privatisation: the singapore perspective

Privatisation and Capital Market Development in Asia

PRIVATISATION: PRIVATISATION: THE SINGAPORE PERSPECTIVETHE SINGAPORE PERSPECTIVE

Yuen Teen Mak, PhD, CACoordinator, Accounting and

Corporate Governance Research Group,

Associate Professor,Department of Finance and Accounting,

National University of Singapore


OUTLINEOUTLINE

• Overview of privatisation• Reasons for privatisation• Modes of privatisation• Retention of government ownership in

privatised enterprises• Performance of privatised enterprises• Future of privatisation


OVERVIEW OF PRIVATISATION IN SINGAPOREOVERVIEW OF PRIVATISATION IN SINGAPORE

• Privatisation program was formally announced in March 1985

• Public Sector Divestment Committee (PSDC) formed in January 1986 and released its report in February 1987


Recommendations of Public Sector Divestment Committee

• The PSDC examined 99 GLCs and recommended 15 for listing, 9 for further privatisation, and 17 for total privatisation. It also recommended that 4 statutory boards be studied for privatisation.

OVERVIEW OF PRIVATISATION IN OVERVIEW OF PRIVATISATION IN SINGAPORESINGAPORE



• 52 GLCs not recommended for privatisation were those with foreign government participation, single-project companies, companies which have a social rather than commercial mission, and those which were unprofitable or whose future is uncertain

• 6 GLCs were recommended for further study for possible privatisation (defence-related)


• PSDC envisaged a 10-year period for implementing its recommendations on privatisation so that the market can absorb the shares

• At start of privatisation program, most GLCs and statutory boards were already profitable




Statistics• As at April 2000, GLCs controlled by

Temasek Holdings account for about 25% of stock market capitalisation

• The 3 largest listed Singapore companies by market capitalisation are GLCs; the top 5 companies by turnover and the top 4 by total assets (excluding banks) are GLCs



• Two of the five listed banks, including the largest, are GLCs

• Between 1985-1996, there were 16 newly-listed GLCs and 15 further sale of shares for already-listed GLCs

• Few new listings or major divestment of shares of GLCS since 1993



Privatisation of major listed GLCsGLC % ownership % ownership before divestment after divestmentSIA 77% 56.3%SingTel 100% 78.2%NOL 62% 32.6%Keppel Corp 58.5% 31.7%SNP Corp 100% 49.0%


REASONS FOR PRIVATISATIONREASONS FOR PRIVATISATION

• To withdraw from commercial activities which no longer need to be undertaken by the public sector

• To add breadth and depth to the Singapore stock market by the flotation of GLCs and statutory boards and through secondary distribution of Government-owned shares; and


• To avoid competition with the private sector

• Raising cash through sale of state enterprises, getting rid of poorly managed state enterprises, and freeing state enterprises from political interference so that they can function as commercial entities were not seen to be important reasons

Source: Report of the Public Sector Divestment Committee

REASONS FOR PRIVATISATIONREASONS FOR PRIVATISATION


MODES OF PRIVATISATION OF OWNERSHIPMODES OF PRIVATISATION OF OWNERSHIP

• Capital market

• Direct sale- considered when other objectives are seen

as important, e.g., sale of 100% of POSBANK (a statutory board) to DBS, and proposed merger of SMRT and TIBS


MODES OF PRIVATISATION OF MODES OF PRIVATISATION OF OWNERSHIPOWNERSHIP

• Often only partial privatisation (with government remaining as majority or controlling shareholder)

• However, some smaller GLCs have been completely privatised


• Privatisation through capital market with participation of both retail and institutional (including foreign) investors is generally favoured

– recent privatisation through capital market usually offered only 10-20% of shares to local retail investors



“Unless there are special reasons such as the management wanting to take the business over, the original promoters wanting to keep out new and unfamiliar partners, or the parcel of shares being too small, the mode should be random allocation through listing or secondary offer to the public”.

Source: Report of the Public Sector Divestment Committee



Reasons for:• If it isn’t broken, why fix it?• Concerns about succession • Government does not need the money• Market may not be able to absorb large

share issues

RETENTION OF GOVERNMENT OWNERSHIPRETENTION OF GOVERNMENT OWNERSHIP


RETENTION OF GOVERNMENT OWNERSHIPRETENTION OF GOVERNMENT OWNERSHIP

Arguments against:• Perceived interference/control by the

government• Questions about ability of GLCs to compete

in the global economy • Unfair competition against private sector

and stifling of entrepreneurship


PERFORMANCE OF PRIVATISED GLCSPERFORMANCE OF PRIVATISED GLCS

• For 16 new listings of GLCs between 1985 to 1996, average underpricing was 57% compared to 47% for non-GLCs (based on market and industry-adjusted returns), but difference is not significant

Source: Tan, R.S.K., Yeo, G.H.H. and Low, Y.Y.Y., “The Initial and Long-Run Financial Performance of Privatized Firms in Singapore”, NUS Working Paper.



• For 26 newly-listed and already-listed GLCs (further privatisation), the privatised GLCs outperformed non-GLCs, the market and the industry indices on after-market share price performance (for the 60 months following divestment)


• Based on profit margin and return on assets measures, the operating performance of privatised GLCs improved significantly after privatisation.



FUTURE OF PRIVATISATION IN SINGAPOREFUTURE OF PRIVATISATION IN SINGAPORE

• Government has expressed intention to further divest but has concerns about timing - wants to ensure the right price and that the market is able to absorb the privatised shares



– e.g., SMRT privatisation delayed because of weak market conditions

– “While we agree that times have changed and there are no compelling reasons for the Government to hold controlling stakes in the GLCs, we cannot divest our stakes in the GLCs overnight.”

(Temasek Holdings, ST, May 5. 2000)


Major GLCs (100% government-owned) expected to be privatised through capital market in the near future:

• Singapore MRT (rail) • Singapore Power (utility)• PSA Corporation (port)


privatisation: the singapore perspective

Documents