Presentazione di PowerPoint

1
Policy Dialogue on Corporate Governance in China
Shanghai, China 25 - 26 February 2004 Session
2 Ownership transfer in an efficient and fair
manner Selecting proper privatisation methods
Adolfo Di Carluccio Ministry of Economy and
Finance of Italy
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Contents of the presentation

• The key objectives/drivers of the Italian
  privatisation program and its scope

• The main privatisation methods in Italy

• The achievements of the program (and the
  shortcomings) relative to the stated objectives

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The key drivers of the Italian privatisation
program and its scope

• The key drivers of the Italian program
• The need for fiscal adjustment
• a soaring level of budget deficit and public
  indebtedness with high government bonds spreads
• a mounting drag exerted by SOEs on public budget
• the pressure stemming from the EMU
• The need for developing capital markets and
  equity culture, also through strengthening
  institutional investors and market
  infrastructures (corporate governance)
• Improvement in corporate efficiency

4
The key drivers of the Italian privatisation
program and its scope

• The size of the Italian privatisation program
• SOEs value added as of GDP declined from 19 to
  2,6 in the period 1990/end-2002
• Over 120 bl. sold (1992-2003)
• Government ownerships phasing out completed in
  nearly all the commercial sectors

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The key drivers of the Italian privatisation
program and its scope
Proceeds from privatisations in UE countries
(1992-2000, in billions of US )

• Italy tops all the other UE countries as to
  proceeds and the share (roughly 87) of
  state-owned assets disposed through public
  offerings
• Development of capital market perceived as a
  long-medium term objective rather than as a
  constraint

Source IFR Thomson Financial International
6
The main privatisation methods in the Italian
program

• Different privatisation methods, serving
  different objectives (pros and cons)
• Trade Sale
• Stable core of shareholders
• Public offering
• Sale to employees

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The main privatisation methods in the Italian
program - Trade Sale

• Pros
• Stronger improvement in corporate efficiency
  expected (conducive to stronger governance
  structure for the company)
• Better outcomes in terms of proceedings (price
  premium embedded for control)
• Transfer of technology and managerial skills
• Only minimal restructuring required (weak
  information asymmetry between buyer and seller
  and buyers risk aversion to be overcome)
• Cons
• Conducive of inefficient allocation of resources
  and potentially prone to corruption if not based
  on transparent competitive bidding
• If based on transparent competitive bidding in
  strategic sectors it cannot prevent foreign
  investors from acquiring the asset
• Misses the potential for capital market
  development.

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The main privatisation methods in the Italian
program - Stable core of shareholders

• Pros
• Promotes strong stable governance
• In strategic sectors insures national controll
  over the company and protects against hostile
  take-over
• Only minimal restructuring required (weak
  information asymmetry between buyer and seller
  and buyers risk aversion to be overcome )
• Cons
• All the trade sales cons
• Possible large discount for the sale price
• Potentially damaging to good corporate governance

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The main privatisation methods in the Italian
program - Public offering

• Pros
• It is an open competitive asset allocation
  process
• It fosters capital market and equity culture
  development
• Cons
• A great deal of preparation and planning and
  companys restructuring required (to address
  information asymmetry and buyers risk aversion)
• Relatively well-developed and liquid capital
  markets and legal infrastructure are required to
  be already functioning
• Generally not aiming at revenue maximization
  (underpricing and discount often granted)

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The main privatisation methods in the Italian
program - Sale to employees

• Pros
• Increased incentives for improved efficiency
  through aligning the interests of workers with
  those of the owners.
• Helps gaining employee support for privatisation.
  
• Cons
• Corporate governance weaknesses (employees as
  shareholders, if participating in decision
  making, are more concerned about employment level
  than profit)

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The main privatisation methods in the Italian
program

• How did the Italian government manage to optimise
  the underlying tradeoffs?
• Large resort to
• mixed procedures
• public offering of minority stakes of large SOEs
• Strong long-lasting ownership structure for newly
  privatised companies (NPC) but the controlling
  stake not to be indefinitely shielded from
  competition for corporate control (no
  cross-shareholdings or other shareholder
  agreements required)
• Multiples tranches to maximize proceedings
• Involvement of both retail and institutional
  investors (including foreign ones)
• No strong underpricing
• Golden share to protect against take-over of a
  NPC where the industry is deemed to be of
  strategic or public interest.

