Privatisation through IPOs

The decision by the government to use the stock exchanges to privatise state-owned enterprises is one that deserves to be welcomed. President Zardari indicated this the other day in a statement that he made on the subject saying that government organisations could be sold off using initial public offerings (IPOs) via the country's bourses. If this plan is realised, it will turn out to be an important one in helping to develop avenues for small investors in Pakistan. State-owned enterprises are some of the largest companies in Pakistan. And while most of them make losses, they are all likely to attract substantial investor interest. If the administration follows through on this suggestion, then it will mean that foreign investors will have to channel their investment through the local exchanges.

Any foreign investment banks involved in underwriting the transactions will have to increase their presence in Pakistan, or create a presence from scratch. Local investment banks will also have a chance to burnish their credentials and add revenues. There may even be room for healthy collaboration between local and foreign banks, as was the case during the heyday of privatisation during the Musharraf era. So in addition to getting troublesome assets off the government’s books, the government would promote Pakistan as a destination for global financial institutions to invest.

There is a second, and perhaps more significant, advantage to privatisation through KSE listings. Local investors will have the opportunity to take advantage of initial public offerings that tend to be highly profitable. This will promote the idea of capital markets as an investment avenue for ordinary Pakistanis while also ensure the most lucrative returns are not restricted to highly connected insiders. A more transparent, functioning capital market that has the confidence of the public is in the national interest and this policy would go a long way towards ensuring that. In short, we welcome the president’s suggestion and hope that the administration will make it official policy. Pakistan’s economy needs a financial system that can help it grow.

Published in The Express Tribune, November 24^th, 2010.