Privatisation: Difficulties Ahead

Vietnam arranged 5,660 enterprises as of October 30, 2009, with 379 transformed into one-member limited liability companies, 3,896 equitised, 197 transferred, 155 sold, 30 leased, 532 merged and 471 dissolved. However, the equitisation is encountering many difficulties needing to be addressed.

 

According to Mr. Pham Viet Muon, Vice Chairman of the Government Office and Vice Chairman of the National Steering Committee for Enterprise Reform and Development, the number of equitised enterprises accounted for 68.9 percent of reshuffled enterprises. Particularly, 67 SOEs with chartered capital of over VND100 billion each and 11 State-run corporations went public. The holding ratio of State equity equitised enterprises, State-owned corporations and independent State companies is 18.5 percent. “This rate is not high in spite of the large number of equitised SOEs because the State capital in state-run companies, especially corporations and groups, has increased substantially in recent years thanks to growing net profit and capital surplus of their member companies,” said Muon.

The capital structure at the time of privatisation, according to Mr Muon, the average State holding ratio is 60 percent of chartered capital (because the State holds more than 50 percent of chartered capital in large enterprises and because IPOs were unsuccessful in 2007 and 2008 due to stock market downturn), employees keep 13 percent and outside investors hold 27 percent.

 

Vietnam also completed the equitisation of two first State-owned commercial banks, namely Vietcombank and Vietinbank, which have been listed on the local stock market. However, the two lenders have not selected foreign strategic shareholders. “The Government is directing [them] to pick foreign strategic investors to improve the governance of the banks. Several other commercial banks are in the process of equitization,” said Mr Muon.

 

Besides, Vietnam has seven economic groups operating in key areas of the economy. According to Mr Muon, this is a new organisational model in Vietnam, which is still the process of the pilot, but initial results showed their better performances.

 

Thus, as of October 30, 2009, the State still holds 100 percent of equity in 1,500 enterprises, in which eight parent groups, 88 State-run corporations, 420 member companies wholly owned by parent groups and corporations, and about 1,000 independent State-run enterprises. Most groups and corporations are streamlining their governance, privatising their affiliated companies and restructuring their business lines to focus on fields assigned by the Government.

 

Under the plan, Vietnam will reshuffle 1,000 State-owned enterprises in the coming time, mainly by equitizing. Companies which do not go public by July 1, 2010 will be transformed into one-member limited liability companies and operated in line with the Law on Enterprise before going public later. By 2015, the country will basically complete the restructuring of SOEs. By that time, only 400 companies are wholly state-owned.

 

However, according to experts, corporate valuation is a major difficulty in equitizing an SOE, especially those holding large land and assets. Several companies are subjected to be relocated from the urban zone and they cannot go public before the completion of the reallocation progress.

 

In addition, according to the Enterprise Development Department under the Ministry of Planning and Investment, the selection of major strategic shareholders to take advantage of their strengths in corporate governance and market is experiencing shortcomings. Major shareholders and potential strategic shareholders usually pledge to long-term investment in their selected companies to acquire preferred shares. However, after a short period, the share value of their companies increased, they are willing to sell their shares to take the margins.

 

“On the other hand, IPOs are not expected to be easy after the crisis because investors still are fearful for a long time after the crisis,” a representative from the Enterprise Development Department said.

 

To promote the reshuffle and renovation of SOEs, the Government is directing ministries and branches to expeditiously complete the legal framework to deal with difficulties against the process of reorganising SOEs.

 

Accordingly, the Ministry of Planning and Investment will review and amend the Decision No 38/2007/QD-TTg on SOE classification criteria to define fields that the State needs to hold 100 percent of stake. Fields other economic sectors can undertake, particularly public products and services will be offered to the public. The ministry is also studying and amending Decree No. 95/2006/ND-CP on the transformation of SOEs into one member limited companies operated in line with the Law on Enterprise to remove existing difficulties in privatisation. At the same time, regulations on corporate governance, rights and accountabilities of State equity representatives in transformed enterprises will also be added.

 

In addition, the Ministry of Finance is studying and supplementing the Decree 109/2008/ND-CP on transformation of wholly state-owned enterprises into joint stock companies to deal with difficulties related to valuing land use rights, geographical advantages, defining quantity and price, diversifying privatisation forms and methods to choose strategic shareholders, etc.

 

Besides, relevant agencies are also continuing to study and adjust methods of determining land prices and land price frames to match actual requirements in the process of privatisation, etc.

 

These measures, once applied, will open more favourable conditions for the SOEs in the process of selling shares to the public.