Story of Divestment

SOEs hold a huge value of national assets, which reveals 70 percent of total fixed assets, 20 percent of total society investment capital, 50 percent of total State investment capital, 60 percent of credit capital and 70 percent of official development assistance (ODA). Therefore, the focus of enterprise and economic restructuring is to increase the effectiveness of the SOE sector.

 

When SOE restructuring decisions are carried out, a comprehensive review of the overall situation is done, and once again the outside industry investment story returns. According to a Ministry of Finance (MoF) report submitted to the National Assembly, the amount of outside industry investment has reached over VND 21,800 billion. Accordingly, capital invested in banks has amounted to VND 10,128 billion. As of the end of 2010, giant enterprises also invested nearly VND 9,000 billion in securities and real estate. Capital investment of enterprises has concentrated nearly VND 5,380 billion in real estate. SOEs also get stuck in securities and insurance with capital of VND 3,576 billion and VND 2,236 billion respectively.

 

Beginning with the trend toward companies investing outside their main industry for “quick profit with non sustainability” in rapidly developing industries at that time, such as banks, securities or real estate; Vinashin has become a typical example of reckless and out-of-control investment in side industries, and has become a sad story with serious consequences.

 

These above-mentioned figures show that for the last two years, management has not archived its targets in restraining side industry investment. Early in 2009, the Government had steered SOEs to invest at least 70 percent of their total capital in their major industries. In case of SOE investment outside their own industry surpassing the regulated limitation, or investing in high risk investment funds, securities investment funds, or directly investing in securities; since March 25^th, 2009, they had 2 years to adjust their investment in the basis of capital preservation.

 

Overwhelming investment outside main industries strongly increased since 2006 and reached the peak in the period of 2008 - 2009, when the shares market became a bubble and the trend of capital contribution to establish banks became popular. In 2009, with the result of Government direction as well as difficulties of economic turmoil, outside main industry capital intensively decreased, but it grew fast in 2010, adverse to Government direction. This is when several stimulation packages were put forward; accordingly, it was suspected that part of the stimulation packages were spent not on production, but on real estate, securities and banks.

 

Reportedly, the MoF will submit the Decree on State capital investment and financial management in the end of 2011. According to the draft sent to related Ministries and sectors for suggestions, the rate of outside main industry investment will drop to 15 percent of total investment, compared to the current rate of 30 percent in 2009. It means enterprises must dramatically cut investment, divesting from real estate, banks, and securities.

 

The current real estate market is gloomy, just focused on stipulation and blowing prices. Furthermore, the shares market also shows an unexpected long term downtrend. Banks are not producing expected benefits, and are now undergoing comprehensive restructuring. In this period, outside industry capital divestment currently becomes a difficult task or even a loss of State capital. Moreover, with huge amounts of capital, the decision to divest from which areas is tricky; loans of development banks, loans guaranteed by Government, or assets like real estate.

 

Aiming to realise divestment, the Government and MOF have been urging one member limited liability companies to cut by 50 percent outside industry capital investment. However, these companies must ensure their financial security and not cause loss of State capital. The MOF has also offered a solution for enterprises: In case of divestment disability, they have to transfer their outside industry capital investment into the State Capital Investment Corporation (SCIC). But, the transfer becomes a difficult decision because of good profits brought from investment into financial institutions.

 

But this time, the Government shows great determination to restructure SOEs. The policy of “rejecting” financial companies possessing outside industry investment is accurate information. Previously, the State Bank of Vietnam has certified 18 financial companies to set up and operate, including four one member limited liabilities financial companies owned by the Groups, Corporations of the State, which hold 25 percent of total ownership. Groups and Corporations, which have invested in this area must plan early to divest and strive to stop their businesses.

 

Similarly, the National Assembly Committee on Economy and Budget has already submitted to National Assembly members the collected recommendations of economists and economic experts on macroeconomic proposals in 2012 to build divestment plans and strive to break investment outside main industry areas of Groups and Corporations of the State. The proposal claims that financial resources become more and more limited and expensive, SOEs are allowed to focus only on key industries, not distributed to outside industry investment, particularly in high risk areas such as: finance, insurance, real estate and securities.