StartupTalky

Tag: privatization

  • What Happens When a Public Company Goes Private?

    What happens when a public company goes private? Why would a publicly-traded company make that decision? What are its options once it does? It’s difficult to know how to answer these questions if you have no background information on the subject. To help you get some insight into what happens due to these transactions, we’ve collected seven pointers about going private and provide some insight into what happens due to these transactions. Hopefully, this guide answers your questions and helps you understand what happens if a publicly-traded company decides to pursue another route.

    When a Public Company Goes Private:

    The company is removed from the stock exchange

    No. of Companies listed on Stock Exchange in India
    No. of Companies listed on Stock Exchange in India

    Once a company goes private, it’s removed from the stock exchange. Investors will no longer be able to purchase or sell shares in the company through a major stock exchange.

    The company’s management team may still hold on to some of their shares, which they may sell in the future for a profit. But for most investors, this is the end of their involvement with the company.

    The company’s shares are withdrawn from the stock market

    When a publicly-traded company goes private, its shares are withdrawn from the stock market. This is a major shift for investors, who are used to seeing their investments on display on the stock exchange.

    Management often decides to go private, but investors can also initiate it. In some cases, an investor may buy out other shareholders and control the company. In other cases, multiple investors pool their resources and buy out existing shareholders.

    Existing Shareholders get paid

    When companies go private, their shareholders can receive various payout options. These include:

    • Cash payments to each shareholder are based on the number of shares they own. The payout can either be in one lump sum or spread over time.
    • Stock in a new company is formed when the parent company goes private. This stock could pay dividends or be sold for cash later.
    • New shares in the parent company that’s going private. Once those shares become publicly traded again, it’s possible for investors who hold them to make money off their original purchase price or by selling them at some point down the line.

    List of All the Upcoming IPOs in India 2022
    2021 was the year full of new startup IPOs from Zomato to Nykaa. 2022 also has many new listings, take a look at companies going public in 2022.
    StartupTalkyBhoraniya Huda Hifzur Rehman

    The company no longer releases financial statements to the public

    Once a company goes private, it no longer releases financial information to the public. This means that investors who had previously owned shares of the company in question will no longer have access to any information about its finances or performance. However, this does not mean that the company goes completely dark: companies can still be purchased and sold by other companies using private transactions, which means that their financials are still available to their owners.

    The only major difference is that these transactions are not recorded on any stock exchange. Instead, they must be reported to regulatory bodies such as the Securities and Exchange Board (SEBI), allowing them to track how many outstanding shares exist within the private sector.

    Fewer regulatory requirements and obligations

    By going private, a publicly-traded company no longer has to deal with the many regulatory requirements of being a publicly-traded company. These include:

    • Annual reports: are required for publicly-traded companies and must be submitted to the SEBI.
    • Audited financial statements: audited financial statements must be submitted to the SEBI for publicly-traded companies. This requirement helps ensure that investors access accurate information about their investments.
    • Required disclosures: publicly-traded companies must disclose information about their operations and management team to the public via annual reports and other filings with the SEBI.
    • Corporate governance: corporate governance refers to how businesses are run internally—for example, whether shareholders have voting rights over key decisions made by management, or who sits on boards of directors at large companies.

    Less capital available

    The reason for this is simple: a public company must disclose its financial statements, which means anyone can access them. This is great for investors who want to get in on the action and make money from their investments. Still, it’s not so great for companies that want to be able to keep their financials secret to protect proprietary information or avoid scrutiny from government regulators.

    By going private, companies can keep their financials under wraps and more of their profits for themselves!

    A public company that goes private no longer has to contend with quarterly pressures.

    Public companies are accountable to their shareholders, who demand that the company generate quarterly revenue and profit. These demands make it difficult for companies to focus on long-term goals, often leading to short-term planning and poor decision-making.

    Private companies have more freedom: they can focus on their long-term goals without worrying about those pesky quarterly reports!

    More flexibility

    When a public company goes private, it gains more flexibility in its operations. This means that the company can make decisions that may be unpopular with investors but which are better for the business’s long-term health.

    For example, a public company might cut costs to boost profits and increase shareholder value. This could involve layoffs or outsourcing certain aspects of operations. However, when a public company goes private, they no longer have to worry about shareholder concerns and can focus on what is best for the business as a whole.

    List of All the Upcoming IPOs in India 2022
    2021 was the year full of new startup IPOs from Zomato to Nykaa. 2022 also has many new listings, take a look at companies going public in 2022.
    StartupTalkyBhoraniya Huda Hifzur Rehman

    Conclusion

    There is a lot at stake when a public company goes private.

    So there you have it, folks. That’s what happens to a company when it goes private. Of course, this article is only meant to be a general overview of the process. It may be worth learning more about private equity firms and the going-private phenomenon in general; then, you should do further research on those topics.

