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modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

No.tenChapter privatization business

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Chapter Outline

-10.1The meaning, purpose and methods of privatization of public enterprises

-10.2Selection criteria for privatization of public enterprises

-10.3Planning for the privatization of public enterprises

-10.4Overview of foreign privatization and other ways of releasing shares

-10.5Conclusion
modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

The significance of privatization of public enterprises,Purpose and means (1/4)

-The meaning of privatization

-In order to improve the economic efficiency and competitiveness of public enterprises, the scale of

public enterprises is reduced, the influence in economic activities is reduced, the government's

intervention in the economic activities of public enterprises is reduced, or the ratio of assets or

equity owned by the private sector is increased. Its importance in economic activities can be called

privatization (Privatization).
modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

The significance of privatization of public enterprises,Purpose and means (2/4)

-The purpose of privatization

-Enhance business operation autonomy to improve its business performance.

-Raise financial resources for public construction and accelerate public investment to improve the quality of life.

-Absorb excess hot money in the market and relieve inflationary pressure.

-Increase the chips in the capital market and expand the scale of the capital market to improve the development of the

capital market.

-Adjust the role of government and give full play to market functions.

-Open up industrial competition and improve the effective use of resources.

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

The significance of privatization of public enterprises,Purpose and means (3/4)

-Ways of privatization

-Sale of equity

– The so-called sale of equity is carried out in the following ways:1)Public sale of stocks before

listing (over-the-counter); (2)Open recruitment to non-specific persons; (3)Sold on a centralized

trading market; (4)Sold overseas by selling original shares or overseas depositary receipts.

– Its features are:

- The government still holds a relatively majority shareholding

- Gradually release holdings in a gradual manner

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

The significance of privatization of public enterprises,Purpose and means (4/4)

-Auction assets

– Privatization of assets through auction is usually suitable for public enterprises with larger

scales or wider product lines. The interested bidders are mainly competitors of public

enterprises or upstream and downstream companies in the same industry.

-Entrusted operation

– If the main purpose of privatization is to introduce the operating efficiency of private enterprises,

then "entrusted operation" is also a simple and feasible approach. This method is especially

suitable for exclusive public enterprises or countries with underdeveloped capital markets.
modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

surface10.1Comparison of methods of transferring public enterprises to private ownership

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Selection criteria for privatization of public enterprises (1/2)

-Primary considerations for privatization standards

-Is it necessary for the mission or tasks of public enterprises to continue to exist?

-Do the public have the will or ability to continue to achieve policy goals?

-Based on private business capabilities, technical standards and financial structure, can operating performance be

significantly improved?

-Most public enterprises have exclusive characteristics depending on their different industries or policy backgrounds.

-A key factor that must be assessed is the legal restrictions

-As for the order of privatization of public enterprises, aspects such as government policies, public enterprise operating

conditions, maturity of advance preparations, and the overall economic environment should also be considered.
modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Selection criteria for privatization of public enterprises (2/2)

-In the case of Taiwan

-In terms of operating conditions of public enterprises

-Whether the preparation work of each public enterprise is complete

-The capital market’s appetite for absorbing the government’s release of equity should also be considered
modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Planning for the privatization of public enterprises (1/4)

-Business development strategy planning

-The first step in business development strategic planning is to analyze the overall environment, focusing on the

internal and external environment of the company. The purpose is to understand the economic environment,

future trends, industry competition and industry prospects of the public sector in order to understand The

current situation of upstream suppliers and downstream customers, analyze the impact of the privatization of

public enterprises on the overall society and industry, and list their competitive advantages, disadvantages,

possible future opportunities and threats respectively as a reference for reform; as for the internal

environment In terms of analysis, all items such as management systems, operating performance, and

financial audits should be re-evaluated for possible changes and scope of impact.

-The establishment of the goals of each relevant group is also a key point that must be considered in the strategic

planning process. surface10.2It is the goal of all relevant groups in the privatization process.
modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

surface10.2Targets of relevant groups in the privatization process

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Planning for the privatization of public enterprises (2/4)

-Organizational and financial structure planning

-The organizational structure of public enterprises should be understood. Secondly, the decision-making

process should be analyzed. Thirdly, in terms of personnel organization, the overall quality of employees

should be considered. Finally, the corporate culture should be analyzed.

-In terms of financial structure, ratio analysis and trend analysis should be conducted one by one on

the public enterprise's solvency, capital structure, profitability, operating performance and other

financial conditions.
modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Planning for the privatization of public enterprises (3/4)

-Privatization approach

-The following factors should be considered:1)The government’s planning objectives, principles and restrictions on the

privatization of public enterprises; (2)The response and needs of employees of the public sector enterprise to

privatization; (3)Market conditions and reactions of potential investors. After comprehensively considering the above

factors, a feasible privatization method is selected.

