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Política e Privatização Ciência Política Aula 6 CGAE FGV-EAESP Kurt von Mettenheim Definition: Privatization The 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 Viability of Privatization Challenges of Privatization for Management Privatization Planning Case Study: DEPFA Bank plc DEPFA Bank plc: Budget Finance Infrastructure Finance CPS Securitization & Ratings Advisory DEPFA Euro-Global Portfolio Long-Term Finance 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. British Privatizations Continental Europe Privatizations North American Privatizations Latin American Privatizations Sub-Saharan Africa Privatizations Middle East – North Africa Privatizations Asia Privatizations Eastern Europe & Former Soviet Union Privatizations Privatizations in Advanced Economies, US$ mi Country Switzerland Japan Denmark Norway Austria Germany Finland USA Sweden Netherlands Belgium France Singapore Ireland Hong Kong Australia Canada UK Italy Spain New Zealand Israel Greece South Korea Portugal Developed Countries avg. Deals 6 17 7 29 47 151 55 38 51 28 15 97 25 14 19 131 57 215 113 88 42 36 37 20 77 57 Revenues Rev/GDP Stock PO/Deals 7,014.30 0.02 0.54 0.50 187,708.40 0.03 0.15 1.00 3,533.31 0.02 0.66 0.71 7,979.26 0.05 0.64 0.45 9,597.65 0.04 0.65 0.57 77,752.34 0.03 0.79 0.13 18,404.17 0.11 0.59 0.40 12,519.94 0.00 0.97 0.34 18,970.51 0.07 0.77 0.22 18,763.94 0.04 0.59 0.39 6,675.09 0.02 0.53 0.20 58,633.64 0.03 0.68 0.55 3,308.30 0.03 0.54 0.64 5,811.79 0.06 0.64 0.29 11,187.14 0.07 0.49 0.47 58,054.89 0.13 0.93 0.07 11,439.49 0.02 0.81 0.32 133,635.28 0.10 0.91 0.33 98,275.28 0.08 0.63 0.38 48,626.92 0.07 0.65 0.34 7,697.39 0.11 0.88 0.10 5,379.36 0.05 0.38 0.72 8,005.71 0.06 0.51 0.49 9,588.22 0.06 0.16 0.95 26,691.79 0.21 0.52 0.51 34,209.08 0.06 0.62 0.44 Privatizations Developing Countries, US$ Country Argentina Uruguay Chile Malaysia Brazil South Africa Mexico Venezuela Turkey Thailand Peru Colombia Jordan Ecuador Egypt Philippines Indonesia Sri Lanka Zimbabwe Pakistan India Kenya Nigeria Less developed Countries avg. Deals 77 2 24 33 76 14 67 45 28 24 66 16 3 1 64 25 16 16 6 14 25 14 20 29 Revenue Rev/GDP Stock PO/Deals 32,485.16 38.08 3,195.35 6,622.95 33,113.27 2,987.70 22,055.61 11,156.06 5,636.27 5,275.78 5,265.56 4,423.53 590.46 44.76 2,007.02 4,935.66 7,754.26 312.83 71.63 2,205.00 2,283.01 109.41 10,478.17 7,089.02 0.11 0.00 0.04 0.06 0.04 0.00 0.06 0.14 0.03 0.03 0.09 0.05 0.07 0.00 0.03 0.06 0.04 0.02 0.01 0.03 0.00 0.01 0.33 0.05 0.78 0.77 0.70 0.67 0.68 0.59 0.84 0.82 0.69 0.54 0.86 0.55 0.36 0.67 0.37 0.57 0.34 0.61 0.56 0.71 0.43 0.56 0.42 0.61 0.17 0.00 0.38 0.33 0.22 0.21 0.07 0.09 0.18 0.63 0.05 0.19 0.00 0.00 0.80 0.32 0.81 0.06 0.83 0.07 0.44 0.43 0.95 0.31 Golden Shares Country Company Italy UK Appoint Veto Other Ownership Vote Govt Avg. Intensity BoD M&A veto limits caps control Intensity Eni x Enel x Telecom Italia x Finmeccanica x British Energy x Scottish Power Scottish & Southern Energy National Grid Group Viridian Group Rolls Royce British Aerospace Baa plc Railtrack Group x x x x x x x x x x x x x x x x x x x 4 4 4 5 5 2 x x 2 x x 2 x x x x x 2 3 x x x 3 x x x x 3 1 4.3 2.6 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 = 635 Chi2 = 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 Privatização no Brasil 1990-1994 vs 1995-2002 1990-1994 1990-1994 1995-2002 1995-2002 Das Privatizações de FHC às Concessões de Dilma Choque para Concessões Eletric Energy Concessions 6 September 2012 = 10-28% RATE CUT!!!!!!!!!! 6 September Announcement: >50% share price declines... http://exame.abril.com.br/mercados/cotacoes-bovespa/indices/IEE 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. Asset Resource 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 securities Bonds 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 issues Bonds 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 quality The quality of assets exposed to risk asset quality is often expressed by a rating Benchmark A 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. Bond Market term for debt securities; usually referring to securities with a medium- or long-term maturity. Benchmark Programme Bond issuance programme comprising benchmark issues (usually large-sized, regular issues). Bookbuilding Frequently-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. CDO An 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 Paper Unsecured 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 Monitor The 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 enhancement Techniques used to enhance the credit quality of securities, or issuers of securities, for example, by way of over-collateralisation Conduit Special-purpose entity used to issue securities (usually asset-backed securities). Covered securities Collateralised 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 assetcovered 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 derivative Contract 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. Debt Amount 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. Deposit Amount deposited with a bank or financial services provider as an investment, usually at moneymarket rates. Debt securities Securities representing debt. Derivative Financial instrument whose value is based on (“derived” from) the value of an underlying instrument. Financial Engineering Application 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. Hedge Position 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. Issuer Entity offering (or having already offered) securities for sale to investors. Examples include banks, corporations, investment trusts, and government entities. Letter of Credit Commitment, 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 facility Line of credit provided as a source of liquidity Maturity The 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 securities General 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 transactions Transactions accounted for outside the balance sheet, such as derivatives or asset-backed securities. Origination The origination unit of an investment bank is responsible for initiating and underwriting securities issues and other corporate finance and capital markets transactions. Off-budget entities Entities owned and controlled by the government, whose transactions are excluded from the public budget totals. Over-collateralisation The cover assets pools of covered securities usually contain excess collateral compared to the covered liabilities, in order to provide cover for any contingencies. Pfandbriefe Covered securities issued under the German Pfandbrief Act Private placement Sale 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. Privatisation The process of transferring assets from public ownership to private ownership, by way of sale of going concerns, or sale of assets. Public-sector covered securities Collateralised 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. Rating Published 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. Repo See securities repurchase transaction. Securitisation The process of aggregating similar instruments, such as loans or mortgages, into a negotiable security. Swap Exchange 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 entity Entity 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 transaction Issue of securities or other financial transaction involving multiple components, e.g. debt securities (such as medium-term notes) with embedded derivatives. Syndicated Loan Loan extended by a group (“syndicate”) of banks, rather than a single lender. Tap issue Debt 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. Underwriting Underwriting 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. Desafio