Stepping up SOE Reform

Slow progressSince 1992, the Government of Vietnam has been carrying out SOEs equitisation- or converting them into joint stock companies with limited liability - but the process has been relatively slow and confined mainly to smaller enterprises. 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.

 

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 are wholly owned by parent groups and corporations, and about 1,000 independent State-run enterprises.

 

The Government is now planning to equitise and transform large general state corporations to improve their efficiency and unlock the full potential of their subsidiary companies. Under the plan, Vietnam will reshuffle 1,000 State-owned enterprises in the coming time, mainly by equitization. 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 will be wholly state-owned.

 

Strengthening balance sheetsAccording to ADB, the US$630 million assistance will facilitate this process by making corporations more attractive to strategic and other outside investors by strengthening their balance sheets, rationalizing corporate structure, streamlining management processes and increasing transparency to internationally acceptable standards.

 

ADB’s new program will also provide training and other assistance to government institutions involved in the SOE reform process, such as the Debt and Asset Trading Corporation. The first tranche of US$130 million will support transformation of the Song Da group of companies, which are involved in several different business segments related to infrastructure, and Southern Waterborne Transport Corporation, which provides logistics services.

 

Mr Pradeep Srivastava, Senior Regional Cooperation Specialist in ADB’s Southeast Asia Department, said: The outcome of the restructuring will be general corporations, made up of subgroups of companies that can operate independently, secure financial resources from capital markets on their own without having to rely on the government, and which will meet all the conditions for an eventual listing.

 

Under the financing facility, ADB will provide US$600 million from its ordinary capital resources (OCR) to strengthen the balance sheets of selected corporations through debt restructuring, with US$30 million from its concessional Asian Development Fund (ADF) used to support operational and corporate governance improvements, and institutional strengthening. ADB’s funds make up almost 36 percent of the estimated US$1.77 billion cost of SOE transformation till 2015 with the remaining balance expected to be financed from government contributions, internal resources of participating general corporations and strategic investors.

 

In the first tranche, ADB will provide an OCR loan of US$120 million, and an ADF loan equivalent to US$10 million. The terms and conditions of the OCR funds will be based on ADB’s LIBOR-based lending facility, while the ADF loan has a term of 32 years, including a grace period of eight years. Interest during the grace period is 1 percent per annum, and 1.5 percent for the rest of the term.

 

The Ministry of Finance is the executing agency for the program, with the financing facility to be utilized from December 2009 to December 2015.