3:26:27 PM | 7/8/2005
The Ministry of Finance (MoF) has submitted an amended decree on financial management regulations for State-owned enterprises (SOEs) for the Prime Minister’s approval. If passed, leaders of SOEs will have more rights to actively manage State capital and assets in those companies.
According to Vice Head of Corporate Finance Department under the MoF Nguyen Duc Tang, the most salient point of the draft decree is that SOEs will have more powers to use capital invested by the State and capital that the SOEs mobilise to expand their operations, including outside investments.
In detail, either ownership representatives or SOEs’ executives will decide an investment plan depending on the scale of the project. If a SOE has a management board, the board will have rights to decide on an investment project that has total value equalling to less than 50 per cent of the enterprise’s assets. Meanwhile, directors of SOEs that do not have a management board will be allowed to decide on implementation of a project that has investment capital of less than 30 per cent of the company’s assets. The State representative will bring out decisions on other larger investment projects.
Similarly, the decentralisation of management is also applied when a SOE wants to carry out an outside investment. The decentralisation is based on the ratio between investment capital and the company’s total assets.
Management boards or directors of SOEs will have no right to decide on the establishment of an affiliated one-member limited liability company or capital contribution for establishment of a multi-member limited liability firm or a semiprivate company if those enterprises operate in fields allowable for establishment of new state-owned enterprise. Meanwhile, management boards or directosr of SOEs must submit for ownership representative (the State)’s approval for the establishment of new businesses that will operate in fields not allowable for the setting up of new state-owned enterprises.
Regarding the establishment of new SOEs, the draft decree regulates that if investing SOEs use their registered capital to invest in the establishment of new SOEs, the ownership representative of the investing SOEs must withdraw the investment from the previous two years since establishment. Ownership representative will withdraw investment via selling stakes to other institutional or/and individual investors.
SOEs are allowed to mobilise capital from all foreign and local institutional and individual investors for their investments. However, directors of SOEs can decide on borrowing sums worth less than the SOE's registered capital only. In case the borrowing sum is bigger than the SOE's chartered capital, the management board or ownership representative (if the SOE does not have management board) will be in charge of the decision. For the case of making a joint venture with foreign investors or investing abroad, the SOE's management board or director must get a green light from the ownership representative.
To enlarge rights and intensify responsibilities of SOEs’ managers, the draft decree regulates that SOEs' ownership representatives are in charge of managing the enterprise's value only. SOEs' managers (management boards or directors) have full rights of deciding on leasing, mortgaging and guaranteeing SOEs' assets effectively.
SOEs' managers are allowed to actively bring out amortisation ratio of fixed assets provided that it is not lower than minimum rate regulated by the Ministry of Finance. SOEs' managers must liquidate all unused assets to recoup capital for the company. In case of loss, they must define responsibility of loss-makers to claim for compensation following prevailing laws.
If SOEs' managers don't clearly state losses incurred, they will be blamed for not reporting the company's financial situation faithfully and will be punished as regulated in current laws.
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