(Vienna) In Austria, there are a number of companies, especially at the regional level, that are potential candidates for privatization through the Vienna Stock Exchange and would contribute to the revival of the Austrian capital market. A study entitled “The Privatization Potential of State-owned Enterprises” conducted by the Economica Institute for Economic Research names the following candidates at the regional level: In the energy sector, BEWAG, Energie Oberösterreich, Energie Steiermark, KELAG, Salzburg AG, TIWAG, Vorarlberger Illwerke and Wien Energie. In the transport sector, there is potential in the airports of Graz, Innsbruck, Klagenfurt, Linz and Salzburg. Additionally, at the national level Münze Österreich and Bundesimmobiliengesellschaft are privatization candidates. The partial privatization of these companies – the state keeps a stake of 25% + 1 share – could raise an IPO volume of EUR 19.9 billion on the Austrian capital market. Furthermore, the potential of secondary public offerings by already partially privatized companies listed on the Vienna Stock Exchange (Österreichische Post, Telekom Austria, OMV, Flughafen Wien, EVN and Verbund) would be EUR 3.9 billion.
“We assess the current market environment as very encouraging and expect quite a few public offerings this year. Nonetheless, we would also welcome some positive signals from politicians such as a proactive privatization strategy for the future,” stated Michael Buhl, member of the management board of Wiener Börse AG and of the CEE Stock Exchange Group. “The partial privatizations carried out through the Vienna Stock Exchange in the past two decades have been highly successful and have contributed to making Austria’s capital market more attractive to investors and other issuers,” added Mr. Buhl.
Privatization is not only a means to raise additional capital through the stock market, but also has advantages for Austria’s national economy. The principal beneficiaries are the companies, as these would gain greater operational efficiency, and therefore, improve their international competitiveness. They would receive more attention from retail investors, and domestic and international institutional investors. Their market success safeguards jobs and creates more employment, and also supports economic growth.
No full privatizations
“In Austria there is considerable potential for privatization through public offerings. First, companies eligible for privatization but currently not listed on the stock exchange could be privatized through public offerings on the stock exchange. Second, one could also reduce the stakes held by the state in the already partially privatized listed companies,” explained Mr. Schaller, member of the management board of Wiener Börse AG and of the CEE Stock Exchange Group. “The Vienna Stock Exchange is not calling for full privatization. We believe that the state can keep a stake in the privatized companies as a core shareholder,” stressed Schaller.
On the calculation of the privatization potential
The basis for the valuation of the privatization potential is the discounted cash flow method (DCF). This method looks at the cash flows of companies – cash flows are revenues and net inflows of cash from other current activities – over a period of several years. The average value of these cash flows is divided by a discount rate that reflects the expected time value of money and includes a risk component. Dividing the average cash flow by the discount rate results in the value of the company; this corresponds to the conventional formula for an annuity. The (hypothetical) enterprise value arrived at by the DCF calculation method is based on an interest rate of 5%. This rate corresponds to the current capital market interest rate for long-term loans.
About the Vienna Stock Exchange
The Vienna Stock Exchange is a 100% subsidiary of the CEE Stock Exchange Group (CEESEG) which also includes the stock exchanges of Budapest, Ljubljana and Prague. The CEE Stock Exchange Group is the largest stock exchange group in the region and accounts for half of total market capitalization and around one-third of total equity turnover in Central and Eastern Europe. CEESEG simplifies access to markets and trading with the aim raising the level of liquidity on the local exchanges. At the same time, the Group organizes joint activities to raise the international recognition of the four markets.