Debt and divestment are a long story of State-owned enterprises (SOEs) in Vietnam. However, with its decision to sell those compared to “geese that lay golden eggs”, the Government of Vietnam has conveyed the message of speeding corporate divestment to get capital for development investment.
Underperforming SOEs are a very old story. In December 2016, Prime Minister Nguyen Xuan Phuc delivered a speech at a national conference on SOE reshuffle, on which SOEs need to be divested and which need not be controlled by the State. Are equitisation and divestment policies and mechanisms appropriate or not?
According to the latest consolidated reports by State-owned enterprises, the debt-to-equity ratio (D/E) was 1.23 in 2015. Nevertheless, D/E ratio at 25 SOEs was over 3. An SOE had a D/E ratio of 32.84.
After 15 years of reorganisation, the number of SOEs has been reduced from 6,000 to 718. Previously, they spread across 60 sectors but now shrink to only 19 sectors. Despite a sharp decline in the number of SOEs, the State still holds dominant shares in many of them, even in unnecessary sectors, resulting in insufficient investment in important sectors. The low rates of State-owned shares offered to the public substantially reduced the result of carrying out reshuffle, renovation, development and performance improvements of SOEs as expected.
At a meeting on SOE divestment with relevant agencies held by the Government in August 2016, Prime Minister Nguyen Xuan Phuc requested a share sale at Saigon Beer - Alcohol - Beverage Corporation (Sabeco), Hanoi Beer Alcohol and Beverage Joint Stock Corporation (Habeco), and at 10 other companies held by State Capital Investment Corporation (SCIC). He stressed that the share sale at the 12 big SOEs must be carried out under market practices, publicity and transparency to prevent corruption, group interests, and ensure the highest interests for the nation.
According to a financial expert, if all shares offered at 12 SOEs are sold out, the government could bag up to US$7 billion (an equivalent to VND150 trillion)
Regarding 10 companies where SCIC holds interests, the State holds a 45 per cent stake at Vinamilk Corporation. If the State sells out the shares from the country’s largest dairy producer at the current market price, it will get US$4.52 billion. Nine other companies are valued at US$530 million (based on listed shares or equitisied shares). Thus, the estimated value the State can take from its share sale in 10 SCIC-held companies is over US$5 billion.
The State currently holds 81.79 per cent and 89.59 per cent of interests at Habeco and Sabeco, respectively. No official valuations of these two brewers have been made but Thailand’s brewer ThaiBev offered to buy Sabeco for US$2 billion in 2014. Based on the bidding price of VND50,000 per share offered by Carlsberg, the value of Habeco was projected at over US$400 million.
Preliminary calculations show that the State can take about US$7 billion from them, an impressive figure.
Prime Minister Nguyen Xuan Phuc required relevant bodies to exercise close supervision and seek opportunities to sell shares at the best price. As for State-held shares at Habeco and Sabeco, he required listing shares on stock market before selling State capital to obtain the best benefits for the State. Even stock valuations must be made via public bidding to avoid undervaluation, resulting in the loss of state capital.
The appeal of beer and milk brands in Vietnam is huge due to strong interests of both foreign and domestic investors. This positive policy aims to accelerate the process of economic restructuring and generate resources for economic development.
The Prime Minister’s decision comes from the State perspective that the State does not do in lieu of the market and businesses and other economic sectors if they do better. The State uses its resources to create and invest in infrastructure and fields necessary for the economy but unattractive to the private sector. Therefore, the State should divest from unnecessary fields to use the capital for more effective fields to pave the way for economic development.
Dr Tran Du Lich said, using divested capital as “seed capital” to call for the private sector to invest in infrastructure such as ports, roads and traffic. This investment capital plus private capital is somewhat the so-called public-private partnership (PPP).
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