An A to Z of an IPO
M J Hutchinson
Elvet Associates Pty Ltd
Australia
©Elvet Associates 2000
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
2
An A to Z of Privatisation
• A is for Assets
• B is for broker
……
• G is for Greenshoe
……
• I is for indemnity…
• J is for jump ball
……
• L is for liability
……
• T is for taxation…
• Z is for zero coupon
See slide 16…
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
3
When the reports are written
and the deal must be done...
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The privatisation decision is taken
The sectoral restructure is done
Regulation is in place
An IPO is to be the process
– it has only just begun…
• and the devil is in the detail
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
4
We need political
commitment
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Permission to proceed
Agreement to the objectives
Promotion of the process
Endorsement of progress
Ownership of the outcome
– But not “politicisation” of the deal
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
5
Plan before acting
Process Governance
• Objectives
• Accountability
• Plan & timetable
Elvet Associates Pty Ltd
Australia
• Process control
• Execution
• Review
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
6
Objectives
• Financial
– eg proceeds
• Structural
• Political
– Domestic equity market
– Retail investors
• Commercial
– Gearing; credit rating
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
7
Accountability
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Government standards
Probity
Integrity
Commercial prudence
– Decide who is to be accountable for what,
before appointing advisers
• have them pitch on that basis
• spell it out in detailed contract form pre-pitch
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
8
Plan and timetable
• Make it up as you go along?
• Leave it all to the JGCs?
NO!
• Firm clear plan
– Kept under continual revision
– Keep multiple options open
• For longer than the JGCs wish!
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
9
Control or Manage
• Management
– Company advisers?
• Can be problematic
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Competitors
Unions
Offer size
Timing
Elvet Associates Pty Ltd
Australia
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Political opposition
Litigation
Advisers
Process
Quality
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
10
Execution
Enterprise restructure
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Board
Management
Balance sheet
Accounting/write off
Environmental
records/risks
• Commercial
agreements
Elvet Associates Pty Ltd
Australia
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Legal compliance
Debt covenants?
Tax
Dividend policies
pensions
Residual interests and
rights
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
11
Execution
Advisers
• Small syndicates
– Independent adviser in support
• Settle scope and contract terms in
selection process
– before starting work
– Appoint lawyers first!
• Settle the accountabilities up front
• Align rewards and incentives with
accountabilities and objectives
– Challenge “customary international practice”
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
12
Execution
• Offer structure
– Foreign listings/
limits
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Market research
Advertising
Retail offer
Employee offer
Elvet Associates Pty Ltd
Australia
• Forms of equity
• Offer documents
– Due diligence
• A legal defence
– Sign offs?
• Also a wider risk
management
technique
• Logistics
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
13
Execution
• Premarketing
– Analysts
– Gun jumping
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Initial pricing
Roadshow
Bookbuild
Final pricing
Allocation
– Conflict of interest
Elvet Associates Pty Ltd
Australia
• Settlement
– Exchange rate risk
• Designations
• Listings
• Stabilisation
– Greenshoe
– Naked short
– Share buyback
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
14
Review
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Aftermarket
Objectives
Cost effectiveness
Public audit & inquiry
Commercial progress
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
15
An A to Z of Privatisation
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A
B
C
D
E
F
G
H
I
J
K
L
M
Assets; Allocation
Banker; Broker
Capital; Cash
Due diligence; Dividend
Equity
Franchise; Fees
Greenshoe; Gearing
Handover;Hedge
Indemnity;
Jump ball
KKN
Leverage; Liability
Management;Merchant
bank
Elvet Associates Pty Ltd
Australia
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N
O
P
Q
R
S
T
U
V
W
X
Y
Z
Naked short; NYSE
Offer document; Options
Prospectus; Proposal
Qualified opinion
Risk; Roadshow
Settlement; Shares
Trade sale; Tender
Underwriter; Underwater
Voting shares
Weighting; Wall Street
eX dividend; eXchange
Yield
Zero coupon
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
16
Elvet Associates Pty Ltd
•
•
Strategic advice to industry
•
and government
•
Regulated industries
– Communications
– Transport
– Infrastructure
•
Privatization management
– Public share offers
– Strategic partnerships
– Outsourcing
•
State-owned enterprises
– Governance
– Reform
– Structure
Elvet Associates Pty Ltd
Australia
Public policy for industry
Integrity, probity and
accountability
• > 35 privatisations
– >A$40 billion
• International experience
– UK, France, Australia,
Turkey, Malawi, Kenya,
Philippines, Indonesia and
Malaysia
• Industry regulation
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
17
Elvet Associates Pty Ltd
23 Elimatta Street
Reid
ACT 2612
Australia
Tel +61 2 6247 9480
Fax + 61 2 6230 1769
e-mail mjhutch@ozemail.com.au
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
18
Elvet Associates Pty Ltd
Australia
APEC-OECD Joint meeting on privatisation
Bali, Indonesia 11-12 May 2000
19