Disposal of Shares and Stocks — Forms and Actors
The disposal of shares and stocks registered in the name of the state is one of the most institutionally loaded directions of state property management. The law distinguishes three forms of disposal of shares and stocks: privatization, transfer of management rights, and exchange. Each has its own procedural regime, but the common feature is one — the centralization of the decision on the state's side.
Privatization of shares or stocks may be carried out through auction, direct sale and direct sale on the basis of competitive selection. In addition, shares, stocks or stocks represented by certificates may be privatized directly or through an intermediary, by public or private offer, on a recognized foreign stock exchange, or by another form of offer consistent with the practice existing at the relevant time on international capital markets. These special forms allow the state to offer an asset to investors through channels customary for the market.
The Auction — Conditional and Unconditional
The auction of shares and stocks is of two kinds: conditional and unconditional. A conditional auction imposes additional obligations on the winner, while an unconditional auction is oriented purely to price. Privatization in the form of direct sale or direct sale on the basis of competitive selection is implemented on the basis of a decision of the Government of Georgia, under the procedure established by law.
Privatization by exchange-listed and offer-based forms is carried out on the basis of initiation by the property manager and his justified proposal, by decision of the Government of Georgia, under the procedure established by law. The transfer of shares and stocks into the acquirer's ownership likewise proceeds on the basis of a Government decision. The application of the necessary instruments — special conditions and bank guarantees — in share privatization also follows the procedure established by law.
Pledge and the Passage of Obligations to a New Owner
Upon conditional transfer of shares and stocks into ownership, with the consent of the property manager, the acquirer is entitled to pledge the acquired shares and stocks for the purpose of performing the privatization obligation. Thereby the law gives the acquirer a means of additional financial mobilization, while at the same time protecting the state's interest.
Upon the transfer of the pledged property into the pledgee's ownership due to non-performance of the claim secured by pledge, or upon its realization through enforcement proceedings or a civil-law procedure — regardless of the form of realization — the privatization obligations borne by the acquirer before the state, and the rights and duties arising from the respective contract, pass fully to the new and every subsequent owner, if before the encumbrance the entry on the shares and stocks in the respective registering body contained registered information reflecting the privatization obligation.
Upon unilateral termination of the contract due to breach of the privatization conditions, the privatized property is returned to state ownership and the pledge right of the third party registered over it is voided — again on condition that before the encumbrance the entry in the public registry contained information reflecting the obligation. Moreover, the state does not reimburse the acquirer the amounts paid and expenses incurred. For property disposed of within a public-private partnership project these strict rules do not apply.
Transfer of Management Rights
Transfer of shares and stocks by management rights is carried out in the form of an auction or, by decision of the Government of Georgia, in the form of direct transfer. The State Property Agency concludes a contract with the auction winner or the managing person within 45 days of holding the auction for the purpose of transferring management rights, and within 3 months of the Government's decision on direct transfer. If the contract is not concluded within the period, the auction results or the Government decision lose force.
The powers of the partner — that is, the shareholder — of an enterprise operating with state equity participation are exercised by the property manager, who decides on the making of state property, including shares and stocks, and also monetary contributions into the enterprise's capital. The person managing shares and stocks transferred by management rights decides, with the consent of the property manager, on contributions to the capital of the enterprise under his management. The individual forms of privatization of stocks and shares and the procedure for transferring their management to other subjects are approved by the Minister of Economy and Sustainable Development.
The Fee, Settlement and Conclusion of the Contract
The procedure for determining the privatization fee and the initial privatization amount of shares and stocks is approved by the Government of Georgia. Settlement is carried out under the procedure established by law. Upon privatization a contract is concluded between the implementing body and the acquirer, and the property manager is authorized to issue confirmation of the auction win in written and/or electronic form.
Ownership is transferred to the acquirer after its registration in the respective registering body, and together with the ownership right the privatization obligation must be registered. In auction-form privatization the contract is concluded within 45 calendar days of the holding of the auction, and in direct-sale privatization by the Government — within 3 months of the adoption of the respective disposition. If the period is exceeded, the auction results or the disposition lose force. The property manager may conclude a contract with a third party facilitating the initiation of the privatization of shares and stocks.
The Special Regime of Exchange-Based and Offer-Based Sale
For exchange-listed and offer-based forms the law establishes a separate procedure. Such privatization is carried out on the basis of initiation by the property manager and a justified proposal, by decision of the Government. The manager determines the favourable time of the offer, develops draft documents and carries out other measures provided for by legislation. The justified proposal — containing the general conditions of privatization, including the form, deadline and other essential conditions — is presented to the Government together with the drafts developed by the State Property Agency.
Where the Government approves the proposal, its disposition determines the conditions of privatization: the quantity or percentage of the shares or stocks subject to privatization, or the maximum or minimum threshold of that indicator; the privatization fee — for a public offer, the initial privatization amount — and the settlement procedure; as well as the key dates, the deadlines for concluding contracts and other conditions of acquiring ownership. On the basis of the disposition the manager determines the specific conditions, which must conform to the Government's decision.
For stocks represented by certificates, the Government's disposition may establish any restriction or obligation connected with voting or other rights, including the obligation of prior informing of the public on defined matters. In a sale by these forms the contracts are concluded, the fee is paid and ownership is transferred under the procedure and within the deadlines set by the Government's disposition. If you are planning an investment in a state asset, precise knowledge of these procedures will protect you from the risk that a winning position collapses because of a missed deadline.