SOEs listing could boost economy - IFC expert
While government is considering privatisation of some parastatals, experts have stated that the listing of SOEs is an opportunity for the government to support the development of capital markets while achieving other divestment objectives such as harnessing the SOE’s value and raising fiscal revenue.
Presenting during the Botswana Stock Exchange ( BSE) webinar on SOEs listings, International Finance Corporation ( IFC) Associate Financial Officer, Anica Nerlich said Botswana has a large share of unlisted SOEs but many needs to be restructured before they can be listed. Currently, Botswana has about 49 parastatals but only one has been listed in the Botswana Stock Exchange ( BSE).
She said Botswana has a large domestic institutional investor base as well as well enforced legal and regulatory framework for capital markets. Botswana has a large pension funds with appetite for equity. “While the process is painful, if done successfully, SOEs listings can contribute to long- term economic development.”
Nerlich highlighted that SOEs Listings provide governments with large one- off payments and other more long term fiscal savings. “Governments have capitalised well on SOE listings, rising on average USD8 billion. SOE divestment through multiple public offerings can maximize proceeds for government.” According to the World Bank report on listing state- owned enterprises in emerging and developing economies SOE listing can be a vital tool to redistribute some of the wealth created by a country’s economy. “Different from other divestment methods, SOE listings encourage the participation of retail investors. Our analysis finds that SOE listings can significantly broaden the retail investor base, in some cases attracting more than one million individual investors. In most cases, retail investors have earned a significant marketadjusted return, easing some of their opposition against SOE divestment and privatization.”
Among other benefits of SOE listings, Nerlich highlighted that SOE listings have many benefits over whole- state ownership that do not require governments to relinquish control. “Governments can raise capital, democratize ownership and support capital. SOE listings provide governments with substantial additional revenue. Across our case study countries, governments have capitalized well on their SOE listings, raising, on average, USD 8 billion ( median $ US 5 billion) per country over the past 30 years.”
However, the World Bank indicated that for most governments, SOE listing has been a welcome capital injection to pay down government debt. Others have used their proceeds for productive purposes, including financing social services or critical infrastructure projects. “Some governments succeeded to reduce their expenditure on financial support previously provided to the listed SOE, sometimes up to one percent of GDP. However, for such savings to materialize, SOE listings usually have to be preceded by structural reforms that address fundamental inefficiencies in the respective sectors.”
The World Bank also advised that listing companies at a stock exchange is an expensive process and only economical for larger companies because capital markets require scale to function properly. “Selling small SOEs or only small minority stakes of larger SOEs is likely to create liquidity problems for the SOE shares. Different from privatizations through trade sales, SOEs will need to demonstrate a track record of profitability before they can be listed. Thus, before SOEs can be listed, it will be important to help them achieve a commercial viability, including through sector reforms.”