type

Article

Description

There has been a hiatus in the privatisation of state-owned enterprises for the last five years. Recently, the Privatisation Commission has announced a capital market transaction roadmap. Under this programme, sales of public shares will take place through initial public offerings (IPOs), secondary public offerings (SPO), global depositary receipts (GDR) and follow on public offering (FoPo). The main objective is to raise funds for meeting fiscal deficit and mobilise foreign exchange to fill in the widening gap in the balance of payments. Will these transactions achieve the stated objective? The companies for which local markets will be accessed are PPL, HBL, NBP, PARCO, KAPCO, SLIC, NICL, IESCO and FESCO. All these companies have been performing well and can do even better if their boards and management are allowed to operate on purely commercial basis without government interference. These companies are all paying dividends and making a contribution to the non-revenue taxes. A comparison should be made whether the projected net present value (NPV) of the flows of these dividends exceeds or is equal to or is lower than the expected sale price of the shares being off loaded. If the NPV is positive then the disposal of the shares is simply a transfer of resources from the public sector to the private share holders. In that case, the fiscal deficit may temporarily see an immediate dip because of the stock of cash received from sale proceeds but in the long run the loss of dividend income flows to the government over time may widen the deficit.

Publication Source

Money Matters

Publication Date

3-19-2012

Pages

1-3

Notes

IH0258

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