Equitizing SOEs to Boost Growth amidst Covid-19

9:09:08 AM | 11/8/2020

The decision to propel divestment of Vietnamese State-owned enterprises in the second half of 2020 is welcome news to investors, according to Dr. Burkhard Schrage from RMIT University.

The Vietnamese Prime Minister recently issued Decision 908/QD-TTg, which approved a list of State-owned enterprises (SOEs) for divestment this year.

The decision aims to accelerate the divestment of enterprises where the State does not need to hold a stake, and thus restructure the State holdings of SOEs. It will also help to ensure enough capital is collected for the 2016-2020 public investment plans.

RMIT’s Management Senior Program Manager Dr. Burkhard Schrage said the push for SOE divestment in the second half of 2020 will create “exciting opportunities for both foreign and local investors”.

“While the timing may appear difficult due to Covid-19 and other global uncertainties, it makes a lot of sense to accelerate the SOE equitization program right now. It will also address the issue that the equitization program is behind schedule,” he said, adding that the slow pace of implementing the plan has been a point of criticism from international investors.

The acceleration will take advantage of high foreign investor interest in Vietnam, and the current historical high of the world’s stock markets, which, according to Dr. Schrage, indicates a continued appetite for equities globally.

It will also make the most of recent structural reforms of the corporate governance codes and implementation of modern governance mechanisms across Vietnamese firms.

“These developments have helped to increase transparency and reduce investment risks related to minority shareholdings, which has subsequently raised investor confidence in Vietnam,” he said.

While Dr. Schrage believes that the surging foreign investment interest in Vietnam will bode well for continued economic growth, he said it will also require strong commitments by the authorities.

“The Government should provide transparent and predictable regulatory frameworks for industries in which the SOEs operate,” Dr. Schrage added.

He also suggested several measures for the State to implement in order to optimize the selling price of SOEs (divestment revenues), including increasing the transparency of the overall process, implementing world-class corporate governance mechanisms, and appointing internationally reputed institutions for the equitization.

“The authorities should consider carving out problematic assets of any of the companies being equitized,” he stressed. “Take banks for example, the Government can take over their non-performing loan portfolio before divestment and equitize only the performing assets.”

Source: Vietnam Business Forum