How To Get More Of It

Sale of SOEs

Share market route glossed over

Abu Ahmed

During Awami League rule from 1996 to 2001, the government had enthusiastically announced that Biman would sell 20 percent of its shares to the public. The investors felt encouraged, and then waited; but Biman's shares never came up for their subscription. After shelving the share sale project, Biman appointed a foreign consultant at a huge cost to find a survival strategy for it, preferably help it find a strategic partner; but the consultant could never find a strategic partner; neither could he show a better way for its survival.

This government, on coming to power, abandoned all thoughts of share sale and decided to run Biman keeping it under its ownership. Only recently, the Biman management came to realise that things were not going well and they too decided to sell off shares to the public. This time, of course, the majority shares. One reason for Biman's share sale decision was that the government was too reluctant to supply it with more capital while the other reason being that Biman having tried every other way, other than selling shares to the public to keep floating, failed to find any alternative.

But to off-load share Biman has to go a long way; first, it has to convert into a company, then hire a manager to sell shares to the public and also find underwriters for the purpose. In the meantime, the investors apprehend that Biman's employees will bring out

Going public with shares

processions protesting the so-called privatisation move whereupon Biman's management might shelve the share sale project again. Investors, by and large, believe that just as elsewhere the government could not sell shares from the SOEs, from Biman too it will not be able to sell any share.

Hearing of Biman's share sale decision, one of our professors who is now working at the business faculty of Dhaka University, only laughed. He said the better option for Biman would be to go out of operation, at least that will save taxpayers' money. He asserted that nowadays no country needs a public sector airline; almost all the countries in the world now run private airlines.

In late eighties and beginning of nineties, government privatised some SOEs, partly through the share market. Considering the time that was a bold step. At that time, the employees' unions were very strong, and protests against privatisation were quite a normal thing. Yet the then authority could sell some of the shares of SOEs to the public. The SOEs which were partly privatised through share market belonged to various sector corporations. Later on, some of those partly-privatised units were sold altogether to the private people, but some still remained with the government with majority shares owned by it. These are the shares often talked about by the investors as warranting sale to them through the share market. Government also agreed time and again to sell the remaining shares, but never showed the required seriousness.

Investors wanted that the government off-load these shares for two reasons. One, there was shortage of good shares in the market, and in the absence of commensurating supply in the market, the prices of the existing shares had gone up to a level which investors thought was not sustainable. Second, these shares were already listed with the stock exchanges and are easy to sell. But the policy-makers could not makeup their mind; sometimes they said they were the profit-earning shares, and if sold, government would be deprived of good earning; sometimes they said that these could not be sold as the workers' union protested the sale.

Investors believed that beneath all this was a mindset of policy-makers that worked against share sale, as they were the direct beneficiary of the not-for-sale shares. These are the very persons who are chairmen and directors of those partly-privatised SOEs. Recently, the very powerful Finance Minister in an inter-ministerial meeting gave the decision that the partly-privatised SOEs would be sold fully through share market. After hearing the news investors got buoyed. But that was all. No decision by the government could have compelled the corporations' bureaucrats to get along with it, and they are with their old arguments for discarding the sale of shares. This time they added an extra bit of logic, and that is, this is the election year, and if the government should sell shares, it will lose public support. What an argument! When the Finance Minister had announced that SOE shares would come to the market within two months, market responded positively. The SOEs' share prices went up significantly, in some cases, up to hundred percent. But when the news came that some employees were protesting the share sale, and bureaucrats too could not agree with the government's decision, prices of SOEs shares fell.

Government faces tremendous problems in collecting taxes, and at times, borrows from banks to meet the budget deficit, but could not use the share market route to collect money by selling SOEs. All over the world, share market is deemed to be a preferable route for privatisation, but Bangladesh took to the tendering method for privatisation. Result was that it could neither privatise its SOEs; and even if it could sell through tender that came under criticism. The entrepreneurs who purchased the government-owned enterprises either did not pay government fully or willfully made the projects sick just to go default on the bank loan. At the end, the economy lost the project and the bank lost the loan.

In the ultimate analysis, compared with the SOE sale through tender, the same sale through share market has always proved more transparent and result-yielding. One reason why the Privatisation Commission, or for that matter, any other authority entrusted with sale, does not show interest to sell the SOEs through share market is that it does not benefit them personally. That is the reason why not a single SOEs has come up for sale through the share market since the good old days of nineties.

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The author is Professor of Economics, Dhaka University and Chairman, Bangladesh Shilpa Bank.