Urgency of listing SOEs on stock market

Listing profitable state-owned enterprises (SOEs) and multinational companies (MNCs) on the stock market can bring multifarious benefits provided that the job is done in a substantive and meaningful way. First of all, it can remedy the lack of market depth, even if partially, as the market has become stagnant due to the slow growth of listed companies. For more than a decade, the bourses have been literally flooded with more bad stocks than good ones, causing the investors to suffer repeated losses and abandon the market en masse. So, listing of profitable SOEs can inject a new life into the ailing market by enhancing the depth of the market and boosting investor confidence.

At the same time, it would directly benefit the SOEs themselves. Allegations of financial mismanagement and misappropriation have long dogged these entities. Public listing would require them to operate with greater transparency and professionalism, subject to regular disclosure of their financial status and governance standards. This could go a long way towards ensuring accountability, improving efficiency, competitiveness and long-term profitability. In many countries, the listing of state-owned enterprises has led to enhanced performance due to increased scrutiny and better management practices. For all these reasons, offloading the shares of SOEs could be a win-win situation for both the capital market and the enterprises themselves. However, this has so far remained a pipe dream. Although policymakers have long been tinkering with the idea, only a handful of SOEs have been listed to date.

Against this backdrop, the government's instruction to ministries to promptly offload shares of profitable SOEs and government-owned shares of multinational companies (MNCs) offers a glimmer of hope. Reportedly, the Chief Adviser recently directed that necessary steps be taken to reduce government shareholding in these companies and include them in the capital market. Subsequently, officials prepared a list of profitable SOEs and MNCs for offloading their shares. It must be noted, however, that such moves were repeatedly initiated by past governments but failed to materialise, primarily due to alleged procedural complexities and the procrastination of officials managing these enterprises. Repeated reminders from high-ranking government officials during the past regime were all in vain.

The main point of contention has not been the decision to offload SOE shares, but the percentage of the stock to be made available to the public. It appears that a section of the bureaucracy and policymakers want to retain control of such enterprises even after they are publicly enlisted. If ordinary shareholders do not represent at least a 51 per cent stake in the publicly listed SOEs, they have no real say in the running of such enterprises. That means annual general meetings will be little more than an eyewash, with management approaching court and nothing tangible happening in terms of profitability or accountability. It is, therefore, high time to take concrete steps to divest the SOEs in a meaningful way. The manner in which it is done will determine whether the government is serious about turning things around for both the SOEs and the wider stock market, which urgently needs more blue-chip companies.