SCIC - Challenges to Mission Accomplishment

State Capital Investment Corporation (SCIC) has been established to reform the state economy sector. As a rule, SCIC will manage state ownership in privatised enterprises, and continue to sell remaining state capital without owning dominant stocks as before. With such a special financial model, can SCIC overcome the challenges to accomplish its mission?

 

Founded in a special way, SCIC will submit reports directly to the Prime Minister and come under control of the Financial Ministry. SICI may receive 3000 privatised enterprises within the next three years, exclusive of the head companies 90, 91, economic corporations and state commercial banks. Beside the mission of state capital management in privatised enterprises, SCIC will carry out direct and indirect investment with starting charter capital, including high risk projects and non-profit sector projects in need of government financial support.

 

Huynh The Su, a researcher of Fulbright Economic Teaching Program, estimates the total state capital in the enterprise at the end of 2006 around VND 350, 000 billion (approximately US$ 22 billion), making up 35 percent of GDP. He also emphasizes that although some enterprises, particularly economic corporations, are directly under government control, their property portfolio may reach USD 10 billion if one third of state capital is controlled by SCIC after privatisation by 2010. With such a huge amount of money and diversified investment portfolios, SCIC will have great influence on the balance and stability of capital market development.

 

Le Song Lai, Deputy Director of SCIC, says according to the plan, SCIC will receive 1,000 enterprises in the short term. However, for a long term it will focus on investing in about 100 to 200 backbone enterprises operating in important sectors to set a background for investment portfolios, and divesting from the remaining ones.

 

As a newly formed company, SCIC has not had enough experience managing this kind of financial model. Many economic specialists worry that this will pose big challenges to SCIC.

 

Many suggest SCIC firstly should focus on efficiently managing state enterprises portfolios as well as improving business management, increasing member company share value and speeding up the sale of state capital of enterprises in non-strategic sectors. According to Nguyen Hoang Hai, Secretary-General of Vietnam Association of Financial Investors (VAFI), within next five years SCIC should hold stocks of 50 foreign enterprises, decreasing gradually. State capital should be invested in areas lacking attention from the private sector, such as, hospitals, schools and infrastructure development.

 

Allocating resources efficiently is the most important thing which requires someone to take on responsibility. According to Dominics Scrivens, Director of Dragon Capital, SCIC leaders must be in charge of the National Assembly and the government. He added there must be a system of inspecting and rating SCIC activities for timely adjustments to achieve the target, either finance or strategic-sector development. Dominic also emphasized, in case of achieving both targets, SCIC needs to allocate resources for each.

 

SCIC needs to build a professional group of staff. However, Nguyen Hoang Hai said, because SCIC is a state enterprise whose operation and salary mechanisms are still based on the State regulations, it is difficult to attract talent. Six months after coming into operation, SCIC has nearly 50 basically training staff with finance and banking experience. In the future, based on the job demands, the number of SCIC staff will constantly increase, expected to reach 300 by 2010.

 

From fiscal year 2007, SCIC will hire four leading international audit companies to inspect its financial reports to guarantee disclosure, transparency, and efficiency. SCIC deliberately implemented financial disclosure on enterprises having its capital contribution, considering this a necessary condition to listing standard enterprise stocks on the stock market. (Source: VCCI/MPDF)