Privatization

Privatization, also spelled privatisation (in British English), has several meanings. Primarily, it is the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (a government) to the private sector, either to a business that operates for profit or to a nonprofit organization. It may also mean the government outsourcing of services or functions to private firms, for example, revenue collection, law enforcement, and prison management.

Privatization may also describe the following two types of transactions. The first is the purchase of all outstanding shares of a publicly traded company by private investors. The shares are then no longer traded at a stock exchange, as the company became private through private equity. The second is a demutualization of a mutual organization or cooperative to form a .

There are five main methods of privatization:

The choice of sale method is influenced by the capital market and the political and firm-specific factors. Privatization through the stock market is more likely to be the method used when there is an established capital market capable of absorbing the shares. A market with high liquidity can facilitate the privatization. If the capital markets are insufficiently developed, however, it would be difficult to find enough buyers. The shares may have to be underpriced, and the sales may not raise as much capital as would be justified by the fair value of the company being privatized. Many governments therefore elect for listings in more sophisticated markets, for example, Euronext, and the , and stock exchanges.

Governments in developing countries and transition countries more often resort to direct asset sales to a few investors, partly because those countries do not yet have a stock market with high capital.

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