    This post’s subject can be applied to almost any situation involving a significant change in company ownership and structure. While there are many options that can be pursued when taking your company public or private, keep in mind the information above: timing and valuation matter. If you’re ready to make the leap, talk to an investment banker or investment broker/advisor, they can help!

    FAQs

    What is privatization in public sector?

    Privatisation of public sector means the transfer of ownership, management, and control of the public sector enterprises to the private sector.

    Which sectors are privatised in India?

    The sectors privatised in India are:

    • Atomic Energy
    • Space and Defence
    • Transport
    • Telecommunications
    • Power
    • Petroleum
    • Coal and other minerals
    • Banking, insurance, and financial services

    What happens if public company goes private?

    When a Public Company Goes Private:

    • The company is removed from the stock exchange
    • The company’s shares are withdrawn from the stock market
    • Existing Shareholders get paid
    • The company no longer releases financial statements to the public

    Which are the public companies that went private?

    Some of the popular public companies that went private are:

    • Twitter
    • Dell
    • Burger King
    • Hilton Worldwide Holdings
    • Reader’s Digest

  • Will the Central Bank of India become a Private bank? | Why is the Government Privatizing banks?

    The Government of India had made a number of announcements and plans in the Union Budget of 2021-22 and one of the major plans was in regards to disinvestment of privatization. In this article let’s look at the plans of the Government in regards to privatizing the banks and whether the Central Bank of India would become a Private banking organization.

    Privatization of Public Banks – Latest News
    Reason Why Government is Privatizing the Public Banks
    Banks Officers’ Confederation on Privatization of the Banks
    FAQ

    Privatization of Public Banks – Latest News

    The Government of India had shortlisted 4 Public sector banks in order to privatize them in the fiscal year 2021-22. The four banks on the list are Bank of Maharashtra, Bank of India, Indian Overseas Bank and Central Bank of India.

    The Government of India has decided to privatize just two of these banks for now and according to certain reports NITI Aayog has decided to privatize the Central Bank of India and Indian Overseas Bank and their names were shortlisted by the organization.

    The report also added that the Bank of India will also be a candidate that is potential enough for privatization. In regards to disinvestment, NITI Aayog has submitted the names of two state-run banks and one general insurer to the secretaries of the committee.

    Reason Why Government is Privatizing the Banks

    The Modi Government has been pushing to sell all the assets that are owned by the Government in order to cover up the expenses for the Coronavirus Pandemic and to increase the revenue of the Government as it has spent a massive amount for the recovery from the pandemic.

    The announcement regarding the privatization of the banks was made during the Union Budget announcement of 2021-22. The Central Government has a target to gain around INR 1.75 lakh crore from the sale of stakes in the current fiscal.

    The Central bank of India and other public sector banks will probably become a private bank as the Government has already implemented it in many other sectors and to some banks as well. The country has only 12 public sector banks as compared to 27 in the year 2017.

    GDP of India
    GDP of India

    Banks Officers’ Confederation on Privatization of the Banks

    The Confederation of Bank officers does not seem to be much happy with the decision made by the Central Government. The officers had even called for protests and strikes regarding the case. The strike notice had conveyed the message that the decision of the Government in order to privatize the public sector bank is totally unwarranted and added that the requirement right now is to strengthen the public sector banks.

    It is found that the State Bank of India will be the only bank that would remain a public sector bank and the Government had justified this statement by saying that the bank is a strategic bank and it is responsible for the implementation of the public sector initiatives like expanding the rural credit.

    The Banking unions have conveyed that the same can be done to other public sector banks. They added that certain schemes such as MUDRA and Jan Dhan Yojana have been successful due to the vigorous implementation of the public sector banks.

    The unions also believed that during the pandemic they were an important part in implementing the measure in order to support the plans of the Government to provide liquidity and fiscal stimulus. Privatizing the public sector banks is like providing the money of the people to private hands with a different interest towards them.

    Conclusion

    The Government is also privatizing Air India, BPCL, and shipping corporations, and the process for it has already been started in the current fiscal year. The proposal regarding privatization is handled by DIPAM and the Department of Financial Services.

    FAQ

    Why do Governments Privatize?

    Privatization generally helps governments to save money and increase efficiency, where private companies can move goods quicker and more efficiently.

    What are some examples of privatization?

    Public sale of shares, Public auction, Public tender and Direct negotiations are some of the example of privatization.

    Which are the 2 banks that are going to be Privatized?

    The Government of India had shortlisted 4 Public sector banks in order to privatize them but has decided to privatize just two of these banks for now, which are the Central Bank of India and Indian Overseas Bank and their names were shortlisted by the organization.