Disinvestment or liquidation or disposal of the investment. Is the establishment or government entity selling or liquidating an asset or its subsidiary company with the aim of changing its policies or completely changing its work system? Investment disposal also refers to reducing capital expenditures in order to redistribute resources to more productive areas of the organization or project.
Investment disposal is also used when companies need to quickly raise their capital to finance new operations, pay off certain obligations, or when they know that an investment is no longer profitable and will not be so in the future.
For example, a company may determine that its overseas branches are growing faster and generating higher profit margins than its internal branches. If the difference is clear, the company may consider withdrawing part of its internal investment and allocating the returns to increase or expand its external branches to maximize the return on investment.
Reasons for disinvestment
- Cash-related financial reasons, such as the need for cash to improve reinvestment opportunities.
- Performance-related reasons, such as an unsatisfactory level of profit on certain assets owned.
- Reasons related to the business sector, its growth, and competition, such as a decrease in market share or a decrease in demand for the produced good,
- Environmental reasons, such as the emergence of new legislation or restrictions or the withdrawal of granted incentives.
Disinvestment Benefits
- Generate and invest money in better ways, such as easing fiscal deficits or expanding.
- Rationalize resources to achieve cost reduction and avoid duplication.
- Improving the efficiency and capabilities of the company or government.
- Governments resort to such measures because they believe that the private sector has money that they can invest in improving infrastructure and technical efficiency.
- It enhances the competitive environment for employees.
- Not to politicize basic services, i.e., not to use public services provided by the government for any political purposes, and the state guarantees this by transferring the management of these services to private companies.
Disinvestment methods
- Strategic Sale: Where the largest share of the investment, which is usually equal to or greater than 51%, is sold to a strategic buyer to have management control over the investment.
- Auctions: In this method, the majority stake is retained, which means retaining management and influence on strategic decisions.
- Public Offer: It is the offering of shares representing the share in which the investment is to be liquidated for public offer at a specified price through the prospectus, and the offer is made to the public through a recognized market intermediary. This is the most common and transparent method, so governments often resort to public disinvestment.
- Selling to Employees: Shares are usually offered at a discount to employees who want to buy them, and this is expected to create a stimulating environment that will be reflected in the financial performance of the organization.
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