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Política e Privatização Ciência Política Aula 6 CGAE FGV-EAESP Kurt von Mettenheim
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Política e Privatização
Ciência PolíticaAula 6
CGAE FGV-EAESPKurt von Mettenheim
Definition: PrivatizationThe process of transferring assets from public
ownership to private ownership, by way of sale of going concerns, or sale of assets.
PO=Public Offering
PS=Private Sale
Structure of Lecture
1) Types of Privatization & Management Challenges (Case Study = DEPFA Bank plc)
2) Political Limits to Privatizations (Paul Pierson: Path Dependence, Increasing Returns, Feedback Loops...)
3) Theories about Politics and Privatization
4) Case Studies/comments: China, Argentina, Eastern Europe & FSU
Hypo Real Estate Shares Slump on Concern About Capital
!!!!FIM DE DEPFA!!!! By Aaron Kirchfeld
Feb. 20 (Bloomberg) -- Hypo Real Estate Holding AG, the German commercial property lender bailed out by the government, slumped the most in three months in Frankfurt trading on concerns about dwindling capital and possible seizure by the state.
The Munich-based company fell 31 cents, or 19 percent, to 1.33 euros, the biggest drop since November. The stock has declined 93 percent in the last 12 months, valuing the company at 281 million euros ($355 million euros).
Germany’s financial regulator BaFin may be forced to shut down Hypo Real Estate as capital levels sink below required regulatory levels, Germany’s Finance Minister Peer Steinbrueck said at a press conference on Feb. 18. Germany this week approved a draft bill allowing it to seize control of the company after providing 102 billion euros in financial aid.
“The company would be bankrupt without the government,” Andreas Plaesier, a Hamburg-based analyst at M.M. Warburg, said in an interview. The company may need another 10 billion euros to solve its “capital problems,” he said.
J. C. Flowers & Co. head J. Christopher Flowers, the largest shareholder at Hypo Real Estate, told the Frankfurter Allgemeine Zeitung in an interview today that he wants about 3 euros a share for a 24 percent stake he controls with investors.
Some investors have been betting the government will offer shareholders a premium to the current stock price, leading to a 47 percent increase on Feb. 18.
“The government will do all it can to defend itself from speculators trying to get higher compensation,” Plaesier said.
German regional newspaper Hannoverschen Allgemeinen Zeitung reported on its Web site that Hypo Real Estate’s situation is “more dramatic than originally known,” claiming the firm needs to continuously refinance 1 trillion euros in credit, without saying where it got the information.
The company said in a separate e-mailed statement that the newspaper “incorrectly interpreted” its derivative positions, which have a “nominal value” of 1 trillion euros and don’t require refinancing in that amount.
To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at [email protected] Last Updated: February 20, 2009 11:55 EST
2) Política e Privatização
Resistência a Privatização em Estados de Bem Estar:
Margaret Thatcher & Ronald Reagan: 1980+Feedback effects of past policy institutions on
interests, ideas, and organization of power in policy community.
unable to privatize (more):
Pierson, Paul. 1994. Dismantling the Welfare State? Reagan, Thatcher, and the Politics of Retrenchment. New York: Cambridge University Press.
Pierson, Paul. 2000. Increasing Returns, Path Dependence, and the Study of Politics. American Political Science Review 94.2 (June): 251-267.
Privatizations in Advanced Economies, US$ mi