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The main privatisation methods in the Italian
program

• Typically the Italian Government resorted to 2
  schemes of privatisation methods
• Mixed sale procedure typically combining trade
  sales with a public share offering, involving
  both retail and institutional investors (plus
  sometimes a sale of stakes to employees)
• public offering of minority stakes of large SOEs,
  involving both retail and institutional investors
  (generally through multiple tranches), while
  retaining a controlling stake

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The main privatisation methods in the Italian
program
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The main privatisation methods in Italy

• Mixed sale procedure
• It serves well the goal of capital market
  development
• But also insures a strong governance structure
• A long-lasting ownership structure for newly
  privatised companies envisioned
• But the controlling stake not to be indefinitely
  shielded from competition for corporate control
• No resort to a stable core of shareholders in its
  strong variant

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The main privatisation methods in Italy

• Public offering of SOEs minority stakes while
  retaining public controlling
• Protecting the company from hostile take over and
  ensuring protection of public interest by
  retaining government control over the company
  while putting it under the discipline of
  financial markets
• Gradual disposal of State-owned companies through
  multiple tranches over a period of time as a sale
  strategy to maximize total proceeds
• But also a policy device to take time and allow
  financial market institutions and equity culture
  to develop

16
Retail participation in the program and promotion
of equity culture

• Public offerings often designed to attract
  individual investors, and sometimes favour the
  employees of companies being privatised, with
  preferential share allocations and other
  incentives
• bonus shares (typically after 1 or 2 years )
• money back guarantee (i. e. in ENI 1 transaction)
• price discount
• Market surveys undertaken before the offering -
  Creating media awareness
• Strong advertising efforts before the offering

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Retail partecipation in the program and promotion
of equity culture
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Retail participation in the program and promotion
of equity culture
No strong underpricing equity culture not
promoted at the expenxe of proceeds
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Significant Participation of Foreign Investors

• Italian privatisations targeted international
  investors, especially at the beginning of the
  process, thus attracting an increasing number of
  them
• Most Italian privatisations were offered to US
  investors (SEC registered or 144a)
• discipline of exposure to worlds largest capital
  market seen as necessary for privatisation
  program's credibility
• Italy is now firmly established as an integral
  part of all European equity portfolios

Rest of the World
7
Europe
Domestic
13
30
UK
23
US
27
Eni 1 Nov. 95
Enel Oct. 99
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Significant Participation of Foreign Investors

• Foreign investors have played an important role,
  particularly at the early stage of the process
• International credibility has been a priority
  target to ensure success of privatisation program

ALLOCATION BREAKDOWN IN ITALIAN PRIVATISATION
OFFERINGS (AVERAGE)
OPV
INSTITUTIONAL ITALY
INTERNATIONAL
1993-1994
40
10
46
1995-1996
46
15
39
52
20
28
1997-1998
64
14
22
1999
21
Significant Participation of Foreign Investors
ITALIAN MA MARKET
Foreign bidders have been an important component
of the MA activity in recent years
Italian bidder
Foreign bidder
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The Italian privatisation program its impact on
capital markets
Increase in stock market capitalization
(1979-2003)
Source Italian stock exchange
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The Italian privatisation program its impact on
capital markets
Source Datastream and Italian stock exchange
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The Italian privatisation program its impact on
capital markets
Source Datastream
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Corporate ownership patterns of privatised firms
PO public offering () Retained by the State in
the case of Enel and Alitalia () In case of
several tranches figures refer to ownership
structure at the time of the last one Source
Bloomberg and the Ministry of the Economy and
Finance of Italy
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Corporate ownership patterns of privatised firms

• The large number of shareholders created by
  public offerings proved to be an unstable pattern
  of corporate ownership
• Share ownership structure in partially and fully
  privatised companies has showed a trend towards
  concentration
• In non-financial industries strategic/
  industrial investors have substantially expanded
  their controlling stake in the companies after
  privatisation
• Stickiness in the ownership of the controlling
  stake
• Corporate ownership of privatised firms has
  shifted away from institutional towards retail
  investors

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Corporate ownership patterns of privatised firms
PO public offering Source Bloomberg and the
Ministry of the Economy and Finance of Italy
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Corporate ownership patterns of privatised firms

• However
• the average share of equity owned by
  institutional investors in newly or partially
  privatised companies (6,6 percent) still higher
  than the corresponding average share for the
  stocks included in the Milan stock exchange MIB
  30 index (5,4 percent).
• in the financial industry ownership structure
  more dispersed relative to that prevailing in
  non-privatised companies
• in the financial sector the controlling stake of
  newly privatised banks fragmented among a larger
  number of industrial investors (manly other
  banks, jointly managing the companies).