Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

© Prof. Jayanth R. Varma
jrvarma@iima.ac.in

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Thu, 30 Nov 2017

Large asset auctions: Russian versus East Asian models

In the context of the large asset auctions that are expected to happen in India as part of the new bankruptcy code for delinquent borrowers, I think it would be instructive to look at the lessons that can be learned from how such auctions were organized elsewhere in the world. Two episodes that come to my mind are:

  1. The large privatizations that happened in Russia after the collapse of the Soviet Union

  2. The massive sale of assets that happened in East Asia particularly Korea and Thailand after the Asian crisis.

Both of these were large operations carried out fairly quickly in a quite challenging environment. There was a huge amount of uncertainty about the true value of the assets, but that is unavoidable in situations like this. But the two episodes differed in many critical respects. All in all, most people would agree that the Russian auctions were a disaster. First they allow a bunch of oligarchs to acquire businesses very cheap because of inadequate competition. Second, the privatizations (at least ex post) have very little perceived legitimacy, and this vitiates Russian democracy even today. The East Asians (partly because of IMF pressure) were much more transparent about the process, and also opened up the sales to foreign bidders in a big way (amending the laws in some cases). This was not politically very pleasant, but was probably the only way to generate enough competitive bidding in an environment where most domestic players were liquidity constrained, and the banking system was ill equipped to support leveraged bidders.

Posted at 18:36 on Thu, 30 Nov 2017     0 comments     permanent link

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