Wednesday, March 22, 2023
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A return of privatisation? Considerations on their legal status

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Javier García and Juan José Enterría Lavilla. Clifford Chance partners

Since the adoption the Cabinet agreement in June 1996 which laid the foundations of the privatisation programme in our country, the state has made "by the foundation's programme to modernize the state's established public sector business", seventy-four different privatisation operations, which has meant the partial or total sale of its stake in the capital of sixty-two companies. In current terms, these operations generated revenues for State of close to 34,000 million Euros.

However, the significance of the role played by the privatisation phenomenon for the Spanish economy not only condenses on these figures. Privatisation, on one side, has contributed decisively to stimulate the interest of investors for equities and thus the development of the Spanish stock market as a result of the placement of the shares the state held in large companies who came from the former monopolies. And privatisation, on the other hand, contributed decisively to reduce state involvement in numerous economic sectors at the same time that they were subject to liberalization and opened to competition, with consequent benefits in terms of efficiency and economic dynamism.

Nevertheless, privatisation is also characterized by its discontinuous character, presenting very different degrees of intensity during this extended period. The most important operations were focused in the years 1997 and 1998, with the partial or total privatisation of companies such as Telefónica, Repsol, Endesa, Tabacalera or Argentaria, which had an annual income of close to 12,000 million Euros for the State. However, between 2009 and 2011, there were no privatisation operations performed at the state level, despite some attempts of special economic relevance that ended unsuccessfully, such as the privatisation of the State Lotteries or the concessionaires of airports in Madrid and Barcelona.

The price offered is the determining factor

Despite its economic importance, unlike other European countries, Spanish law lacks a "Privatisation Law" that addresses these issues through an articulated system of procedures and guarantees. Yet legal channels and procedures followed by the Administration to transfer public appearances lack any substantive expertise and are broadly consistent with those applied by private operators. Under the terms of the Law of Assets of Public Administrations (LPAP), for sale by the public sector of the shares or units held in corporations at the state level -for that is how privatizations are often articulated- "can be made within organized secondary markets or outside them (...), through any acts or legal transactions" (Article 175.1) and "in normal terms of private commerce" (Article 175.2). In the case of equity investments of major economic importance, the commonly-used instrument has been the traditional public offering (IPO), with subsequent placement of shares among all the investors according to the rules and techniques that are features of this figure.

In the case of minority stakes in less relevant listed companies, separation can be achieved with the intermediation of a financial institution (art.175.3 LPAP), also in accordance with market instruments which are customary for this type of operation (accelerated placement, firm sale or boughtdeal, and so on.) For companies whose securities are not publicly traded, the procedure generally used for the sale of industrial holdings is bidding or auction (art.175.5 LPAP).

In these cases, the price offered is often the determining factor, although it is not uncommon to also assess others, such as industrial or business plans. In addition, exceptionally, in cases where it the occurrence of other companies (e.g. sale of shares in companies where there are other partners with first refusal rights and are willing to exercise them) is not expected, direct award is also possible. (Article 175.5 LPAP). This whole scheme is completed, always referring to privatizations undertaken by the state sector, with the need to obtain the appropriate authorisation from the Council of Ministers, upon review of the process from the perspective of compliance with the principles of advertising, competition and transparency by the Advisory Council on Privatisation.

At present, the Government has announced its willingness to undertake new privatisation programmes within the package and orientated to address economic crisis reforms. The privatisation of public holdings, in itself often generates -as highlighted by the World Bank- strong active and passive resistance, is compromised in the present circumstances by the difficulty of economic valuation and the consequent reluctance of the Administration -as well as many other operators- to sell at prices far from those seen as reasonable.



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