Listing State-owned Enterprises In Emerging And Developing Economies

Well-developed local capital markets play a crucial role in the financing of sustainable economic growth and the maintenance of financial stability.

Local capital markets can improve the availability of long-term financing, allowing companies to better manage interest rates and maturity risks that are associated with long-term investments, such as for equipment, machinery, land, and buildings. In addition, local capital markets provide access to financing in local currency that allows local issuers and investors to better manage inflation and exchange rate risks. In short, local capital markets are an essential tool for companies to strengthen their balance sheets and weather financial and economic crises.

The benefts of local capital markets are well-known among emerging and developing economies (EMDEs). Over the past 20 years, EMDE governments have engaged in large reform programs to support the development of their local capital markets. Yet, many governments struggle to see their markets flourish. The number of listed companies remains stagnant and the participation of domestic and foreign investors limited beyond the sovereign debt markets. One approach that is re-gaining popularity is the listing of state-owned enterprises (SOEs).

In the empirical literature, SOE listings have often been cited as the cause behind the rise of international capital markets.1 Indeed, according to some calculations, former SOEs account for about 13–22 percent of global market capitalization2 — suggesting a positive correlation. However, advanced economies account for the predominant share of SOE listings, even though SOEs operating in EMDEs account for an estimated US$ 45 trillion in assets.

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