Question
1. The Anandnagar Electricity Company The Anandnagar Electricity Board (AEB) has been operating under the ownership and control of the state of Anandnagar since the
1. The Anandnagar Electricity Company
The Anandnagar Electricity Board (AEB) has been operating under the ownership and control of the state of Anandnagar since the creation of the state in 961. The state government privatized AEB in 2000 by selling it to a local business house that has interests in pharmaceutical, financial service and energy. AEB came to be known as the Anandnagar Electricity Company (AEC). Privatization was intended to pave way to the company to improve performance and raise much needed finances from the capital market. The demand for electricity has always exceeded the supply, as the state government did not have enough funds to spend on capital expenditure to create the required power generation capacities. AEC would be now required to make sufficient investments to increase power generation capacity in order to meet ever-increasing demand for electricity. AEC management stated that being a private sector company, it shall maximize shareholders return. At the time of its privatization, a large private sector financial institution valued the company at Birr.4,000 million. The issue of ordinary shares raised this money. The merchant bank division of the financial institution helped the public issue of ordinary shares, par value Birr.10 each, sold at a premium of 100 percent for Birr.20 each. The issue was oversubscribed, and on the very first day of trading, the market price of share reached a value of Birr.35.
AEC has been in operation for three years as a private sector company. The table1.1.1. below provides select financial and operating data of the companys operations for the period 2001-2004. The financial data for 2001 are for the last year of the government ownership of the company. As a private sector company, AEC has paid dividend in accordance with the policy stated in the prospectus.
The Central Electricity Board regulates the prices and oversees the activities of the privatized electricity companies.
(Birr in million)
| 2001 Pub.Sector | 2002 Pvt.Sector | 2003 Pvt.Sector | 2004 Pvt.Sector |
Revenues | 13,500 | 14250 | 17500 | 19500 |
Operating profit | 810 | 1100 | 1790 | 2730 |
Taxes | 160 | 200 | 300 | 400 |
Profit before depreciation & tax | 900 | 960 | 1030 | 1190 |
Profit after tax | 650 | 900 | 1490 | 2330 |
Dividends | 200 | 320 | 600 | 900 |
Wages and salaries | 3000 | 3000 | 2700 | 2600 |
Total assets | 3000 | 3600 | 4500 | 5750 |
Capital expenditure | 500 | 900 | 1750 | 2250 |
Debtors | 6000 | 3200 | 3000 | 3600 |
Creditors | 4500 | 2400 | 2300 | 2400 |
Directors emoluments | 30 | 70 | 80 | 100 |
Employees(number) | 32000 | 31400 | 30500 | 30100 |
P/E ratio | ------ | 10.5 | 12.0 | 11.5 |
Consumer price index | 100 | 102.7 | 105.8 | 107.4 |
The demand for electricity in Anandnagar has grown at the rate of 4 per cent per annum.
Discussion Questions
- What changes, if any, do you expect in the objectives of the company after privatization and why?
- Who are the companys stakeholders? State the additional information that you may need to answer this question.
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