SCIC pushes forward with SOE divestment strategy

According to Nguyen Hong Hien, deputy CEO of State Capital Investment Corporation (SCIC), the state investor will finalize all preparations to divest from Vinamilk in late November. 

The stake sale is scheduled to take place in December, following a series of roadshows in both Vietnam and overseas. SCIC currently owns 44.7% of Vinamilk.

“We’re also working hard to draft the most suitable divestment strategy for 10 other large-sized Vietnamese firms. These companies are major players in different sectors of the economy, thus we want to be cautious to prevent any under-the-table negotiations that hurt the state’s divestment profits,” Hien told VIR.

As previously reported, SCIC plans to withdraw from 10 leading state-owned enterprises (SOEs), including Vinamilk, FPT Telecom, Binh Minh Plastics, Bao Minh Insurance and Tien Phong Plastics.

Besides these heavyweights, the state investor is also tasked with 100 other divestments by the end of 2016.

“Within the first nine months of 2016, SCIC has sold off stakes in 54 firms, reaping 2.3x returns on average. We want our exit from state-controlled entities to trigger a positive impact on these firms’ corporate governance and business performance. However, the road ahead isn’t easy as some of the SOEs have yet to find interested buyers,” Hien said.

He added that SCIC is conducting research on “basket share sales,” which means combining stocks of different companies into one major offer. The state investor also plans to carry out the book building method, which pre-determines investors’ interest in a firm and sets the selling price accordingly.

Truong Le Quoc Cong, head of the Issuance Regulations Department at the State Securities Commission, voiced his support of the book building method. He noted that companies around the world have adopted book building for a long time, thus SCIC should consider following suit.

“Book building is popular with foreign investors and it can help improve the success rates of SCIC’s share sales. That said, this is a new method that requires a large number of underwriters, which can be hard to find in Vietnam. We need a detailed strategy to make this happen,” said Cong.

Since 1986, the number of SOEs in Vietnam has plummeted from 12,000 to 718. In the near future, the government intends to narrow down the list of completely state-controlled sectors from 19 to 12, equaling only 190 firms.

Five other sectors, including finance and banking, will retain at least 65% state ownership.

Hoang Van Thu, deputy head of the Corporate Finance Department at the Ministry of Finance, stressed that the end goal of state divestment should be to encourage global standards of corporate governance at SOEs. This explains why all SOEs need at least one strategic investor, preferably one with substantial expertise in corporate governance.

“To attract strategic investors, especially those from overseas, Vietnamese SOEs may need to hire international advisors for valuation and consultancy. We’re working to ensure that the foreign advisors follow both Vietnamese and international regulations when working with domestic SOEs,” said Thu.

The officer then offered Vinamilk as an example. The dairy company has enlisted Morgan Stanley Asia, VinaCapital Corporate Finance, and Saigon Securities Incorporation for its upcoming share sale in December.

In the next four years, SCIC and other government agencies plan to divest VND15 trillion (US$671 million) from SOEs. All divestments must ensure transparency to avoid illicit transactions that hurt the state’s profits, Thu said.