Last updated: Tuesday, January 17, 2017
Making Private Sector Stronger and More CompetitivePosted: Thursday, December 15, 2016
With the theme of “Opportunities for investors in SOE restructuring in 2016 - 2020”, the Vietnam Economic Forum 2017 held in Hanoi by Business Forum Newspaper in cooperation with the Central Institute for Economic Management (CIEM) brought together more than 300 attendants who were executives, economists and association leaders from central to local levels.
Drastically accelerating equitisation
Delivering opening remarks to the forum, Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), said that the second meeting of the 14th National Assembly adopted a resolution on economic restructuring plan and highly agreed on the change of economic model where the private sector plays an important role. The private sector is a driving force and a major objective of economic restructuring process in the 2016 - 2020 period aimed to reallocate resources for more effective development, create a fair business environment, enhance competitiveness and improve our internal strength.
He said, one of key tasks is to restructure the State-owned sector and open up opportunities for the private sector. The plan put forth specific objectives, particularly reducing State-owned holding ratio at State-owned enterprises (SOEs), reducing SOEs with controlling State shares, and divesting from SOEs where the State does not need to keep more than 50 per cent of stake.
For the private sector, SOE restructuring will provide new opportunities for private investors, place SOEs in a fair operating environment and create a level playing field for private businesses.
“Currently, SOEs are holding the business sector in the economy and holding the resources of the economy, thus restructuring the State sector and divesting from SOEs will provide the chance for the private sector to buy shares and to become strategic investors. Nevertheless, specific actions are needed to turn these opportunities into reality,” Dr Loc said.
In fact, the restructuring process in 2011-2015 was slow and impractical. Restructuring schemes of SOEs were superficial. Therefore, he hoped that this reality will be changed in the coming time.
Right in number, wrong in nature
Mr Nguyen Duc Kien, Vice Chairman of the National Assembly's Economic Commission, said, the perfection of the legal system is a highlight of the restructuring scheme period 2016-2020. Vietnam has completed the regulatory system in the spirit of the 2013 Constitution, particularly the Law on Management of State Capital and Assets, the Law on Investment, and the Law on Enterprises 2015. Hence, all sectors the State does are specified in the Law on Investment. There are only four industries that the State holds sole business rights, while others are open to the private sector. Notably, regulations on conditional businesses tend to narrow.
He added, the most important content of this scheme is there is no limit on holding ratios of the private sector engaged in SOE restructuring (excluding credit institutions). The State can even completely sell a big SOE to the private sector.
The biggest challenge in the next five years is the uncertainty of international economic context. In 2016, new developments such as Brexit forced macroeconomic policymakers to rethink their plans, Mr Kien noted.
Another challenge is the real nature of restructuring. Indeed, Vietnam achieved the right number of enterprises but got the wrong nature. The change in ownership structure did not lead to a lower-than-expected change in corporate governance. Profitability targets will be hard to hit if capital and model are missed.
Mr Ho Sy Hung, Director of Business Development Bureau under the Ministry of Planning and Investment, said, SOEs launched 426 initial public offerings (IPOs) from 2011 to September 2016. Only 254 of them sold out registered shares, accounting for 60 per cent, while 172 companies, or 40 per cent, could not sell all registered shares.
A recent report by the Ministry of Finance showed that the State still holds overwhelming ratios in equitised SOEs such as Lilama (98 per cent), Vietnam Airlines (95.5 per cent), Petrolimex (94.99 per cent), Vietnam Steel Corporation (93.6 per cent) and Airports Corporation of Vietnam (92 per cent).
Mr Dau Anh Tuan, Director of VCCI Legal Department, said, the very important objectives of the Government and the National Assembly are to make private firms stronger and more competitive. Nonetheless, the current picture of Vietnamese private sector is still ominous because the scale of Vietnamese private enterprises is getting smaller and they operate inefficiently.
“According to surveys by VCCI, the labour force of a company was over 40 people in 2009 but it was just 26 people in 2015. Up to 58 per cent of private enterprises do not have taxable incomes. Other indicators are also very worrying. For example, rapid export growth is driven by the foreign sector, which is now taking up 80 per cent of export value, compared with 50 per cent four years earlier. Only 30 per cent of private businesses have access to bank loans, while other sectors have 70 per cent accessible to credit sources. The State is giving many preferences for big companies. It is essential to clear obstacles for private businesses to have business opportunities and make a profit,” Tuan said.
Authorities must ensure a fair business environment to enable them to operate effectively. For the time being, policies are better for the bigger. This reality places a greater pressure on small companies and drains their development motivation.
While small businesses are facing difficulties, big ones are confronting adversity of impeding administrative procedures which reportedly need to be cleared. It seems that bigger companies need to perform more administrative procedures. Recent surveys show that bigger companies have to receive more inspections because law enforcement authorities tend to think that they are more likely to make a mistake. This will make many companies not want to be big.
“Every business needs to restructure and reposition to compete fairly in the market. State-owned businesses and private enterprises need to play on a level ground to prove their positions,” Tuan concluded.
Mr Dang Quyet Tien, Deputy Director of the Corporate Finance Department, the Ministry of Finance
Equitisation is not a process where shares are sold to the public, but it is a process of changing the nature of equitised enterprises. It is essential to change the perception of buyers, particularly foreigners, because if foreigners do not see development strategies of enterprises, they will not dare to buy. The objective of the Government is selling at the market price. Meanwhile, the market is being completed but it is not standard. For that reason, policy and mechanism must be open.
The State requested hiring consulting firms to make comparisons but none dared to produce 2-3 methods. Foreign consultants advised well. They did and they accepted it. However, domestic consulting firms were not very effective and they often tended to provide the same information. This makes foreign feel uncertain and they do not dare to buy. Domestic buyers are the ones who understand their chosen enterprises.
In addition, other matters such as the quality of valuation consultancy. The Government opens but consultants are not open. Equitisation expenses are controlled by general rules. Only big offers can catch the fancy of investors, while a majority of Vietnamese companies are small. The process of converting SOEs into joint stock companies is not effective. Consultants only focus on tackling existing issues rather than go into valuation
Mr Le Net, Lawyer at LNT & Partners Law Firm
Corporate valuation is made by the seller - the owner of enterprises. But, from the perspective of economic laws, valuation by the buyer is more appropriate and accurate. Public share auction is a method of buyer’s valuation. Equitised companies tend to forget their objective. In reality, we are selling our assets or leasing our assets rather than shares, but we are generally locked into the concept of equitisation.
Therefore, we need to understand the nature of the issue, that is to say, privatisation, which includes both the sale of shares and the sale of assets, and use an eight-step process. Determining valuation and liabilities are based on current valuations, not on future valuation.
Right from the outset, they must define their objectives and hire consultants. It is easy to sell shares quickly but selling at good prices is impossibly quick. If companies are too weak, we must shift to sell assets, not shares. And, either selling assets or selling shares should be put up for public auction to find best buyers.
Mr Nguyen Quang Tien, Deputy Director of Business Development Department, the Ministry of Finance
The Government will make public the list of companies with planned holding ratios by the State. Foreign investors will not be restricted from attending equitisation. We will change equitisation methods and corporate value will relate to investor tastes and appetites.
Corporate valuation is determined by the market price. There are eight methods for us to single out the best one. Companies should hire international consultants because they help enliven the equitisation market. Corporate valuation is a basic notification of corporate value to investors, but the final price is decided by the market.