Sri Lanka should look at Uzbekistan’s model of bundling minority stakes of state-owned enterprises into a holding vehicle and listing it overseas to unlock value, fund manager Ruchir Desai said.
Desai, Fund Manager of the AFC Asia Frontier Fund, noted that while Sri Lanka has talked about restructuring loss-making state entities for years, Uzbekistan had actually executed meaningful reforms.
“So just a couple of months ago, the state divested the minority stakes in 14 state-owned companies into a fund, which is being managed by Franklin Templeton. And this fund got listed on the London Stock Exchange,” Desai said at a panel discussion in Colombo.
He added that the vehicle achieved a market value of roughly 2.5 to 3 billion US dollars, serving as an effective benchmark for Sri Lanka to follow.
Capital Alliance Group Chief Executive Officer Kanishke Mannakkara backed the idea, stating that listing an offshore holding company helps introduce international governance standards without relinquishing state control.
“It resulted in better corporate governance all the way down, because you force a top-tier regulated corporate governance down into the SOEs. It creates global investor interest in the country,” Mannakkara said.
Mannakkara said similar reform templates had been executed successfully in European transition economies such as Romania.
Desai noted that Uzbekistan’s economic reforms have driven projected annual gross domestic product growth above 8 percent.
He said the listing also created a liquid company that global investors can buy, which draws attention to the country and helps unlock capital. He said a similar approach had been used earlier in places such as Romania.
AFC’s Founder and Chief Executive Officer Thomas Hugger said Uzbekistan transformed after its new president opened up the country, easing visa curbs and allowing capital to flow in and out freely. AFC runs the only dedicated Uzbekistan fund, which Hugger said is up more than 70 percent in recent months.
Sri Lanka’s government has been looking to restructure its state enterprises to reduce fiscal burdens and plug leakages under its broader macro reform agenda.
(ECONOMYNEXT)
