The privatisation band-wagon rolls on. There are few countries where the idea of selling state assets is not being seriously considered, and huge progress has been made across eastern Europe and Latin America in the past two years. Bankers say a lot of deals remain to be done in those regions, but western Europe appears to have reached its high water mark.

That point is usually reached when a state sells its national telecommunications champion. The stock market listing this year of Telecom Eireann in Ireland means that all such companies across the European Union will be at least partly owned by private investors.

Something similar is happening in eastern Europe, too. The past year has seen the flotations of TPSA in Poland and Estonian Telecom, as well as the sale to strategic investors of a stake in Rom Telecom in Romania and even the state telecoms company in Serbia.

Indeed, telecoms privatisations accounted for nearly half the $143.7bn raised by governments around the world last year in state sell-offs, according to Privatisation International, the magazine. The total value was slightly down on the $161bn raised in 1997 - the Asian and Russian financial crises led to several deals from those regions being postponed or cancelled - but there appears to be no slowing of the process globally.

Telecoms privatisations, which generated a princely $70.2bn in 1998, were followed by the electricity sector, where deals were worth $19.6bn, financial companies ($19.4bn), and oil and gas ($16.3bn), figures compiled by Privatisation International show. The boom in telecoms deals has continued in the first few months of 1999, although the bulk of them are of secondary offerings, with Deutsche Telecom's E10bn rights issue likely to be the biggest deal of the year.

The most striking aspect of the wave of privatisations in western Europe in the 1990s has been the emergence of a retail investor base. German, Spanish, French and Italian investors have been big supporters of their governments' sell-off strategies, and soaring stock markets have ensured generally good returns.

The main focus in western Europe now, however, is business arising from the wave of industrial restructuring and merger and acquisitions activity. Bankers say that is where the lucrative deals - and equally lucrative fees - are. It is a welcome change after a few years of intense competition for privatisation mandates that saw investment banking fees decline sharply, particularly in southern Europe.

In eastern Europe, investors are beginning to differentiate between those countries that are in line for EU membership and those that are not. Estonia used its position as one of six countries chosen for the first wave of EU expansion as a big selling point when the government floated Estonian Telecom earlier this year. It is a question of risk appraisal, according to privatisation bankers.

"Countries in eastern Europe used to be lumped together but now there is a growing split between EU candidates and non-EU countries," one banker says. "Investors are much more conscious of risk now, and that is bound to have an impact on whether these countries privatise and how they go about it."

At the same time, many observers of the privatisation process detect a shift in the way the deals are being done. The traditional method of selling a state asset was either to sell part or all of it to a strategic partner or float it on the stock exchange. But as transactions become more complex, so do the financing methods.

The idea of public-private partnerships is taking hold in several countries. In the UK, the Civil Aviation Authority and London Underground may be candidates for a combination of public and private money. In the Netherlands, a rail project is being considered using public-private financing, while South Africa and Australia have also used this method of financing privatisations.

Public-private partnerships are essentially a combination of project finance and privatisation transactions, says Tony Poulter, global head of project finance and privatisation at PwC. "The financial structure of privatisation transactions is becoming more complicated, with a lot more emphasis on debt. There is a very big market for public-private partnerships," he says.

This trend echoes the increasing desire of governments to wean as many sectors as possible off complete dependence on the public purse. But they can be politically controversial as well as practically difficult, as the furore over how to provide future financing for the London Underground shows.

One of the important questions to be addressed in the process is that of regulation, says Mr Poulter. And there is no one blueprint that has yet emerged as the best way of providing that regulatory supervision.


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