Country Deals Revenues Rev/GDP Stock PO/Deals Switzerland 6 7,014.30 0.02 0.54 0.50 Japan 17 187,708.40 0.03 0.15 1.00 Denmark 7 3,533.31 0.02 0.66 0.71 Norway 29 7,979.26 0.05 0.64 0.45 Austria 47 9,597.65 0.04 0.65 0.57 Germany 151 77,752.34 0.03 0.79 0.13 Finland 55 18,404.17 0.11 0.59 0.40 USA 38 12,519.94 0.00 0.97 0.34 Sweden 51 18,970.51 0.07 0.77 0.22 Netherlands 28 18,763.94 0.04 0.59 0.39 Belgium 15 6,675.09 0.02 0.53 0.20 France 97 58,633.64 0.03 0.68 0.55 Singapore 25 3,308.30 0.03 0.54 0.64 Ireland 14 5,811.79 0.06 0.64 0.29 Hong Kong 19 11,187.14 0.07 0.49 0.47 Australia 131 58,054.89 0.13 0.93 0.07 Canada 57 11,439.49 0.02 0.81 0.32 UK 215 133,635.28 0.10 0.91 0.33 Italy 113 98,275.28 0.08 0.63 0.38 Spain 88 48,626.92 0.07 0.65 0.34 New Zealand 42 7,697.39 0.11 0.88 0.10 Israel 36 5,379.36 0.05 0.38 0.72 Greece 37 8,005.71 0.06 0.51 0.49 South Korea 20 9,588.22 0.06 0.16 0.95 Portugal 77 26,691.79 0.21 0.52 0.51 Developed Countries avg. 57 34,209.08 0.06 0.62 0.44
Privatizations Developing Countries, US$
Argentina 77 32,485.16 0.11 0.78 0.17 Uruguay 2 38.08 0.00 0.77 0.00 Chile 24 3,195.35 0.04 0.70 0.38 Malaysia 33 6,622.95 0.06 0.67 0.33 Brazil 76 33,113.27 0.04 0.68 0.22 South Africa 14 2,987.70 0.00 0.59 0.21 Mexico 67 22,055.61 0.06 0.84 0.07 Venezuela 45 11,156.06 0.14 0.82 0.09 Turkey 28 5,636.27 0.03 0.69 0.18 Thailand 24 5,275.78 0.03 0.54 0.63 Peru 66 5,265.56 0.09 0.86 0.05 Colombia 16 4,423.53 0.05 0.55 0.19 Jordan 3 590.46 0.07 0.36 0.00 Ecuador 1 44.76 0.00 0.67 0.00 Egypt 64 2,007.02 0.03 0.37 0.80 Philippines 25 4,935.66 0.06 0.57 0.32 Indonesia 16 7,754.26 0.04 0.34 0.81 Sri Lanka 16 312.83 0.02 0.61 0.06 Zimbabwe 6 71.63 0.01 0.56 0.83 Pakistan 14 2,205.00 0.03 0.71 0.07 India 25 2,283.01 0.00 0.43 0.44 Kenya 14 109.41 0.01 0.56 0.43 Nigeria 20 10,478.17 0.33 0.42 0.95 Less developed Countries avg. 29 7,089.02 0.05 0.61 0.31
Country Deals Revenue Rev/GDP Stock PO/Deals
Golden Shares
Country Company Appoint BoD
Veto M&A
Other veto
Ownership limits
Vote caps
Govt control
Intensity Avg. Intensity
Italy Eni x x x x 4 4.3 Enel x x x x 4 Telecom Italia x x x x 4
Finmeccanica x x x x x 5 UK British Energy x x x x x 5 2.6 Scottish Power x x 2
Scottish & Southern Energy
x x 2
National Grid Group
x x 2
Viridian Group x x 2 Rolls Royce x x x 3
British Aerospace
x x x 3
Baa plc x x x 3 Railtrack Group x 1
Theories: Politics & Privatization
Dinavo (1995): “politics plays the most important role in deciding whether or not to privatize”
Theory: If > growth political support for govt party
Farazmand (2000), Privatizations = political agendas of corporate elites for control of public sphere:
Theory: <equality, <labor, <accountability, <transparency, <environment
Suleiman & Waterbury (1995) privatizations driven by political rationale, not economic grounds alone.
Theory: privatization empower civil society
Mais teorias
Birch and Haar (2000) Set of neoliberal economic reforms: political credibility, external pressure and ideological commitment in Latin America.
Etchemendy’s (2001): Patronage Networks, new and old.
World Bank & IMF: Conditionality Programs include privatization.
Exemplo: “Chicago Boys” Chile
Exemplo: Paulo Leme, Goldman Sachs: Privatize CAIXA to avert Financial Crisis, 2001
PRIVATIZATION AND DEMOCRATIZATION IN CHINA: RETHINKING THE INFLUENCE OF
‘RED CAPITALISTS’ Bruce J. Dickson, APSA paper,2004
Survey of Private Firm Owners in China R2
----------------------------------------------------------------------------Age -.031*** (.011)Gender .447* (.177)Level Of Education .314*** (.086)Enterprise Revenue .000 (.000)Getihu -.005 (.136)Years In Business .063*** (.013)Years In County .021** (.007)Family Income .025 (.034)Communist Youth League .542*** (.151)Constant -2.316*** (.499)
N = 635Chi2 = 86.38 (p = .000)Pseudo R2 = .13 * p < .05; ** p < .01; *** p < .001
Stiglitz & Privatizations in Eastern Europe & Former
Soviet Union
Como Organizar Apoio Político para Privatizações
1) Usar Maioria Parliamentar “Forçar reformas” inércia ‘snowball’ (or boomerang) Thatcher, Yeltsin, Berlusconi, Juppe
2) Aumentar a Base Política (FHC, com PFL…)
3) Dividir para Reinar: Coloca consumidores vs produtores (telecomunicações, transporte, energia)
4) “Enabling Constraints” (WTO, MERCOSUL, EURO, FMI, Banco Mundial, Crise privatizar
See: Boeri, Tito et al (eds). Structural Reforms Without Prejudices. Oxford: Oxford University Press, 2006
1990-1994 vs 1995-2002
1990-1994
1995-2002
1995-2002
1990-1994
Choque para Concessões
Eletric Energy Concessions 6 September 2012 = 10-28% RATE CUT!!!!!!!!!!
