PRIVATISATION:
THE SINGAPORE PERSPECTIVE
Yuen Teen Mak, PhD, CA
Coordinator, Accounting and
Corporate Governance
Research Group,
Associate Professor,
Department of Finance and Accounting,
National University of Singapore
Privatisation and Capital Market Development in Asia
OUTLINE
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Overview of privatisation
Reasons for privatisation
Modes of privatisation
Retention of government ownership in privatised
enterprises
• Performance of privatised enterprises
• Future of privatisation
Privatisation and Capital Market Development in Asia
OVERVIEW OF PRIVATISATION IN SINGAPORE
• Privatisation program was formally announced in
March 1985
• Public Sector Divestment Committee (PSDC)
formed in January 1986 and released its report in
February 1987
Privatisation and Capital Market Development in Asia
OVERVIEW OF PRIVATISATION IN SINGAPORE
Recommendations of Public Sector
Divestment Committee
• The PSDC examined 99 GLCs and recommended
15 for listing, 9 for further privatisation, and 17
for total privatisation. It also recommended that 4
statutory boards be studied for privatisation.
Privatisation and Capital Market Development in Asia
OVERVIEW OF PRIVATISATION IN SINGAPORE
• 52 GLCs not recommended for privatisation
were those with foreign government
participation, single-project companies,
companies which have a social rather than
commercial mission, and those which were
unprofitable or whose future is uncertain
• 6 GLCs were recommended for further study
for possible privatisation (defence-related)
Privatisation and Capital Market Development in Asia
OVERVIEW OF PRIVATISATION IN SINGAPORE
• PSDC envisaged a 10-year period for implementing
its recommendations on privatisation so that the
market can absorb the shares
• At start of privatisation program, most GLCs and
statutory boards were already profitable
Privatisation and Capital Market Development in Asia
OVERVIEW OF PRIVATISATION IN SINGAPORE
Statistics
• As at April 2000, GLCs controlled by Temasek
Holdings account for about 25% of stock
market capitalisation
• The 3 largest listed Singapore companies by
market capitalisation are GLCs; the top 5
companies by turnover and the top 4 by total
assets (excluding banks) are GLCs
Privatisation and Capital Market Development in Asia
OVERVIEW OF PRIVATISATION IN SINGAPORE
• Two of the five listed banks, including the largest,
are GLCs
• Between 1985-1996, there were 16 newly-listed
GLCs and 15 further sale of shares for alreadylisted GLCs
• Few new listings or major divestment of shares of
GLCS since 1993
Privatisation and Capital Market Development in Asia
OVERVIEW OF PRIVATISATION IN SINGAPORE
Privatisation of major listed GLCs
GLC
% ownership
% ownership
before divestment after divestment
SIA
77%
56.3%
SingTel
100%
78.2%
NOL
62%
32.6%
Keppel Corp 58.5%
31.7%
SNP Corp
100%
49.0%
Privatisation and Capital Market Development in Asia
REASONS FOR PRIVATISATION
• To withdraw from commercial activities which no
longer need to be undertaken by the public sector
• To add breadth and depth to the Singapore stock
market by the flotation of GLCs and statutory
boards and through secondary distribution of
Government-owned shares; and
Privatisation and Capital Market Development in Asia
REASONS FOR PRIVATISATION
• To avoid competition with the private sector
• Raising cash through sale of state
enterprises, getting rid of poorly managed
state enterprises, and freeing state
enterprises from political interference so that
they can function as commercial entities were
not seen to be important reasons
Source: Report of the Public Sector Divestment Committee
Privatisation and Capital Market Development in Asia
MODES OF PRIVATISATION OF OWNERSHIP
• Capital market
• Direct sale
- considered when other objectives are seen as
important, e.g., sale of 100% of POSBANK (a
statutory board) to DBS, and proposed merger of
SMRT and TIBS
Privatisation and Capital Market Development in Asia
MODES OF PRIVATISATION OF OWNERSHIP
• Often only partial privatisation (with
government remaining as majority or
controlling shareholder)
• However, some smaller GLCs have been
completely privatised
Privatisation and Capital Market Development in Asia
MODES OF PRIVATISATION OF OWNERSHIP
• Privatisation through capital market with
participation of both retail and institutional
(including foreign) investors is generally
favoured
– recent privatisation through capital market usually
offered only 10-20% of shares to local retail
investors
Privatisation and Capital Market Development in Asia
MODES OF PRIVATISATION OF OWNERSHIP
“Unless there are special reasons such as the management
wanting to take the business over, the original promoters
wanting to keep out new and unfamiliar partners, or the
parcel of shares being too small, the mode should be
random allocation through listing or secondary offer to the
public”.
Source: Report of the Public Sector Divestment Committee
Privatisation and Capital Market Development in Asia
RETENTION OF GOVERNMENT OWNERSHIP
Reasons for:
• If it isn’t broken, why fix it?
• Concerns about succession
• Government does not need the money
• Market may not be able to absorb large share
issues
Privatisation and Capital Market Development in Asia
RETENTION OF GOVERNMENT OWNERSHIP
Arguments against:
• Perceived interference/control by the government
• Questions about ability of GLCs to compete in the
global economy
• Unfair competition against private sector and
stifling of entrepreneurship
Privatisation and Capital Market Development in Asia
PERFORMANCE OF PRIVATISED GLCS
• For 16 new listings of GLCs between 1985 to
1996, average underpricing was 57%
compared to 47% for non-GLCs (based on
market and industry-adjusted returns), but
difference is not significant
Source: Tan, R.S.K., Yeo, G.H.H. and Low, Y.Y.Y., “The Initial and Long-Run
Financial Performance of Privatized Firms in Singapore”, NUS Working
Paper.
Privatisation and Capital Market Development in Asia
PERFORMANCE OF PRIVATISED GLCS
• For 26 newly-listed and already-listed GLCs
(further privatisation), the privatised GLCs
outperformed non-GLCs, the market and the
industry indices on after-market share price
performance (for the 60 months following
divestment)
Privatisation and Capital Market Development in Asia
PERFORMANCE OF PRIVATISED GLCS
• Based on profit margin and return on assets
measures, the operating performance of privatised
GLCs improved significantly after privatisation.
Privatisation and Capital Market Development in Asia
FUTURE OF PRIVATISATION IN SINGAPORE
• Government has expressed intention to
further divest but has concerns about timing wants to ensure the right price and that the
market is able to absorb the privatised shares
Privatisation and Capital Market Development in Asia
FUTURE OF PRIVATISATION IN SINGAPORE
– e.g., SMRT privatisation delayed because of weak
market conditions
– “While we agree that times have changed and
there are no compelling reasons for the
Government to hold controlling stakes in the GLCs,
we cannot divest our stakes in the GLCs
overnight.”
(Temasek Holdings, ST, May 5. 2000)
Privatisation and Capital Market Development in Asia
FUTURE OF PRIVATISATION IN SINGAPORE
Major GLCs (100% government-owned)
expected to be privatised through
capital market in the near future:
• Singapore MRT (rail)
• Singapore Power (utility)
• PSA Corporation (port)
Privatisation and Capital Market Development in Asia