Overcoming Drag on SOE Restructuring

 

Vietnam planned to equitise 289 SOEs this year. In mid-April 2015, the Prime Minister asked ministries, branches and localities to firmly complete the equitisation of 289 SOEs as planned. Persons in charge of SOE equitisation will face strict penalties if they cannot lead the equitisation to a success.

 

Divestments by SOEs are effective. They invested approximately VND5 trillion but they took back nearly VND7 trillion. Real estate investments accounted for 45 percent of divestment proceeds. The number of SOEs launching IPO or share auctions via the Hochiminh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) in 2014 was 1.4 times higher than average over the three previous years.

 

The Prime Minister told the Ministry of Finance to provide guidance to the settlement of problems and difficulties emerging from corporate valuation such as reversal of provisions to State capital, determination of long-term investments , potential value, fully depreciated assets, revaluation of financial investments at the time of converting SOEs into a joint stock company, determination of share price sold to employees and unionists in SOEs transformed into joint stock companies but yet to launch IPOs.

 

Divestment from non-core businesses is also an important work in the process of SOE reshuffling. Before 2011, SOEs poured their money into banks, insurers, securities companies, real estate firms and venture funds.

 

In 2014, SOEs collected VND6 trillion from divestments, many times that of previous years. Nevertheless, this value was very low relative to the gross value of non-core investments that the Government required. Many companies became puzzled when they had to preserve the original value while selling at market prices. In 2014, the Prime Minister urged relevant bodies to issue regulations to handle this issue in 2014.

 

Speaking at an information conference on new policies on divestment, share sale, transaction registration and share listing on the stock market in April 2015, Hoang Nguyen Hoc, Deputy General Director of State Capital Investment Corporation (SCIC) said that SCIC would have to sell shares in more than 300 companies and hold stake in only 100 companies by the end of this year.

 

In fact, in the first three months, SCIC sold stakes in 22 companies, far below the target of more than 300 companies. This means that SCIC has to sell one company a day from now to the end of the year - an almost impossible task.

 

A lot of policy difficulties need to be resolved to accelerate share sale process. To deal with these issues, the SCIC official suggested the Ministry of Finance and the State Securities Commission of Vietnam (SSC) add new measures to push up share sale. Specifically, as for loss-making companies whose corporate value is below the share capital value and market price is lower than the par value of VND10,000, selling below the par value should be allowed. “Some companies have the corporate share par value of VND10,000 but their market prices are around only VND500," said he added.

 

Share sales/auction need more support solutions to pace up the speed in 2015. According to Decision 51, SCIC is entitled to consider buying back shares of companies and shares in non-core business investments buy credit institutions only on the condition that such shares cannot be sold on the market and the SBV cannot handle. “According to the spirit of capital investment business, SCIC can only make a purchase of effective and profitable investments. But, it becomes a big problem when the purchases have no buyers [when SCIC wants to sell],” he added.

 

According to some experts, strategic shareholders should be given more favourable conditions to buy the entirety of shares offered by SCIC, because only strategic shareholders have the drive to push their companies up. To draw strategic investors, regulations need to be changed to legalise entire block sale as big investors prefer holding the maximum to the limit to have heavier voice in their companies.”

 

Vu Bang, Chairman of the State Securities Commission of Vietnam (SSC), also said that legal documents need to be amended for entire block sale to strategic partners. The presence of strategic shareholders will help enhance corporate governance after companies go public.

 

In fact, many SOEs fail to sell shares via public offering, but they make it when they sell shares to strategic investors. That many private groups want to buy airports and seaports and buy controlling shares has recently caught public attention.