More protection needed
Bank Przemysłowo-Handlowy (BPH) is a good case in point and can serve as an example of how, no matter how well-regulated many claim the market is, additional protections for small shareholders are needed.
The story with BPH began last fall when the government opted to sell its 40% stake
in the bank to Bayerische Vereinsbank for zł. 480 a share. From the Treasury Ministry's point of view this was a damn good deal. At a price to book value multiple of 3.5 times it was the highest valuation the government had ever received for its holding in a bank. (Since then the ministry has managed to top that with the sale of 80% of Bank Zachodni to Allied Irish Bank (AIB) at a p/bv multiple of 3.8 times.) This was good news for
taxpayers, who certainly got good value for an asset that they ultimately own.
But in a side act to this deal Vereinsbank also bought 7% of the bank held by the European Bank for Reconstruction and Development (EBRD) for zł. 420 a share. Ordinary shareholders, who had the opportunity to sell shares on the open market for about zł. 220 a share, were left out.
By law, the government can sell its shares for whatever amount it can get and the offer does not have to extend to other shareholders. This is a strange situation that makes the government both a referee and a player as Mark Mobius points out in the Interview on page 12. But in a transition economy that is looking to shed huge amounts of state-owned properties such oddities are sometimes tolerable for a short amount of time. In the EBRD's case, because the amount of shares being sold did not bring Vereinsbank's purchase above 50%, a tender to open to all shareholders did not have to be called. As a result, the Securities Commission saw nothing wrong with the fact that different types of shareholders were treated differently.
Unfortunately, small investors who didn't get preferential treatment would most likely beg to differ. So, too, would anyone who believes in an equitable and fair capital market.
Such sales in effect create two classes of shareholders: large, monied institutional investors who get the best deals and individual shareholders who get screwed. What is especially galling in this case is that small shareholders from other countries probably have given the EBRD through their taxes some of the funds that are now being used against them. This is not what the EBRD should be here for.
Nor should the Securities Commission and the government stand by and allow a two-tiered market to develop. Ultimately individual investors will play an important role in the growth of the market. Allowing such abuses to go unchecked sends a message to them that the game is rigged, and they are better off playing somewhere else.
The story with BPH began last fall when the government opted to sell its 40% stake
in the bank to Bayerische Vereinsbank for zł. 480 a share. From the Treasury Ministry's point of view this was a damn good deal. At a price to book value multiple of 3.5 times it was the highest valuation the government had ever received for its holding in a bank. (Since then the ministry has managed to top that with the sale of 80% of Bank Zachodni to Allied Irish Bank (AIB) at a p/bv multiple of 3.8 times.) This was good news for
taxpayers, who certainly got good value for an asset that they ultimately own.
But in a side act to this deal Vereinsbank also bought 7% of the bank held by the European Bank for Reconstruction and Development (EBRD) for zł. 420 a share. Ordinary shareholders, who had the opportunity to sell shares on the open market for about zł. 220 a share, were left out.
By law, the government can sell its shares for whatever amount it can get and the offer does not have to extend to other shareholders. This is a strange situation that makes the government both a referee and a player as Mark Mobius points out in the Interview on page 12. But in a transition economy that is looking to shed huge amounts of state-owned properties such oddities are sometimes tolerable for a short amount of time. In the EBRD's case, because the amount of shares being sold did not bring Vereinsbank's purchase above 50%, a tender to open to all shareholders did not have to be called. As a result, the Securities Commission saw nothing wrong with the fact that different types of shareholders were treated differently.
Unfortunately, small investors who didn't get preferential treatment would most likely beg to differ. So, too, would anyone who believes in an equitable and fair capital market.
Such sales in effect create two classes of shareholders: large, monied institutional investors who get the best deals and individual shareholders who get screwed. What is especially galling in this case is that small shareholders from other countries probably have given the EBRD through their taxes some of the funds that are now being used against them. This is not what the EBRD should be here for.
Nor should the Securities Commission and the government stand by and allow a two-tiered market to develop. Ultimately individual investors will play an important role in the growth of the market. Allowing such abuses to go unchecked sends a message to them that the game is rigged, and they are better off playing somewhere else.
