Better transparency of SOEs for foreign investors

Authorities will likely change the current equitization method toward more transparency and clearer information for foreign investors, a move that has long been waited for.

Specifically, the government will announce the ownership in State-owned enterprises (SOEs), with prices based on the demand of investors, a senior official at the Ministry of Finance (MoF) said.

“Foreign investors will be free to participate in the equitization process, but not in listed SOEs”, Mr. Dang Quyet Tien, Deputy Head of MoF's Enterprise Finance Department told a seminar in Hanoi on December 2.

Although the country has continually strived to reform the SOE sector, the current process has showed inadequacies. Government officials believe a much greater effort will have to be put in to truly reform the sector in the future.

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Mr. Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) believes “the equitization process remains slow and insubstantial”, with the divestment of State capital from SOEs accounting for 2% of the total book value of SOEs.

In many cases, the term equitization was inappropriately used, and cross ownership remains a burden. “Many SOEs have been acquired by others SOEs, and that enterprise still remains in its initial form after equitization”, Mr. Loc said.

During the 2011-2015 period, the State managed to equitize a total of 478 enterprises, equal to 93% of the plan. However, this quantity does not truly reflect the effectiveness of the equitization push, according to Mr. Tien.

The State has only succeeded in completely divesting 254 SOEs in the period between 2011 and September 2016. The recent MoF’s report unveiled that the State still holds the majority of stakes in many SOEs, including Vietnam Airlines with 95.5%, Petrolimex Corp. with 94.99% and Vietnam Steel Corporation (Vinasteel) with 93.6%.

In response, Mr. Nguyen Quang Thuan, CEO of Stoxplus Company said the opportunity to absorb external finance source has always been there for the country but “foreign investors found nowhere to start”.

According to Mr. Thuan, there has not been the level of transparent listing information and strategic planning of SOEs that foreign investors are looking for yet. Success will lie in the determination of the managing units and the government.

The National Assembly (NA) last month passed the reform programme for Vietnam during the 2016-2020 period, with emphasis placed on the SOE reform process as being “faster and stronger” and the equitization process being transparent in line with the market mechanism.

Compared to the 2011-2015 period, “the target to lower the State-ownership in SOEs and the State to hold less than 50% of stake in SOEs in the non-primary sector is the breakthrough of the new reform programme”, the Chairman of VCCI insisted.

On the other hand, the most important thing in this reform programme, according to the Vice Chairman of the NA’s Economic Committee Mr. Nguyen Duc Kien, is that ownership of investors in privatized SOEs (except financial institutions) will no longer be constrained.

“The biggest challenges lie in ourselves, not on the mechanism”, Mr. Kien said. The ineffective corporate governance in SOEs right now is largely due to the unchanged ownership structure. Profitability, therefore, cannot be achieved due to the ineffective capital and business model.

VN Economic Times

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