SOEs Struggle to Divest Non-Core Business

For a long time, SOEs have been making scattered and inefficient investment in non-core fields, some even incurring huge losses. Consequently, so far, SOEs still have huge amount of capital, up to tens of trillions of VND, in the areas of securities, banking and insurance. The settlement of non-core divestment is still a difficult problem and cannot be resolved overnight.

 

In Vietnam Petroleum Corporation (Petrolimex) alone, recent inspection results of the government shows that in the period from 2010 to June 2013, the group invested in other industries VND2,225 billion in the fields of insurance, banking, real estate, in which a great amount of capital was not invested under regulations.

 

For example, Petrolimex increased VND400 billion in PG Bank, more than VND170 billion into Petrolimex Insurance shares without the approval of the Ministry of Industry and Trade and the Prime Minister. The group also increased VND51 billion in Petrolimex Real Estate Joint Stock Company without the approval of the Ministry of Industry and Trade; funded nearly VND231.9 billion to invest in the banking sector, insurance and real estate, violating the Resolution of the Board of Directors.

 

According to Nguyen Hoang Hai, Vice Chairman of Vietnam Association of Financial Investors (VAFI), handling errors in Petrolimex's non-core investment will be based on the time before or after the government banned non-core investments. However, even in the period when the enterprise was allowed to invest non-core, if there was corruption or loss, it still has to handle violations.

 

"For SOEs in general and Petrolimex in particular, equitisation process must be implemented quickly. The first is to be listed in accordance with Decision 51 of the Government to publicize all activities, followed by divestments and transfer of State’s shares to State Capital Investment Corporation (SCIC). The Ministry of Industry and Trade should not handle it; otherwise it will yield interest groups," Hai said.

 

Not only Petrolimex, many other corporations and SOEs are also discovered to have invested thousands of billions of VND in sensitive sectors such as banking, insurance, securities and real estate. Back to 8 years ago, when non-core investment was allowed, most SOEs were contributing capital to real estate, banking, securities, etc, maybe even investing outside their main business area up to 30 percent.

 

Until now many businesses are still struggling to divest from non-core assets. Many businesses fall into problematic situations where they have invested huge amounts of capital in banking, but they are now struggling to sell capital. Such as at the Saigon Beer Alcohol Beverage Corporation (Sabeco), of VND791 billion invested in other industries, the "banking, finance and securities" accounted for VND536 billion. Performing the request of the Government for divestment outside the industry, Sabeco is stuck with bank shares despite cheap prices.

 

The Sabeco case is not rare. Many other businesses invested large amounts of capital into banking and securities, and now the sale of which is not easy because the market is bleak and bad debt is still cause for concern.

 

The Law on Management and the Decree 91/2015 of the Government banned state-owned enterprises to invest in other sensitive sectors such as banking, securities, insurance, etc.

 

Economist Le Dang Doanh said that despite the rules, many corporations still have many non-core investments.

 

"Vietnam Oil and Gas Group (PVN) divested from the banking system, but still has non-core activities such as securities, real estate. The other SOEs are the same, investing into unfamiliar fields of specialisation such as restaurants, hotels, securities which contain high risks and where it is not easy to control interest groups. It is time to be more serious, impose administrative sanctions or even criminal penalties for serious infringements," said Le Dang Doanh.

 

By the end of 2015, the divestment task was quite heavy, with about VND17,655 billion non-core investment. In particular, non-core investment in banking sector was VND11 trillion, real estate VND6 trillion. In the first 8 months of 2016, businesses divested VND2,921 billion. Thus, the number of non-core investments of SOEs needing divestment in the near future is still very large.

 

According to the Ministry of Finance, the non-core divestment in 5 sensitive areas is being implemented aggressively. However, due to the continued implementation of the equitisation of units not completed as planned in the period 2011 - 2015, and building a plan to restructure and equitisation under the direction of the Government and the Prime Minister, the equitisation progress and divestment in SOEs from the beginning of the year has not been achieved as expected.

 

Dang Quyet Tien, Deputy Director of the Department of Corporate Finance - Ministry of Finance, said: "New non-core investment is prohibited, while previous non-core investment will have to be divested. Currently, we still press divestment from non-core assets. So far, non-core investment has declined but it is still more difficult now. In fact, divestment of inefficient and unprofitable capital is difficult in the current market context because it is associated with bad loans banks and real estate."

 

The Finance Ministry said that, in the coming time, SOEs must continue to divest non-core investments and the state capital in enterprises in which the state does not need to hold in the classification criteria of SOEs and under a logical roadmap to ensure the highest economic efficiency.

 

For those making losses, it is urgent to have divestment plans to cut losses, and report to competent authorities for consideration and decision.

 

Experts said that, although non-core divestment policy is very aggressive, many SOEs are sluggish so it is necessary to take strict measures to handle and speed up divestments of non-core capital in SOEs.