PRIVATISATION, SPEs etc.

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PRIVATISATION, SPEs etc.

• Jean-Pierre DUPUIS
• OECD Working Party on National Accounts (Paris,
  12 October 2005

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PRIVATISATION

• Definition
• Giving up of control by the general government
  over a public corporation by the disposal of
  shares and other equity to private units (same
  basic definition in the EMGDD and GFSM 2001).
• The typical case of privatisation is a sale of
  assets, and at first the sale of shares and other
  equity.

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PRIVATISATION

• The Sale of assets in the SNA1993
• General principle this transaction entails a
  restructuring / reshuffling the assets in the
  balance sheets of the units involved (neutral on
  net worth).
• The sale of assets generates no flow of income
  (in favour of the government)
• The cost of using the service of a financial
  intermediary for achieving the sale is to be
  recorded as intermediate consumption

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PRIVATISATION

• The sale of financial assets (shares and other
  equity)
• Direct sale of financial assets
• The sale by the government of shares and other
  equity in a public enterprise is a financial
  transaction (in F.5, with a counterpart flow in
  F.2)
• The associated cost of purchasing the service of
  a financial intermediary is recorded as
  intermediate consumption (P.2)

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PRIVATISATION

• Indirect sale of financial assets
• Case where the sale of shares and other equity
  in a subsidiary is made by a public holding
  corporation or any kind of public unit
• The sale itself is a financial transaction (F.5,
  counterpart in F.2)
• The payment of all or part of the sale proceeds
  to the government is a financial transaction
  (F.2, counterpart in F.5)

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PRIVATISATION

• The sale of non-financial assets (buildings, land
  etc.)
• Direct sale of non-financial assets
• The sale of a non-financial asset is a
  transaction in goods and services (or in
  products) recorded in the capital account
• As P.5 if it is a produced asset (counterpart in
  F.2)
• As K.2 if it is a non-produced asset

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PRIVATISATION

• Indirect sale of non-financial asset
• Case where the sale of a non-financial asset is
  made by a public holding corporation or any
  kind of public unit
• The sale itself is a transaction in goods and
  services (P.5 or K.2)
• The payment of all or part of the sale proceeds
  to the government is a financial transaction
  (F.2, with a counterpart in F.5).
• Rationale liquidation of assets, reflected in
  the equity.

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PRIVATISATION

• Special case of a  restructuring agency 
• A public holding corporation (or any kind of
  public unit) sales assets but does not give the
  sale proceeds to the government the funds are
  kept by the  restructuring agency  to inject
  capital in other enterprises in any possible way
  (grants, loans etc.)

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PRIVATISATION

• Special case of a  restructuring agency 
• Two main possibilities can be envisaged
• 1. The unit is a real holding corporation
  directing a group of subsidiaries, and
  restructuring corporations is a minor part of its
  activity
• Solution to reroute the transactions made on
  behalf of the government through the government
  itself (SNA 3.24 or 3.31  recognising the
  principal party to a transaction )
• 2. The main function of the unit is to reorganise
  the public sector, redistributing income and
  wealth on behalf of GG
• Solution to classify the unit in the government
  sector

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NATIONALISATION

• Definition
• nationalisation means the taking of control by
  the government over assets and over a
  corporation, by acquiring the majority or by
  acquiring the whole equity in the corporation.
• Two forms of nationalisation are observed.

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NATIONALISATION

• 1. Nationalisation by confiscation
• This is not recorded as a transaction, made by
  mutual agreement, but as an other flow
• K.8 uncompensated seizure (in OCV account)
• 2. Nationalisation by purchase of shares
• There is a payment, in a legal context that
  normally guarantees some mutual agreement this
  is a financial transaction (F.5, counterpart in
  F.2)
• NB A combination of both treatments is possible
  if the price is too low (SNA, 12.39)

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Restructuring agencies

• Context government rescues some banks in order
  to prevent a collapse of the financial system.
  Case of defeasance of bad assets. Set-up of
  special units, sometimes called  bad banks .
• Issue how and when to record losses that will
  affect government expenditure? Government
  guarantees are often involved.
• Sectorisation is the created entity a financial
  corporation (putting itself at risk) or a
  government unit (acting on behalf of government)?

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Restructuring agencies

• Possible options of recording
• A the restructuring unit is a government unit. A
  capital transfer is recorded at time of
  acquisition of the bad assets (or granting of
  guarantees)
• B the restructuring unit is classified outside
  the government. Capital transfers of government
  are recorded when losses are realised, at time of
  liquidation of assets.

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Special purpose entities

• Context financial function, often the
  securitisation of assets
• Main issue sector classification, in S.12 or in
  S.13
• First step as for any entity, national
  accountants must assess if the SPE meets the
  criteria for being an institutional unit.
  Assessment is on a case by case basis.
• SPEs involved in securitisation, if they are
  institutional units, are to be classified in
  S.123 (OFI)
• Case of ancillary units (New York meeting, Sept
  05)

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Special purpose entities

• The case of non-resident SPEs created by the
  government to outsource some borrowing and
  expenditure, through securitisation for instance,
  has been discussed in a few instances
• TFHPSA in March 2005 and Eurostat in April asked
  for a classification inside the government
  (similarly to embassies)
• BOPCOM opposed this point of view (no exception
  for government except embassies and military)
• New-York and Washington proposal possibility to
  consolidate some flows with the government

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Debt reorganisation

• A paper (prepared by the IMF) described several
  cases of such debt reorganisation involving the
  government assumption, forgiveness,
  rescheduling, write-offs etc.
• General principle when the debt of a public
  entity is cancelled or assumed, and an effective
  equal-valued claim against the corporation is not
  obtained, the counterpart of the transaction is a
  capital transfer
• Rationale a voluntary transfer of wealth in the
  SNA is to be recorded through a capital transfer

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Debt reorganisation

• Clarification necessary in some cases
• It should be made clear that the general
  principle contradicts some provisions in the GFSM
  2001 (and in the paper) see appendix 2 point 6
  for the case of debt assumption against a public
  corporation recorded as a financial transaction
• Case of debt write-off other flow in OCV
• Case of concessionnal debt