The business activities of state-owned enterprises give rise to exposures to various forms of risk, which may affect the value of one or more companies in the portfolio and their capacity to distribute dividends. The greatest risks from a portfolio perspective are described below.
Business risks
The state company portfolio is illiquid, which means that indi-vidual companies are typically not acquired or sold in order to modify total portfolio risk. The portfolio is also concentrated.
Consequently, risks associated with the largest companies may have significant impact on the value of the entire portfolio as well as upon potential dividends. The three most valuable com-panies account for more than 50 per cent of total portfolio value.
The sale or buyout of significant businesses is a business risk that may affect the value of the state portfolio and the possibil-ity of distributing dividends. For example, Vattenfall’s lignite business in Germany is in the process of being sold. Further-more, Telia Company has announced that it intends to exit Eur-asia. The sales process for Telia Company is highly complex due to the nature of the markets in Eurasia, including potential gov-ernment interventions. Also, the assets are not wholly owned and the company is subject to commitments and obligations in various shareholder agreements. Consequently, the expected outcome is highly uncertain.
Another business risk is associated with the markets in which the state-owned enterprises operate. Telia Company’s business in Eurasia is one example. Doing business in Eurasia is asso-ciated with risk and Telia Company’s previous transactions in Uzbekistan, for example, are being investigated by the author-ities in Sweden, the Netherlands and the United States. More-over, a significant portion of Telia Company’s profits are gener-ated in associgener-ated companies, especially MegaFon and Turkcell.
Telia Company does not have a controlling influence over key issues in these companies, such as approval of business plans and budgets or decisions related to the timing and size of cash divi-dends. The governance problems found at the shareholder level in Turkcell exemplify this risk.
The ongoing urban transformation in Kiruna and Malmber-get is another example of a business risk in the state company portfolio. This may affect LKAB’s value and ability to distribute dividends as this is a huge undertaking that will affect LKAB’s profits and liquidity for many years to come.
Financial risks
The state company portfolio is also exposed to financial risks.
Currency risk is an example of a financial risk. Vattenfall and Telia Company in particular have extensive operations outside
Sweden and LKAB’s revenues are dependent upon movements in the exchange rate against the US dollar. Telia Company is also exposed to risks arising from currency restrictions, which may, among else, prevent Telia Company from implementing reversals of cash and cash equivalents.
The future development of the electricity price is another financial risk. A low electricity price benefits several state-owned enterprises, such as Akademiska Hus, Sveaskog and LKAB, but has adverse impact on portfolio value because it is highly signifi-cant to Vattenfall.
Likewise, future developments in the price of iron ore consti-tute a financial risk. The low price resulted in weaker earnings for LKAB in 2015 compared with previous years and the compa-ny’s value and dividends have fallen.
Legal and regulatory risks
Many state-owned enterprises operate in markets that are reg-ulated to one extent or another. Examples include Vattenfall, Telia Company and Svenska Spel. Changes in regulations appli-cable to these businesses may have significant impact on the value and prerequisites for distributing dividends of these com-panies – and thus the entire portfolio.
RiR 2015:15 The Government’s management of risks in state-owned enterprises
The National Audit Office has audited the Government’s manage-ment of risks in state-owned enterprises. The Governmanage-ment has reported the measures it intends to take in response to the audit report In a Government Communication (2015/16:60), “The National Audit Office report on the Government’s management of risks in state-owned enterprises.” The Government intends to improve information to the Riksdag with a view to providing the Riksdag with an overall view of the risks in the state-owned enterprise portfolio, primarily within the framework of the Government’s annual commu-nication to the Riksdag and its report on state-owned enterprises.
This concludes the response to the audit report by the National Audit Office.
In the light of the above and as an aspect of the Government’s actions to improve information to the Riksdag, a description of external factors and sector-specific risk factors that may have impact on the state-owned enterprise portfolio is provided on this page. The Government intends to continue improving information to the Riksdag with a view to providing the Riksdag with an overall view of the risks in the state-owned enterprise portfolio.
The Government has a mandate from the Riksdag to actively manage the state’s assets. The Government Offices and all ministries assist the Government in its work and presently manage governance and administration of 41 wholly owned and 9 partially owned companies.
30 Akademiska Hus 31 Almi Företagspartner
32 APL, Apotek Produktion & Laboratorier 33 Apoteket
34 Apoteksgruppen
35 Arlandabanan Infrastructure 36 Bilprovningen
37 Bostadsgaranti 38 Dom Shvetsii 39 Dramaten
40 ESS, European Spallation Source 41 Fouriertransform
42 Green Cargo 43 Göta kanalbolag 44 Infranord
45 Inlandsinnovation 46 Jernhusen 47 Lernia 48 LKAB 49 Metria
50 Miljömärkning Sverige 51 Operan
52 Orio 53 PostNord
54 RISE, Research Institutes of Sweden 55 Samhall
56 SAS 57 SBAB 58 SEK 59 SJ
60 SOS Alarm 61 Specialfastigheter
62 SSC, Svenska rymdaktiebolaget 63 Statens Bostadsomvandling 64 Sveaskog
65 Svedab
66 Svenska Skeppshypotek 67 Svenska Spel
68 Svevia 69 Swedavia 70 Swedesurvey 71 Swedfund 72 Systembolaget 73 Telia Company 74 Teracom Boxer Group 75 Vasallen
76 Vattenfall 78 VisitSweden 79 Voksenåsen
80 Other companies and operations 81 Dissolved companies
81 Companies in voluntary dissolution