It seems state-owned enterprises (SOEs) suffer from inertia with regard to off-loading of their shares to the stock market. We heard quite often that SOEs were going to sell their shares by this or that time, but it never has happened.
The last time when SOEs sold some shares from their ownership was during the last caretaker government in 2007. Thereafter, the government that took over after the election only offered repeated promises that the SOEs would be selling their shares. Sometimes the finance minister bitterly censured those who stood in the way of share sales, but that did not help in this regard.
It was said that bureaucrats, because of their own interest, were creating obstacles in the way of share offloading. But we wondered how the same bureaucrats who had cooperated with the government in this regard during previous regime of the caretaker government suddenly took a U-turn! As we heard, the prime minister also cleared the way for selling shares of the SOEs, but that did not work also. Not a single share was sold from the SOEs during last seven years. So many meetings and appeals went in vain in this case.
Now, the investors do not believe whatever assurance or promise the government makes. They were once very eager to buy government-owned shares almost at any price that would have been asked for. Now the stock market is dull; dullness may continue for a while unless private investment in the economy rises. But this dullness should not have prevented the government from taking steps with regard to off-loading of SOE shares to the market. The basic principle should be to strengthen the stock market by making ordinary investors stakeholders in the SOEs.
Had the government off-loaded majority shares from the SOEs, these would have been run better, as the boards of directors of these SOEs would have been reorganised by taking representatives from the stakeholders. At one time when the market investors were virtually crying for stocks, the government could have received billions of taka from sales of a small percentage of stocks from its holdings.
Back in 2009, 2010 and 2011, stock prices reached sky-high; any sale of stock from government accounts would have provided a cooling effect on the market and also brought a huge amount of money for the government. The stocks from the SOEs like Osmania Glass Sheet Ltd., National Tubes, Eastern Cables etc were the much-sought- after stocks for the investors; they were ready to pay prices much above the ones fundamentally supported by the earnings of these SOEs. But the government missed the opportunities. Its inaction and indecision were also partly responsible for the scam that had happened in our stock market in November 2010.
However, it is better late than never. Still the stocks from the SOEs will bring much higher price for the government than the earnings of these SOEs. Why are the investors ready to pay a higher price than the one supported by the SOEs' fundamentals, especially by the earnings per share? Because, investors find good potential of these stocks in future. The earnings of these SOEs are lagging behind because of poor managements that were with these for long.
Net asset value of the SOE stocks when land values are taken into consideration is huge. That is also another reason for showing extra interest by the ordinary investors in those stocks. The government should not allow the SOEs to rot further by delaying share sale from them. If the move is delayed further, more dust will gather on these SOEs. One day some of these SOEs will go out of production and will have their natural death. Then the government will only be able to sell only the lands. The stocks from the SOEs will be relegated to `Z' category by the regulator Bangladesh Securities Exchange Commission (BSEC).
Recently, the Ministry entrusted with power and electricity generation held a meeting with the concerned quarters to discuss how to raise capital for the government-owned power companies from the capital market. Thanks to the Ministry, though late it found another option for raising capital than solely depending on the government for such capital. We hope, the results of the meeting will not be lost in oblivion just like those of the previous meetings.
If the private sector power companies can raise billions of taka capital by selling IPOs to the stock market, what has prevented the Power Development Board (PDB) so long from making its subsidiaries going public? The main problem is whether the PDB authorities believe in the capital-raising policy by selling equity to the investors? The past history tells us that the PDB is reluctant to move forward on this account. Its management in the past brought up very bad arguments against share sale from the SOEs under it. The PDB should be converted first, if not converted by this time, into a holding company. Then the converted holding company be asked in a very straight forward way to sell shares or issue IPOs from its subsidiaries.
Capital is there in the capital market. But policy-makers in the Ministry and the PDB look the other way up till now. Now when they are losing out to the private competitors in power generation and in supply of capital for it, the PDB is hearing a wakeup call. Meanwhile, if the government means business, the government-owned power companies should raise money from the capital market instead of easy money now being given to them.
Let the companies raise capital from the stock market, run the business on commercial lines and earn profits just like the way the private investors are earning from this sector. Any extra help by the government to the SOEs, be these under the Ministry of Power or under any other Ministry, will only encourage them to follow a path of status quo. Also our experience showed that minority share off-loading from the SOEs does not bring the desired qualitative change in the management of these state-owned enterprises.
If the government wants to bring a real change in the management style of the SOEs, then the off-loading of majority shares to the public through stock market could be an option. Had minority share off-loading done any good to the SOEs, then some SOEs whose minority shares are already with the public should not have witnessed a steep fall in their earnings.
The writer is Professor of Economics University of Dhaka.
abuahmedecon@yahoo.com
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