Economic Sector

Last updated: Tuesday, April 23, 2019


Strategic Investors Play Fuzzy Role in SOE Equitisation

Posted: Monday, June 25, 2018

To prepare for the “Capital and financial markets” theme at the Vietnam Economic Forum 2018 to be held in August, the Committee for Private Sector Development Research (Committee IV) under the Advisory Council for Administrative Procedure Reform hosted a workshop on “SOE Equitisation and SOE Divestment from Expert Views” to have a practical assessment of this process in Vietnam.

Slow-moving journey
Planning and carrying out plans of privatising and divesting State-owned enterprises (SOEs) in Vietnam are too slow, according to experts. The Report of the 14th National Assembly on SOE equitisation and divestment showed that, in the 2011 - 2016 period, strategic investors only held 7.3 per cent of stake of 426 privatised companies, showing that the presence of strategic investors at the Board of Directors is only formalistic. With such a low shareholding ratio, strategic investors are restricted from contributing to improving governance and performance of privatised companies.

SOE privatisation and divestment have been so slow that many investors feel discouraged and lose confidence in the roadmap and plan set by the Government. This reality is attributed to overlapping regulations specified in many different laws instead of just one law, resulting in difficult references and application. Not only that, although SOEs to be privatised must hire at least two consultant organisations - a valuation company (for corporate valuation) and a securities company (to sell shares), legal regulations are insufficient to prevent conflicts of interest or legal liability of these organisations. This also results in increased equitisation costs and bad implications from corporate valuation.

Although goals and methods for execution are complete in approved equitisation plans, corporate valuation is still confusing, from the consideration and harmonisation between the goal of maximising proceeds for State shareholders with the goal of seeking strategic investors for business development.

Refocus needed
Picking up right strategic investors in SOE equitisation or divestment process is important to the sustainable development of companies, industries and the economy as a whole. The State, an enabler for national development, needs a longer and more comprehensive vision in the quest for strategic investors.

Dr Ngo Tri Long, Director of the Institute for Market Price Studies under the Ministry of Finance, said, in addition to SOE equitisation and divestment with reasonable valuations, the State should pay more attention to elements of sustainable development. Chosen strategic investors must be capable of maintaining and developing main business and protecting Vietnamese brand names. To pick up right strategic investors, the government needs to carefully assess the historical performance of potential investors to identify unwanted signals such as hostile takeovers in the past, business development results based on local brands in the past (e.g. the share of acquired companies to their overall revenue). Besides, to promote and expand markets for products, strategic investors need to be experienced enough with the Vietnamese market to make sure that they can inherit and develop products of privatised companies.

He added that, to make SOE equitisation work better for corporate governance quality improvement, the State creates the environment for these investors to more actively join in administration. This goal will become true when the State selects right strategic investors whose technology and experience are consistent with business development missions of equitised companies. He recommended that Vietnam needs a mechanism enabling strategic investors to hold sufficient shares to exert significant impacts on enterprises. By doing so, enterprises can fully employ advantages of strategic investors, improve business performances and reduce costs after they go public.

Nguyen Thanh

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