Assessment of Valuation Methods and Modalities of Divestment used by Privatization and Public Enterprises Supervising Agency (PPESA)
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2016-06
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Addis Ababa University
Abstract
Privatization of State Owned Enterprises (SOE) has increasingly become an important phenomenon in both developed and developing countries in the last few decades. Literatures on privatizations in Ethiopia indicate that Privatization and Public Enterprises Supervising Agency (PPESA) has a closed door policy and little is known regarding valuation of the Enterprises to be privatized. The aim of this paper is therefore to fill this gap, assess and increase knowledge on how valuation is being done in Privatization and Public Enterprises Supervising Agency (PPESA).The methodology used is a case study design where the units of enquiry focus on the valuation method and the modalities of divestment. Both primary and secondary data are used; interview of relevant experts in PPESA and data of 316 privatized firms. Relevant books, publications & reports have also been examined. Moreover, the status of privatization is reviewed and trends are analyzed; attempts are also made to examine the variance of this valuation with the final acquisition value. The findings show that PPESA uses both asset valuation & business valuation methods. PPESA has shown effort to use current acceptable methods and tools like Capital Asset Pricing Model (CAPM) during business valuation, but it may be misleading to use it in the absence of a stock exchange and other standards to refer to estimate the different variables in the model. The data also shows that privatization has not attracted FDI as expected; though with limited data and only one variable was used, the valuation of the firms in estimating the market value seems very low. In almost all cases the valuation is much lower than the acquisition price. It is recommended that in order to address challenges with valuation, there is a need for stock exchange both for privatizing the remaining firms with PPESA as well as for making progress in the trade industry in Ethiopia.
Key words: Privatization, valuation methods, modalities of divestment
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Keywords
Privatization, valuation methods, modalities of divestment