Quickly Transforming All SOEs into Joint Stock Companies

The process of reforming SOEs is quite slow since it was initiated 20 years ago. Vietnam has made a plenty of achievements and drawn a lot of lessons during this period. And, there is a truth that “equitising and listing shares on the stock market is the actual reform.” But, to date, hundreds of SOEs have no equitisation plans in the medium term for various reasons.

 

These SOEs are mainly engaged in monopolistic businesses, public utilities or multi-industry groups. Thus far, there are no effective policies to promote them to reform. Or in other words, there is so little change in policies on management of these SOEs. Hence, VAFI has recently sent a proposal to the Ministry of Finance to convert SOEs without equitisation plans in the medium term to joint stock companies.

 

According to VAFI, SOEs can be transformed into joint stock companies with three initial legal entity shareholders: Trade union representative, Party Committee representative, and the State represented by ministries and branches, local people's committee and state corporations. The first two will keep only one share each (VND10,000 per share) and the rest is owned by the State.

 

“This new model does not mean capitalisation but technical measure adopted to quickly transfer single-member SOEs to joint stock companies with three shareholders. However, this will bring enormous benefits for the State Budget and the corporate governance. There is no need to establish a committee for equitisation as well as conduct asset valuation and IPO but a decision to convert,” said VAFI.

 

The primary aim is to better manage after tax profit for contribution to the state budget. Currently, SOEs are allowed to retain all after tax profit instead of paying dividend to the State like joint stock companies, said Mr Nguyen Hoang Hai, General Secretary of VAFI.

 

International experiences have pointed out that all dividend payouts at joint stock companies in which the State holds stake must be donated to the state budget. Thailand government, for instance, acquires 51 percent stake in several large corporations whose contribution, however, makes up 10 percent of the state budget annual revenue.

 

If the VAFI measure is executed from 2013, the potential dividend collected could total US$3 - 4 billion a year, equivalent 10 percent of the state budget revenues, which will climb to 15 percent later, said Mr Hai.

 

Vietnam is quite easy going with SOE leaders. Thus, many SOEs make light of profit targets. Profitability would be acceptable and unnecessarily substantial. What is more, some have even been involved in the appropriation of affiliates' dividend, corporations' profit and taking out huge bank loans in order to make widespread investment beyond core business.

 

This measure is thus expected to force SOEs to pay annual dividend to the State either at banks' deposit interest rates or the industry's average dividend payout ratio. Consequently, poor management could then be eliminated and talented employees would be hired.

 

It is unfair as many SOEs like Mobifone, Vinaphone, Viettel, PetroVietnam and Vinacomin have enjoyed monopoly and exploited a great deal of national resources are exempted from making dividend payment to the state whereas others without such competitive advantages are required to, Mr Hai noted.

 

The Ministry of Finance has recently set up a Steering Committee for SOE Reform led by Finance Minister, a move expected to generate innovative solutions for SOE reform.