http://exame.abril.com.br/mercados/cotacoes-bovespa/indices/IEE
6 September Announcement: >50% share price declines...
Glossary (Private Finance for Public
Sector)
Irish Asset Covered Securities (ACS)Covered securities issued under the Irish Asset Covered Securities Act, which came into
force in December 2001.AssetResource controlled by an enterprise as a result of past events, and from which future
economic benefits are expected to flow to the enterprise.Asset-backed securitiesBonds backed by loans, or accounts receivable originated by banks, credit card
companies, or other providers of credit. Asset-backed securities are often issued by special-purpose entities.
Agency issuesBonds issued by government-sponsored or state-owned agencies. Securities issues by
these agencies are backed by a sovereign government, but not guaranteed since agencies are private entities, usually established to provide low-cost financing. Prominent agency issuers include the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) in the US, the World Bank, or the European Investment Bank.
Asset qualityThe quality of assets exposed to risk asset quality is often expressed by a ratingBenchmarkA bond, frequently the most recent, sizable issue, whose terms set a standard for the
market. The benchmark bond usually has the greatest liquidity, the highest turnover, and is the most frequently quoted.
BondMarket term for debt securities; usually referring to securities with a medium- or long-
term maturity.
Benchmark ProgrammeBond issuance programme comprising benchmark issues (usually large-sized, regular issues).BookbuildingFrequently-used method for determining the price of a securities issue. Prior to the issue, the issuing
house conducts a bookbuilding exercise where it contacts investors and obtains commitments to purchase quantities of securities at a specified price. Having established the demand, the lead manager sets the fixed price for the issue in line with the demand levels that have been established.
CDOAn investment-grade security backed by a pool of bonds, loans and other assets. CDOs do not specialise
in one type of debt, but are often based on non-mortgage loans or bonds. Similar in structure to a collateralised mortgage obligation (CMO) or collateralised bond obligation (CBO), CDOs are unique in that they represent different types of debt and credit risk. In the case of CDOs, these different types of debt are often referred to as 'tranches' or 'slices'. Each slice has a different maturity and risk associated with it. The higher the risk, the more the CDO pays.
Commercial PaperUnsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as
accounts receivable and inventory. Maturities typically range from 2 to 270 days. Commercial Paper is available in a wide range of denominations, can be either discounted or interest-bearing, and usually has a limited or non-existent secondary market. Commercial Paper is usually issued by entities with high credit ratings.
Cover Asset MonitorThe Cover Asset monitor has far-reaching responsibilities for covered bond issues, including the duty of
supervising any contractual undertakings given by the issuer to bondholders to maintain a given level of over-collateralisation.
Credit Default Swap (CDS)Agreement which allows the transfer of third-party credit risk from one party to another. One party in the
swap faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange for regular periodic payments (essentially an insurance premium). If the third party defaults, the party providing insurance will have to purchase the defaulted asset from the insured part, or pay a cash settlement amount. (Note that despite its name, a CDS is essentially an option).
Credit enhancementTechniques used to enhance the credit quality of securities, or issuers of securities, for
example, by way of over-collateralisationConduitSpecial-purpose entity used to issue securities (usually asset-backed securities).Covered securitiesCollateralised debt securities issued to refinance loans secured by charges over property
(mortgage bonds), or loans to public-sector entities (public-sector covered securities). The issue of asset-covered securities is regulated by laws in various countries (see ACS, Pfandbriefe). Issuers of covered securities, as well as the assets used for the cover assets pool, must comply with certain minimum requirements.
Credit derivativeContract between two parties that allows for the use of a derivative instrument to
transfer credit risk from one party to another. The party transferring risk away has to pay a fee to the party that will take the risk.
Credit-linked Note (CLN)Structured security – usually issued through a special purpose vehicle – that is designed
to offer investors par value at maturity unless a referenced credit defaults. In the case of default, the investors receive a recovery rate. Given the higher risk exposure compared to traditional bond issues, CLNs usually offer higher returns.
DebtAmount owed to a person or organisation for funds borrowed. Debt can be represented
by a loan note, bond, mortgage or other form stating repayment terms and, if applicable, interest requirements. These different forms all imply intent to pay back an amount owed by a specific date, which is set forth in the repayment terms.
DepositAmount deposited with a bank or financial services provider as an investment, usually at
money-market rates.
Debt securitiesSecurities representing debt.DerivativeFinancial instrument whose value is based on (“derived” from) the value of an underlying instrument.Financial EngineeringApplication of theoretical finance and computer modelling skills to make pricing, hedging, trading and
portfolio management decisions. Utilising various derivative securities and other methods, financial engineering aims to precisely control the financial risk that an entity takes on. Methods can be employed to take on unlimited risks under certain events, or completely eliminate other risks by utilising combinations of derivatives and other instruments.
