SOE Privatisation: Troubles in Administrative Procedures

For more than 15 years, the Government has issued at least five decrees on the equitisation of SOEs. The administrative intervention abuse caused instability of privatisation process. Lawyer Cao Dang Vinh, expert of Civil Law Department under the Ministry of Justice, said, this process is carried out in the fashion of a “self-awareness campaign” and is dependent on the presence of the state. Regrettably, the sluggish privatisation caused waste and loss of state capital.

 

Many lawyers said the absence of a strong legal framework is the reason for the impractical and complicated equitisation of SOEs. However, the remedy for this “disease” has not been introduced and many companies still have to experience pain in the privatisation process.

 

To date, it takes more than one year to complete the equitisation of a company and nearly two years for a corporation. Many expressed doubt about the accuracy of corporate valuation in such long periods of time.

 

Lawyer Cao Dang Vinh said the process to settle legal procedures concerning equitisation of SOEs moves at snail’s pace. Procedures on workshop, land, capital determination and state capital and assets use are typical examples.

 

The capital is deemed most important and most difficult in the privatisation process, because if the company is overvalued, the share prices will overly high, the number of share buyers will fall as a result. On the contrary, the state will lose capital if the company is undervalued although the number of buyers will increases as a result of low share prices.

Disputes arising from the equitisation of SOEs usually involves the determination of the company’s value.

 

According to Decree 109/2007/ND-CP issued by the Government, one of the duties of an equitised SOE is the organisation of first general shareholder meeting, the transformation into a joint stock company form and the finalisation of business registration in the month following the share offering. However, this duty is hard to complete without goodwill and cooperation from state competent bodies.

 

In fact, many companies got stuck in this sensitive period. The case of Hanoi Construction Investment Joint Stock Company No. 2 (Hacinco) in late 2005 was a typical example.

 

After launching its initial public offering at the Hanoi Securities Trading Centre (HASTC) on December 2, 2005, Hacinco organised its maiden general shareholders meeting to set up Hacinco Joint Stock Company. Although more than 99.32 per cent of voting shareholders supported this transformation, Hanoi People’s Committee did not issue a decision on the transformation due to some problems. As a result, the company could not finalise its business registration although it had already organised the general shareholders meeting. This meant invalidated the legality of the result of the shareholder meeting.

 

Another cause is the irresponsibility of state officials. Many companies encountered business stagnation. The two-year Hacinco dispute was clear-cut evidence.