Comment: why Uzbekistan needs UzAssets investment company and how it should work
Establishing the investment company can be an important step in accelerating the privatization process in order to reduce the state share in the economy, says international expert Doniyor Islamov.
CEO of the international investment and research consulting company RB Asia.
In accordance with the decision of the Cabinet of Ministers, the investment company UzAssets to be established in Uzbekistan.
This government decision can be an important step in accelerating the privatization process in order to reduce the share of state participation in the economy.
It is necessary to take into account that the process of realization of the share in the company is complex and has quite many pitfalls. If the process is mismanaged, the transaction may take several years or not take place at all.
Based on my many years of international experience in the pre-investment preparation of companies, as well as the support of transactions to attract investments and the sale of shares, we can distinguish six stages of work to be implemented by the UzAssets team:
1. Analysis of the current situation of companies.
At this stage, it is necessary to conduct a comprehensive analysis of companies in terms of financial and operational indicators, corporate governance, identify strengths and weaknesses and identify key risks.
2. Define a privatization strategy.
For each company, it is necessary to clearly determine which share will be privatized, by which method (selling the share on the stock exchange to a wide range of investors or selling a block of shares to one investor), who will be the target investor - a strategic investor or a financial one.
3. Pre-investment preparation.
Based on the phases 1-2 work done, it will be necessary to begin activities on the pre-investment preparation of companies. The main goal is to make the company attractive on the one hand and reduce risks on the other, for the target investor.
Also at this stage it is important to bring corporate governance in accordance with international standards, prepare materials for investors and assess business value.
4. Marketing companies.
If it is planned to sell a block of shares to one large investor, at this stage initial negotiations are conducted with investors from the long-list and those who have shown interest (short-list) are determined.
5. Negotiations with investors and closing the transaction.
Based on the results of negotiations with interested investors, the basic terms of the transaction are signed (Term sheet), where the investor first offers the price and terms of the transaction. Then his team and consultants begin a comprehensive Due Diligence of the company. Negative Due Diligence results can lead to either disruption of the transaction or a decrease in the value of the transaction.
6. Closing the transaction.
Closing a transaction is the process of preparing and signing legally binding documents. Usually, legal consultants are involved in this part from both sides.
In the international practice, legally binding documents are often signed in accordance with English law, as it guarantees higher security for the parties to the transaction and also allows to use the mechanisms that can not be used in the national legislation.
Factors Affecting Company Success
First of all, the most important thing is to gather a team of investment bankers with significant experience in the sale of shares and listing companies on the stock exchange. At the same time, the main remuneration of the team should be in accordance with successfully closed transactions, as well as other KPIs.
Secondly, each company needs to attract investment advisors with the access to international investors. They need to participate from the very beginning of the process of preparing for privatization.
The services of investment advisors are expensive (mainly a percentage of the transaction amount), but they pay off at times, as the consultants will not only be able to help effectively privatize the stake, but they will do it at a higher estimate of the value of the business.
Thirdly, substantial shares in large companies should not be sold on the E-auksion platform in any case, as this, on the one hand, is ineffective, on the other hand, does not match to the process that international investors are used to. The platform is more suitable for the sale of assets up to USD $1 million.
Fourth, it is necessary to actively interact with international financial institutions, such as EBRD, ADB, IFC and others, as these organizations can both help in the privatization process and act as investors.
Fifth, ensuring the independence of the investment company in decision making. In other words, only the objective factors should influence the process of choosing an investor with whom the transaction will be made.
This article was originally published on spot.uz.