HedgePosition established to protect an existing portfolio or planned investments against unfavourable price
changes. Hedging is most often carried out using derivatives.Irish Asset Covered Securities (ACS)Covered securities issued under the Irish Asset Covered Securities Act, which came into force in
December 2001.IssuerEntity offering (or having already offered) securities for sale to investors. Examples include banks,
corporations, investment trusts, and government entities.Letter of CreditCommitment, usually made by a commercial bank, to honour demands for payment of a debt upon
compliance with conditions and/or the occurrence of certain events specified under the terms of the commitment. In municipal financings, bank letters of credit are sometimes used as additional sources of security for issues of municipal notes, Commercial Paper or bonds, with the bank issuing the letter of credit committing to pay principal and interest on the securities in the event that the issuer is unable to do so.
Liquidity facilityLine of credit provided as a source of liquidityMaturityThe date on which a debt becomes due for payment – regularly used in connection with debt securities
(referring to the date or repayment) or derivatives (referring to the date when fulfilment of a forward transaction falls due).
Medium-term notes (MTN)Debt securities typically issued in the form of uncollateralised promissory note loans placed by way of
tap issues, with maturities ranging between 9 months and 40 years. Each individual issue is backed by an MTN programme (which provides the legal framework for all individual issues). Medium-term notes offer maximum flexibility in terms of structure and market timing.
Municipal securitiesGeneral term referring to securities issued by local governmental sub-divisions such as cities, towns,
villages, counties, or special districts, as well as securities issued by states and their political sub-divisions or agencies of states.
Off-balance sheet transactionsTransactions accounted for outside the balance sheet, such as derivatives or asset-backed securities.OriginationThe origination unit of an investment bank is responsible for initiating and underwriting securities issues
and other corporate finance and capital markets transactions.Off-budget entitiesEntities owned and controlled by the government, whose transactions are excluded from the public
budget totals.Over-collateralisationThe cover assets pools of covered securities usually contain excess collateral compared to the covered
liabilities, in order to provide cover for any contingencies.PfandbriefeCovered securities issued under the German Pfandbrief ActPrivate placementSale of securities directly to institutional investors, such as banks, mutual funds, insurance companies,
pension funds, and foundations. Private placements generally do not require an exchange listing.Promissory Note Loan (Schuldscheindarlehen)Loan documented by the borrower's undertaking to pay interest, and repay the loan under agreed-upon
terms. PrivatisationThe process of transferring assets from public ownership to private ownership, by way of sale of going
concerns, or sale of assets.Public-sector covered securitiesCollateralised debt securities issued to refinance loans secured by loans to public-sector entities (public-
sector covered securities).
Public/Private Partnership (PPP)Type of privatisation in which elements of a service previously run solely by the public sector are provided through a
partnership between the government and one or more private sector companies. Unlike a full privatisation scheme, in which the new venture is expected to function like any other private business, the government continues to participate in some way. PPPs are often used for infrastructure projects, and may be supported through exclusive licensing, or usage guarantees.
RatingPublished ranking of a debtor’s or issuer’s credit quality, based on detailed financial analysis by an external credit assessment
institution (rating agency), specifically related to an entity’s ability to meet its debt obligations. Ratings are used by lenders to decide on approval of credit applications, and also to determine the regulatory capital backing required to cover a lender’s exposure.
RepoSee securities repurchase transaction.SecuritisationThe process of aggregating similar instruments, such as loans or mortgages, into a negotiable security.SwapExchange of streams of payments over time according to specified terms. The most common type is an interest rate swap, in
which one party agrees to pay a fixed interest rate in return for receiving a variable rate from another party.Securities repurchase transaction (Repo)Borrowing money by combining a sale of an asset (usually a debt security) with the repurchase of the same asset at a later
time, at a slightly higher price (which reflects the borrowing rate).Special purpose entityEntity established solely in order to accomplish some specific task or tasks. SPEs used for the issue of securities (e.g. asset-
backed securities) are referred to as “conduits”.Structured transactionIssue of securities or other financial transaction involving multiple components, e.g. debt securities (such as medium-term
notes) with embedded derivatives.Syndicated LoanLoan extended by a group (“syndicate”) of banks, rather than a single lender.Tap issueDebt security which is issued in varying amounts and at different times, usually in response to investor demand. The terms of
the bond (issuing conditions, coupon and maturity) remain unchanged, but the tap price can vary according to market conditions.
UnderwritingUnderwriting describes the process where the underwriter (usually an investment bank) acquires a securities issue (thus
assuming the issuer’s placement risk), and subsequently places it in the market.