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

surface10.3Pros and cons of stock release objects

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Planning for the privatization of public enterprises (4/4)

-Employee Rights Planning

-In terms of the protection of the right to work, relevant laws and regulations must be complied with and the protection

of the right to work must not be violated. Employees can be assisted in changing jobs by providing second

expertise training.

-In terms of employee stock subscription, we can help employees subscribe for shares through preferential stock subscription or

assistance in applying for stock subscription loans, so that the benefits of privatization can be shared with employees.
modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Overview of foreign privatization and other ways of releasing shares (1/4)

-The UK is a pioneer in the development of privatization of public utilities. Inspired by the UK's successful experience in

promoting privatization, it has driven the development of privatization activities in other countries, including the

United States, Japan, Brazil, France, Nigeria and other countries, which have also followed suit. The trend of change,

as shown in the table10.4shown.

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

surface10.4Policies on privatization of public enterprises in various countries (1/2)

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

surface10.4Policies on privatization of public enterprises in various countries (2/2)

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Overview of foreign privatization and other ways of releasing shares (2/4)

-Foreign privatization methods

-For countries with relatively sound capital markets, the privatization model of public

enterprises they adopt is mainly equity underwriting. The reason is that their capital

market appetite is large enough and they can further expand the scale of their capital

markets; the remaining capital Countries with less developed markets often resort to

asset sales.

-After considering the appetite of the capital market, the privatization of large-scale foreign public

enterprises is usually carried out in a variety of ways at the same time.

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

surface10.5Foreign privatization methods

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Overview of foreign privatization and other ways of releasing shares (3/4)

-Introduction to other foreign ways of releasing shares

-Warrants
– The use of stock warrants as a method for privatizing public enterprises can be carried out in the

following ways:

- When bonds with stock options are issued in the name of a public enterprise, the holder has the right to

subscribe for shares of the public enterprise at a performance price within a specific period.

- Public enterprises release stocks and warrants. Investors can choose to hold the warrants

until a certain number of shares is subscribed for a specific period in the future, or

Sell the warrants directly on the market to make a profit.

- Directly issue warrants for investors to subscribe for (such as privatizations in

Sweden and Italy).

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Overview of foreign privatization and other ways of releasing shares (4/4)

-Privatization Fund

– Privatization funds refer to mutual funds that specialize in investing in privatized enterprises and their

related enterprises. Through privatization funds, investors can not only indirectly invest in privatized

enterprises and participate in the results of privatization, but also reduce the risk of holding a single

privatized enterprise.

-convertible bonds

– Through the design of convertible public bonds, in addition to attracting public bond holders to participate

in privatization projects, it can also solve the problem of increasing government debt.

– Releasing the equity of public enterprises through exchange will have less impact on the capital market and

the probability of success in releasing shares is higher.

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Conclusion(1/2)

-The Taiwan government is based on1996The "National Development Conference" held in 2016 concluded that a

policy consensus on accelerating the privatization of public enterprises was reached.1989Since the year of2006

~2008During the year, several state-owned enterprises were also successfully transformed into privatizations,

including Tang Rong Company and Taiwan Shipbuilding Corporation by selling their equity, and Ryuzaki

Company by establishing a joint venture with private investors to achieve their privatization goals. It is worth

noting that the Bank of Taiwan, the Land Bank and the Central Trust Bureau, which are affiliated with the

Ministry of Finance, have merged with the Export-Import Bank of China to form the Taiwan Financial Holding

Company, in line with the policy of improving the competitiveness of the overall financial industry, and will not

be privatized for the time being.

modern investment bank(fifth edition) Written by Xie Jianping ISBN 978-986-457-040-9

Conclusion(2/2)

-As of2016At the end of the year, those formerly affiliated to the Ministry of Economic Affairs, Finance, Ministry of Transportation, Executive

Yuan Retirement Association, Kaohsiung City Government, Taipei City Government and other agencies38All public institutions have

been privatized. And there are still8National public enterprises need to be privatized, including those under the Ministry of Economic

Affairs5domestic enterprises (Taipower, China Petroleum Corporation, Hanxiang, Taiwan Sugar and Taiwan Water), affiliated to the

Ministry of Finance1domestic enterprises (Taiwan Tobacco and Liquor Company) and affiliated to the Ministry of Transportation2

(Taiwan Railway Administration and Chunghwa Post Corporation), etc. In the future, the government will continue to implement the

privatization policy. The securities underwriting and financial advisory business opportunities derived from it are huge and worthy of

the efforts of investment banks interested in privatization of public enterprises.