Public auctions –a hazardous game. Economic analysis by Info-Prim Neo

The Government’s attempt to gain hundreds of millions of lei from the privatization of public patrimony seems lamentable as the small holdings in companies or the shares in economically inefficient companies are not in demand. Many of these companies just mark their presence on the Moldova Stock Exchange. A new auction will take place late in September. The state will sell its holdings in 57 companies. The Ministry of Economy and Trade hopes to obtain over 1 billion lei (104 million USD) from the sales. It is the largest value of the public patrimony ever auctioned on the Moldova Stock Exchange. The state’s ambitions seem founded. The companies put up for sale are attractive as the state holdings in them are large and they are profitable. The list is headed by the Chisinau-based Central Department Store Unic in which the state owns 85.45% of shares, one of the largest shoe factories in Moldova, Zorile (60.26% of shares), the carpet factory Floare-Carpet (59.49%), the glass factory Glass Container Company (31.4%), five holdings of 4.204% each in EuroCreditBank. Sure that these companies will be in demand, the Public Property Agency raised the prices of the companies considered more attractive. Several months ago, the announced selling price of the holding in Unic Store was 300 million lei. Now it is 306.8 million lei. The holding in Zorile will be put up for sale for 86 million lei, as against 44 million lei earlier, while the holding in Floare-Carpet – for 202.8 million lei, a price that is over 2.5 times higher than the initial one. The state will also auction five tobacco companies, whose shares have been cheapened by 10-20%. The state announced an initial price of 4,500 lei for a share with a nominal value of 115 lei in Unic Store, of 56.01 lei for a share with a nominal value of 6.0 lei in Floare-Carpet, of 65.01 lei for a share with a nominal value of 18.0 lei in Zorile. At the last auction this year, the shares in Zorile shoe factory were sold for 9 lei apiece. This year, the Public Property Agency held four rounds of auctions on the Stock Exchange, an investment contest and three commercial contests. State holdings in over 60 companies have been sold at these events for over 300 million lei overall. Some of the holdings were sold for a price that was twice or three times higher than the initial price. This is a proof that there is money on the capital market and the necessary sums are found when attractive offers appear, while the competition makes these companies more important. The public auctions for many companies turn into a hazardous game. Even if the authorities think that the auctioned companies will find their owners, as the private sector in Moldova is developing and the demand for assets is high, only each third holding is bought. As a rule, the most attractive holdings are sold on the first two auction days. During the next days, the state holdings only mark their presence on the stock market. The state sold holdings in 38 companies of the 121 owned by it at outcry auctions. The proceeds are also lower than projected, though the sum that the state planned to earn from the sale and privatization of public property in 2008 was exceeded. The sum of 464.4 million lei stipulated in the draft budget law for 2009 is underestimated. The given amount can be obtained by selling three-four large companies. Most of the companies that will be put up for sale in September had been auctioned earlier, but not sold. The auctions to sell public property show that given that the information is made public long before the auctions, the buyers come to the Stock Exchange “fully prepared”. The buyers usually bid for major holdings or shares in profitable companies or companies that work in areas with good development prospects. Most probable, many of the companies that will be auctioned in September will not be sold. The list includes many companies in which the state owns small holdings (from 0.066% to 8.683% of the shares). The auctions with public patrimony held during the past two years show that the small state holdings are not in demand. Stock brokers say that the situation will remain unchanged. These holdings are not an attractive investment and should not be sold at auctions on the Stock Exchange given the trends on the capital market. Experts consider that the state should privatize the small holdings or the shares owned in not very attractive companies in other ways. The sale of state-owned holdings on the Stock Exchange forms part of a public property privatization program that was recently updated by the Government. The program includes 282 companies. Most likely, more than a half of them would be sold at rerun auctions and when they are marked down. Meanwhile, the long-expected auctioning of the Chisinau Tobacco Complex, which was sold in 1995 amid great scandal, has been postponed.