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Privatization Case Study

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QUESTION: 1
PRIVATIZATION
Privatization is the sale of state-owned enterprises to the private sector, this is used as a global trend and the objective is to reduce the responsibility of the government as dominant actor in the economy and to create opportunity for in active private sector.
Privatization Trends: During the past few decades, privatization has grown in numbers and in value as well. In 1980s the ratio of privatization was very low because the governments of different countries were not very familiar with this idea but in the late 90s the phenomena progressed and proceeds estimated about US$ 850 billions. Privatization is spreading to the developing countries. Since 1991, the East Asian countries embraced privatization as …show more content…

The total worth of privatization in Africa was about $2.5 billion until 1997. The worth of privatization declined in 1993 to US$974 billion as compared to $1.6 billion in 1992.

Why Privatization: Through out the world on a large scale enterprises have been privatized in order to improve the efficiency as well as to reduce the financial burden of government masses. Privatization adds value to an organization and considered as a policy instrument. Governments adopt privatization to achieve macroeconomic and fiscal policy objectives. If privatization is implemented properly than it contributes to efficiency, establishment and growth of new private enterprises, establishment of new dynamic private enterprises, and investment in the private …show more content…

The strike price determined for PPL was PKR.219 per share (at a premium of 7% to floor price).

Reasons for Strike Price > Market price: The PPL transaction was tremendous success on behalf of GoP. First time in the history of Pakistan, the capital market transaction was closed on premium. Government had offered 70.06 per share at a discount price of Rs.205 per share being 4.2% lower than market price with an anticipation of earning Rs.14.3 billion. This led to the higher demand for shares resulting in rise in share to Rs.219 per share which was higher than market price of Rs.213.9 per share which is considered to be an equilibrium price, giving premium of Rs.1 billion above the floor price. A strike price of Rs.219 per share, 16 billion orders were received for 73 million shares. It was due to the faith and trust of investors in economic decisions of Government that received bids for more than 143 million shares worth of Rs.30 billion against an offer 70 million shares worth just Rs.14.3 billion. Being 68% owned by Government, risk of default is lower which also adds to the confidence of investors. All these factors apparently contribute to the higher strike price in Pakistan

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