Market to determine the initial price of assets

On March 29, the Government of Belarus issued a regulation No 285 legitimizing some requirements and approaches of Lukashenko to the sale of the state-owned assets, which essentially come down to maximization of profits from privatization.

Comment

The document contains several new and fundamentally important clauses. Firstly, new rules allow all joint stock companies to set the initial selling price of shares by their market, not book value. Previously, the initial price of shares was determined by the market only for banks and joint-stock companies owing land in Minsk and regional centers.

Secondly, it is regulated that the initial market price should be the highest. “The highest” implies that the authorities are preparing for numerous assessments of the market value of a given asset and want to protect their own assessments. That is, for instance, the Belarusian market value of an asset could be well above the market value as assessed by an international company and the initial selling price of shares will be tied to the highest assessment, even though it was not properly justified.

Thirdly, the regulation stipulates that the market price may not be below its par value. In other words, the Belarusian authorities refuse to apply special rules to companies with a number of nominal assets with low market value due to these assets being obsolete, unneeded, loss making or in debt, etc.

Fourthly, the new rules also require all companies to apply novelty of the past year – adjusting the initial price by price index for producers of industrial goods for technical and industrial purposes. That is, while defining the initial, highest, but not below par, price of a stock as of January 1^st of the current fiscal period (or the first day of the month following the month of additional issue of shares), at the time of purchase (auction), the price should be increased in the future with adjustment for inflation.