Equitized SOEs not attractive to strategic investors

Many investors have been reluctant to buy a stake of equitized SOEs (state owned enterprises) because of problems in current regulations and the internal weaknesses of the enterprises.

Vietnam Airlines, however, stands out as a success story. It sold a 8.77% stake to Japanese ANA in a deal worth VND2.431 trillion after two years of negotiations. 

Analysts commented that the deal was carried out in a very professional way. It used international consultants, offered valuations of the enterprise in accordance with international practice, and opened a Dataroom for potential investors to access information.

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Investors had the time to assess Vietnam Airlines and had many direct meetings before deciding to spend more than US$100 million on the deal.

However, the case of Vietnam Airlines is an unusual one. In most others, the sale of a stake to strategic investors encounters many problems, according to the Central Institute of Economic Management (CIEM).

The research institute, in a report about SOE equitization, said it is necessary to be patient in negotiations so as to harmonize the benefits of the two parties and ensure mutual interests, as was done in the Vietnam Airline sale. 

According to the State Securities Commission (SSC), the goal of reducing the state ownership ratio and attracting private capital still has not been reached. 

The state still holds 81% of enterprises’ capital, while strategic investors only hold 7.3%, lower than the targeted 15.8%.

CIEM, which conducted a survey on 46 economic groups and general corporations which were equitized in 2011-2016, found that of VND28.369 trillion worth of shares approved to be sold to strategic investors, only VND12.762 trillion were sold, or just half of the plan.

The proportion of a stake sold to foreign investors was even lower, just accounting for 8.7% (4/46 general corporations). Most foreign investors bought a stake at a low proportion (20% was the highest figure).

CIEM commented that the proportion reserved for strategic investors is small, so it is difficult to attract investors, especially foreign ones. 

Only six out of 46 corporations (13%) decided to sell more than a 50% stake to strategic investors and five out of six enterprises sold the shares offered. 

The result shows that a high offered proportion makes it easier to attract investors.

Another problem is profitability. The ROE of SOEs is 15%-17% on average. This is a relatively high level and higher than that of private businesses, but the figure doesn’t reflect the common situation of most SOEs.

A report found that the profits of PetroVietnam and Viettel alone accounted for 72.4% of total profits made by the 12 largest state-owned economic groups and general corporations in 2014.


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