Valuation issues in lesser developed countries: Investment opportunities

Privatization has become the buzzword of the early 1990s, as all over the world governments are selling off their assets. Monopolistic utilities such as gas, water and waste disposal - but particularly electric - are prime assets for sale because their cash flows and competitive environment are reasonably predictable. Utility privatization in lesser developed countries (LDC) is giving rise to many new investment opportunities where predictions of high growth rates lead to anticipation of lucrative returns. Potential investors, however, should fully exercise the concept of caveat emptor: let the buyer beware. Coupled with these lucrative returns are risks arising from less stable political and economic conditions. possible market inefficiencies, and potentially high transaction costs. This article explores the central issues involved in valuing privatization investment opportunities in LDCs and performing requisite due diligence reviews