Journal of Political Science and International Relations

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Privatization Through IPO as a Tool of Attracting FDI: The Case of Ukraine

Received: 04 November 2017    Accepted: 20 November 2017    Published: 24 December 2017
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Abstract

This article analyses the use Initial Public Offering (IPO) as one of the priority ways of privatization of large state-owned enterprises, carried out in order to attract long-term investment resources and improve the level of corporate governance in Ukraine. Lack of investment resources in Ukraine causes the need of entering foreign capital markets and attraction foreign investors for privatization processes. The insufficient development of institutional conditions in countries with transformational economies is seen as an obstacle to the introduction of an effective regulation system of privatization processes. The article considers the specific to Ukrainian state-owned company’s problems of conducting IPO. Such enterprises do not meet the requirements of listing of leading stock exchanges, and therefore require the assistance of financial intermediaries and international donors in the organization of transparent privatization through the sale of shares in the stock markets. The author analysed the advantages of cooperation of Ukrainian state-owned companies with underwriters under the "firm commitment" scheme and risks in case of receiving services from a financial intermediary under the "best efforts" scheme. The article deals with guarantee mechanisms of support of privatization processes aimed at attracting foreign investments. It is emphasized that provision of additional guarantees will contribute to the inflow of capital. The author proposes a mechanism for the provision of privatization compensatory guarantees to the underwriters by international financial organizations for the successful initial public offering of shares of state-owned companies which are subject to privatization in Ukraine.

DOI 10.11648/j.jpsir.20180101.12
Published in Journal of Political Science and International Relations (Volume 1, Issue 1, March 2018)
Page(s) 12-19
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

State-Owned Enterprise, Privatization, Stock Exchange, Listing, Share, Privatization Compensatory Guarantees

References
[1] Curtis J. Milhaupt, Mariana Pargendler (2017). Governance Challenges of Listed State-Owned Enterprises around the World: National Experiences and a Framework for Reform. ECGI Working Paper Series in Law, 352.
[2] Curtis J. Milhaupt, Wentong Zheng (2016). Why Mixed-Ownership Reforms Cannot Fix China’s State Sector. Paulson Policy Memorandum.
[3] Corporatization and Privatization of the Government (2016). Sovereignty Education and Defense Ministry (SEDM).
[4] Sol Trumbo Vila, Matthijs Peters (2016). The Privatisation Industry in Europe. Transnational Institute, Amsterdam.
[5] Krugman P. (1996). The self-organizing economy. Wiley-Blackwell.
[6] Krugman P. (2010). The new economic geography, now middle-aged. Regional Studies, 45 (1), 1-7.
[7] Shapiro C., Willig R. D. (1990). Economic rationales for the scope of privatization. The Political Economy of the Public Sector Reform and Privatization (Suleiman, E. N., Waterbury, J.), Westview Press, Boulder, CO, pp. 55-87.
[8] Bortolotti B., Faccio M. (2004). Reluctant Privatization. EGGI Working Paper, 4.
[9] Swee-Sum Lam, Ruth Seow-Kuan Tan, Glenn Tsao-Min Wee (2007). Initial Public Offerings of State-Owned Enterprises: An International Study of Policy Risk. Journal of Financial and Quantitative Analysis, 42 (2), 313-337.
[10] Fisman, R. (2001). Estimating the Value of Political Connections. American Economic Review, 91, 1095–1102.
[11] Faccio Mara, Ronald W. Masulis, John J. McConnell (2006). Political Connections and Corporate Bailouts. Journal of Finance, 61, 2597–2635.
[12] Villalonga, B. (2000). Privatization and efficiency: differentiating ownership effects from political, organizational, and dynamic effect. Journal of Economic Behavior & Organization, 42 (1), 43–77.
[13] Wang, X., Xu, L. C. and Zhu, T. (2004). State-owned enterprises going public, The case of China. Economics of Transition, 12, 467-487.
[14] Ukraine: Letter of Intent, Memorandum of Economic and Financial Policies (2017). International Monetary Fund, March 02.
[15] Roadmap “Triage” for the reform of the state-owned enterprises sector. (2017). Ministry of Economic Development and Trade of Ukraine, July 4, 2017.
[16] Brian Olden, Dimitar Radev, Kris Kauffmann, Dag Dette (2016). Ukraine: Technical Assistance Report – Public financial management overview. IMF Country Report, 16/30.
[17] Report on the work of the State Property Fund of Ukraine in 2016 (2016). The State Property Fund of Ukraine.
[18] Statistical data. The State Property Fund in Ukraine.
[19] State Statistics Service of Ukraine.
[20] The Law of Ukraine On Privatization of State Property (1992). Verkhovna Rada of Ukraine, 24, 348.
[21] OECD (2016). Broadening the Ownership of State-Owned Enterprises: A Comparison of Governance Practices. OECD Publishing, Paris.
[22] IPO Watch Europe 2015. (2016). PricewaterhouseCoopers LLP Outlook.
[23] IPO Watch Europe 2016. (2017). PricewaterhouseCoopers LLP Outlook.
Author Information
  • Department of Macroeconomic Regulation & International Economic Relations, Academy of Financial Management, Kyiv, Ukraine

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    Kornieieva Iuliia. (2017). Privatization Through IPO as a Tool of Attracting FDI: The Case of Ukraine. Journal of Political Science and International Relations, 1(1), 12-19. https://doi.org/10.11648/j.jpsir.20180101.12

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    Kornieieva Iuliia. Privatization Through IPO as a Tool of Attracting FDI: The Case of Ukraine. J. Polit. Sci. Int. Relat. 2017, 1(1), 12-19. doi: 10.11648/j.jpsir.20180101.12

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    AMA Style

    Kornieieva Iuliia. Privatization Through IPO as a Tool of Attracting FDI: The Case of Ukraine. J Polit Sci Int Relat. 2017;1(1):12-19. doi: 10.11648/j.jpsir.20180101.12

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  • @article{10.11648/j.jpsir.20180101.12,
      author = {Kornieieva Iuliia},
      title = {Privatization Through IPO as a Tool of Attracting FDI: The Case of Ukraine},
      journal = {Journal of Political Science and International Relations},
      volume = {1},
      number = {1},
      pages = {12-19},
      doi = {10.11648/j.jpsir.20180101.12},
      url = {https://doi.org/10.11648/j.jpsir.20180101.12},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.jpsir.20180101.12},
      abstract = {This article analyses the use Initial Public Offering (IPO) as one of the priority ways of privatization of large state-owned enterprises, carried out in order to attract long-term investment resources and improve the level of corporate governance in Ukraine. Lack of investment resources in Ukraine causes the need of entering foreign capital markets and attraction foreign investors for privatization processes. The insufficient development of institutional conditions in countries with transformational economies is seen as an obstacle to the introduction of an effective regulation system of privatization processes. The article considers the specific to Ukrainian state-owned company’s problems of conducting IPO. Such enterprises do not meet the requirements of listing of leading stock exchanges, and therefore require the assistance of financial intermediaries and international donors in the organization of transparent privatization through the sale of shares in the stock markets. The author analysed the advantages of cooperation of Ukrainian state-owned companies with underwriters under the "firm commitment" scheme and risks in case of receiving services from a financial intermediary under the "best efforts" scheme. The article deals with guarantee mechanisms of support of privatization processes aimed at attracting foreign investments. It is emphasized that provision of additional guarantees will contribute to the inflow of capital. The author proposes a mechanism for the provision of privatization compensatory guarantees to the underwriters by international financial organizations for the successful initial public offering of shares of state-owned companies which are subject to privatization in Ukraine.},
     year = {2017}
    }
    

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