Little State capital sold in SOE equitization

Oct 26, 2019
Little State capital sold in SOE equitization
Habeco, one of SOEs, will be equitized (Photo: VTC)

The equitization of State-owned enterprises (SOEs) has progressed well since 2011 thanks to various ministries and sectors, economic groups, and localities getting onboard, but within the 96.5 per cent of enterprises that have been equitized, only 8 per cent of State capital was transferred to the private sector.

“The SOE sector was restructured from 1,500 enterprises in 2010 to about 600 in 2016, primarily in key sectors, to ensure macro balance in the economy,” Mr. Nguyen Duy Long, an official at the Ministry of Finance’s Corporate Finance Department, told the “Equitization of SOEs from the Perspective of Foreign Investors” seminar held in Hanoi on September 8 by the National Assembly’s Economic Committee and the American Chamber of Commerce.

Some 508 businesses with more than VND189 trillion ($8.4 billion) in State-owned capital were equitized in the 2011-2015 period, Mr. Long said, adding that in 2016 the State approved the equitization plans of 58 businesses, six of which were SOEs. “Equitization has helped restructure human resources for firms and society, along with developing the capital market and stock market while also changing corporate management, helping raise business efficiency,” he said.

However, equitization in a number of ministries and localities has fallen short of plans. The rate of State capital at equitized companies is still high because the amount of publicly offered shares has been low. In particular, the mechanism for SOE equitization has revealed several shortcomings that need to be examined and fixed.

Mr. Tran Dinh Thien, Director of the Vietnam Institute of Economics also known as Arbitrator of Vietnam International Arbitration Centre (VIAC) said that although 96.5 per cent of enterprises have been equitized, only 8 per cent of State capital was transferred to the private sector because “the proportion of State capital for sale is very limited,” adding that this has led to private enterprises being excluded from participating in management, not to mention corporate control rights.

Mr. Adam Sitkoff, Executive Director of Amcham, said that in order to increase the confidence of investors, equitization and divestment must be transparent and investors must be provided with full information related to the businesses. Meanwhile, Mr. Tony Foster from UK law firm Freshfields and listed as Arbitrator of VIAC, said that to attract serious and long-term investors, they must be able to buy controlling stakes in equitized businesses or divested SOEs.

The Vietnamese Government’s plans to fully divest from 12 SOEs have progressed at a snail’s pace since being announced last September, raising speculation that in reality Vietnam wants to retain its ownership level to continue wielding veto power.

In the latest note, the government-backed State Capital Investment Corporation (SCIC), which manages a large portfolio of SOEs, said that it will unload a 3.3 per cent stake in the Vietnam Dairy Products JSC (Vinamilk) in October. Even if the sale goes through, SCIC’s stake will be kept at 36 per cent. The government can exercise its veto rights as long as its stake is above 35 per cent.

Last December, the SCIC announced its intention to sell a 9 per cent stake in Vinamilk, which is the leading Vietnamese dairy company and enjoys strong earnings. Despite the company’s stellar profile, there was only one bidder: the Singapore-based beverage company Fraser and Neave. Some cited the high price and complicated bidding process for only one bidder becoming involved. The SCIC ended up selling just 5.4 per cent.

Cre: Quang Huy | VN Economic Times

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