SOE equitisation remains at snail’s pace

At a recent conference on improving the operational effectiveness of state-owned enterprises (SOEs) in Hanoi, the story of Sabeco’s success in selling 54 % stake to ThaiBev last year for nearly US$5 billion was specially mentioned.

“Initially it had been hard to sell Sabeco’s stake, but why did the sale go smoothly later? It was because all the information of Sabeco was made transparent, while it had not been the case before that,” Prime Minister Nguyen Xuan Phuc said.

“But over the past few years, many SOEs have failed to be successful in equitisation like Sabeco, as their information hasn’t been transparent,” he continued.

Hong Sun, vice chairman of the Korea Chamber of Business in Vietnam, told Nhan Dan Online that the Vietnamese government is speeding up the SOE equitisation, and this mirrors the government’s big efforts in boosting the national economic restructuring.

“Many Korean firms want to buy stake from big SOEs in Vietnam, but it has been difficult for them due to the lack of information from the SOEs,” he said. “Transparency in corporate governance of many Vietnamese enterprises remains problematic. Moreover, currently in Vietnam, it is often considered to be sensitive for a business to reveal its information before its stake can be sold.”

Nguyen Viet Ha, managing director of US-backed investment consultant BowerGroupAsia Inc’s Vietnam Office in Hanoi, said that in almost all cases when SOEs are going to begin equitisation, investors cannot access information from these businesses. Not even material about how they have been operating is given to investors, who are even not allowed to visit their factory.

Stunted divestment and eqiutisation

The Ministry of Finance (MoF) last month reported that in this year’s first 11 months, the speed of SOE equitisation was very slow. Only 12 SOEs were equitised, with total value of over VND29.747 trillion (US$1.29 billion), including VND15.413 trillion (US$670.1 million) worth of state capital. Meanwhile, the total number of SOEs that must be completely equitised this year is 85.

As of late November 2018, only 35 out of a total 526 SOEs had their restructure schemes adopted by authorised agencies.

The MoF has also publicised the names of many big SOEs that have failed in completing their divestment plan for 2017 as ordered by the state.

These businesses include Vietnam Engine and Agricultural Machinery Corporation, with total value of VND7 trillion (US$304.3 million), Vietnam Pharmaceutical Corporation (VND829 billion or US$36 million), the Ministry of Construction’s eight firms (VND2.4 trillion or US$104.35 million), and Hanoi’s 17 firms (VND526 billion or US$22.87 million).

In October 2018, during his meeting with many Danish companies in Denmark, Prime Minister Nguyen Xuan Phuc said that Vietnam stands ready to sell state stake at big SOEs to foreign partners, including Danish businesses.

He welcomed them to partake in the sectors of sea logistics, foodstuff processing, shipbuilding, green technology, energy, animal husbandry, fishery, health care, education, and smart city.

So far, about nine deals between big SOEs and foreign strategic investors have been completed. The largest one is the Sabeco deal, followed by the 2013 deal involving Japan’s Bank of Tokyo-Mitsubishi UFJ acquiring 20% of VietinBank’s stake for US$743 million.

The remaining agreements have had small stakes sold to foreign investors, such as Carlsberg’s 17.08% stake (US$115 million) in Habeco, Mizuho’s 15% stake (US$550 million) in Vietcombank, ANA’s 8.77% stake (US$109 million) in Vietnam Airlines, HSBC’s 18% stake (US$350 million) in Bao Viet Insurance, JX Nippon & Energy’s 10% stake (US$117 million) in Petrolimex, and Itochu’s 5% stake in Vinatex.

New driving force for equitisation

According to the MoF, results from the operation of more than SOEs equitised in 2015 showed that as compared to the pre-equitisation time, many indexes of these businesses remarkably rose, such as pre-tax profit (49%), state budget contribution (27%), charter capital (72%), total assets (39%), revenue (29%), and average income for employees (33%).

For instance, Vinamilk began its equitisation a few years ago, with over 20 foreign stakeholders. The biggest of whom include Singpore’s F&N Dairy Investments Pte Ltd, (17.31%), Platinum Victory PTE.Ltd., (8.85%), and Platinum Victory PTE.Ltd (2.25%).

According to reports by 294 SOEs which have state-held stake after equitisation, last year, their total assets were worth VND543.858 trillion (US$23.646 billion), up 6% year-on-year. Total equity hit VND210.035 trillion (US$9.13 billion), up 14% year-on-year, and total revenue reached VND482.545 trillion (US$21 billion), up 21% year-on-year, while total pre-tax profit was VND36.633 trillion (US$1.6 billion), up 11% year-on-year.

“Thus, it is clear that after being equitised, SOEs tend to grow and develop stably,” said MoF Minister Dinh Tien Dung. “It is also importantly confirmed that equitisation is a crucial solution to rearrange, renew and restructure SOEs, facilitating the sale of state stake and luring potential investors.”

Deputy Prime Minister Vuong Dinh Hue stressed that SOEs should be focused on key areas of the economy, such as security and defence, and the areas that private firms do not want to engage in.

Currently SOEs participate in almost across the board - from garment manufacturing to mobile telephone services and to banking - in activities where private players could do a better job.

Nguyen Dinh Cung, head of the Central Institute for Economic Management (CIEM) also noted that “Vietnam will not be able to achieve higher and sustainable growth if the government remains slack in reducing its commercialisation via SOEs. Private enterprises want to have a level playing field in the economy.”

According to CIEM, the private sector is currently surging as an important propellant of the economy. It has sufficient capacity to engage in almost all industries controlled by the state.

“It is important to change the role of the state in investment, from the direct investor in production and running business to a supporter and regulator,” Cung stressed. “The state should substantially retreat from the economy as an investor and producer and instead focus on overcoming/repairing market failures.”

However, according to the MoF, SOEs are currently considered an important tool for the effective implementation of all policies on macroeconomic stabilisation, inflation control, and response to market fluctuations. Besides, SOEs are also a big source of state budget revenue and play a crucial role in ensuring national security and defence.

At present, SOEs have total assets worth over VND3 quadrillion (US$130.43 billion), and capital of over US$1.3 quadrillion (US$56.52 billion), while the economy’s total GDP is about VND5 quadrillion (US$217.4 billion).