On the road toward restructuring, credit institutions in Vietnam need not go it alone. The Vietnamese Government has assigned the Ministry of Finance to build a scheme for State-owned enterprise (SOE) restructuring and to carry out the plan from the start of 2012.
Like banks, SOEs will be restructured
According to the Ministry of Finance, right in the first quarter of 2012, State-owned economic groups (also known as Corporation 91) will have to submit reshuffling plans to the Prime Minister while other State-owned enterprises will have to submit similar documents to central governing agencies and provincial/municipal governments.
Notably, the Government called a halt to the formation of administratively ordered economic groups and only allowed the establishment of highly feasible schemes.
Besides, the Ministry of Finance was designated to work out a scheme for the setting up of the General Department of Corporate Financial Management and Oversight which will be submitted to the Prime Minister for consideration. The General Department will be affiliated to the Ministry of Finance, serving as a supervisor and evaluator of SOE production and business performances while enhancing the capacity of State Capital Investment Corporation (SCIC).
The Finance Ministry is also compiling a decree on SOE financial supervision and performance evaluation, determining and controlling financial ratios to ensure financial safety for industry-specific SOEs. There will be a limit on loan to equity ratio.
The Government said the leading content of this scheme is to continue speeding up the equitisation process so as to reduce State ownership in enterprises, build effective mechanism to attract domestic and foreign strategic investors, decrease strategic investors being SOEs, encourage employees to purchase shares in their enterprises, and encourage debt trading between SOEs, commercial banks and Debt and Asset Trading Company (DATC).
Also according to the spirit of the scheme, the Government will ban SOEs from investing in non-core businesses before 2015 and “strictly prohibit State-run non-financial companies to invest in finance, banking, securities, insurance and real estate sectors”.
As regards corporate governance, from 2012, SOEs must prepare and publish consolidated financial statements in accordance with the Vietnamese accounting standard. SOEs must have internal compliance divisions consisting of independent able members and carry out the mechanism allowing SOEs to hire chief executive officers and board members. The mechanism for releasing financial statements, financial information, business information and administrative information of SOEs will be the same as that applied to listed companies.
Four groups and four steps
In 2011, the Ministry of Finance built a framework scheme for SOE restructuring and it is completing the detailed scheme featuring four steps. Step one concerns ratifying and assigning the implementation of SOE restructuring plans. Step two includes building SOE reshuffle, renovation and equitisation plans performed by ministries, agencies and localities. Step three covers implementing phased SOE restructuring roadmaps: Completing SOE debt restructuring, SOE equitisation and corporate governance from 2012 to 2015. In 2015, SOEs will complete divestitures. Step four is the continuation of SOE reshuffling from 2015 to 2020.
The Ministry of Finance also classifies SOEs into four groups. Group 1 consists of wholly State-owned enterprises operating in national defence, security, critical infrastructure system and monopolistic industries that the State needs to keep a [complete] control. This group of SOEs will restructure their strategies, organisational models, internal governance, financial and personnel restructuring to improve operating efficiency.
Group 2 comprises SOEs where the State keeps absolute controlling stakes (above 75 percent) and holds the right to make all decisions on important issues. They primarily provide public utilities, essential goods, etc.
Group 3 includes SOEs where the State holds dominant shares (over 65 percent). They are big business entities with big contributions to the State Budget, leadership in applying cutting edge technologies and important role in balancing the economy and stabilising the market. SOEs classified into Group 2 and Group 3 will be restructured before being equitised and they will continue with restructuring after being equitised.
Group 4 comprises SOES where the State does not need to hold controlling shares. Privatisation will be stepped in these SOEs and the State will gradually divest from these enterprises.
“The restructuring of the banking system cannot come to success without going hand in hand with the reorganisation of SOEs,” said Dr Vu Dinh Anh. At the Conference on Bank Restructuring held by the National Financial Supervisory Commission in Hanoi in January 2012, he said: "On the one hand, SOEs are now taking up more than 20 percent of public investment capital and they are using over 30 percent of total credits, not to mention that they are primary customers of State credit funded by the Vietnam Development Bank (VDB). Therefore, the restructuring of the banking system cannot be separated from the restructuring of public investment and SOEs. On the other hand, many SOEs have directly and indirectly invested in banking, securities and real estate sectors; thus, the banking reshuffle will not be completed without restructuring SOES.”
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As of October 2011, Vietnam had 1,309 wholly State-owned enterprises with aggregate assets of VND1,800 trillion, owner equity of VND700 trillion, profit of VND117 trillion and tax payment of VND231 trillion. They contributed some 35 percent to the country’s GDP, accounted for 39.5 percent of industrial output value, generated 28.8 percent of total domestic revenues (excluding crude oil revenues), and generated jobs for some 1.2 million workers who are paid from VND3.5 million to VND5 million a month, on average.
(Source: Ministry of Finance)
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Also at the conference, Mr Pham Bao Khanh, an official of the Deposit Insurance of Vietnam (DIV), analysed China’s banking system restructuring and drew some experience for Vietnam. He added that the corporate restructuring faced a host of problems and banking reshuffling costs much more time. Legal limitations like lacking appropriate regulations on asset liquidation and bankruptcy laws are barring this process. So, it is necessary to combine financial measures with legal and law regulation reform, particularly banking and corporate governance reform.
He noted that the Government necessarily clarifies the restructuring cost allocation, especially banking restructuring and commitment to provide necessary financial resources. If allocated costs are unclear, the restructuring process will be further delayed due to insufficient funding, which will ultimately lead to greater financial burdens.
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