Stock market not strong enough to support equitization

The Vietnamese stock market, with its small scale, is unable to absorb large amounts of shares to be sold by equitized state-owned enterprises (SOEs).

The total value of the SOEs to be put into equitization in the next three years is estimated at US$25 billion, a large amount compared with the small scale of the stock market. 

If the government sells 15% of this amount, the market would need at least US$3.75 billion to buy the shares.

Tran Du Lich, a renowned economist, questioned the government at the ongoing National Assembly’s session whether the goal of equitizing 289 SOEs was attainable.

The easiest cases have been implemented, while the enterprises left unequitised are all “hard to do”.

The government decided that 432 SOEs must be equitized in 2014 and 2015. This means that the government only has six months ahead to fulfill the equitization of the remaining 289 SOEs.
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Deputy Prime Minister Nguyen Xuan Phuc said, “We said ‘we are trying to implement the task’. We think we need to make every effort to equitize the 289 enterprises.”

Phuc’s answer showed the government’s strong determination to fulfill the equitization plan, but also shows hesitancy. There are two reasons behind the hesitancy.

First, the government will be cautious about equitization to avoid the loss of state assets during the equitization process. Second, equitization will depend a great deal on stock market performance.

“It will be easy to sell shares to businesses, the State Capital Investment Corporation (SCIC) or to businesses’ workers. However, once you sell shares to turn the SOEs into public companies, things will depend on the stock market,” Phuc noted.

The Vietnamese stock market, which is very small, seems to be difficult to absorb the large amounts of stakes to be sold by equitized SOEs.

A report of the Capital Market Working Group under the Vietnam Business Forum released recently showed that the Vietnamese stock market is stepping backward, especially compared with other ASEAN markets.

Vietnam, with a population of 91 million, has stock market capitalization value of US$46 billion, or just 25% of Vietnam’s GDP.

Meanwhile, the Philippines, with 99 million in population, has the stock market capitalization value at US$184 billion, or four times higher than Vietnam’s. The figure is equal to 65% of the country’s GDP.

The figures of Thailand, with 30 million people, are US$287 billion, six times larger than Vietnam’s and 112% of GDP.

“We believe that the current Vietnamese stock market is not strong enough to support SOE equitization,” noted Nguyen Kien, representing the working group.