Identifying Obstacles in SOE Restructuring

Restructuring, reforming and improving the performance of State-owned enterprises (SOEs) is a major policy, one of three pillars in economic restructuring of Vietnam. Although the Government has issued consistent mechanisms and policies and aggressively directed implementation since 2016, the SOE equitization and divestment progress is still slow relative to the plan.

Regulatory and executive obstacles

At the SOE Restructuring Forum organized by the Corporate Finance Magazine in collaboration with the Department of Corporate Finance on August 8 in Hanoi, a representative from the State Capital Investment Corporation (SCIC), which is authorized to manage State capital in equitized SOEs, reviewed difficulties and obstacles that need to be addressed in order to speed up SOE restructuring in general and SCIC-accepted enterprises in particular. After over 10 years of operation, State capital managed by SCIC is only equal to one % of the total State capital in enterprises (according to book value), said the representative. Most of State capital in enterprises is managed by central and local authorities, resulting in SCIC’s hardships and limited scale in capital investment and trading as well as its involvement in SOE rearranging and restructuring and its introduction of new state capital management, investment and trading methods in SOEs. Mr. Dang Quyet Tien, Director of Corporate Finance Department (Ministry of Finance), pointed out that some ministries, branches, localities and SOEs have not been serious about equitization, divestment and restructuring plans as directed by the Prime Minister and abided by the reporting regime.

The SOE equitization process needs a lot of time to deal with financial, land and labor issues before equitization. Land issues have sometimes caused SOEs to change its equitization plans.

Mr. Tran Nguyen Nam, Deputy Director of SCIC’s General Planning Department, said, legal regulations on State divestment in enterprises are still overlapping (even in circulars). Legal regulations largely provide regulatory frameworks which are fundamental rather than specific guidelines. Therefore, enterprises have to consult relevant State agencies on emerging issues. There is a wide gap between regulations on State capital sale in enterprises with international practices. Given current capital sale processes and expenses, it is very difficult for international consultants to join to support their customers, except for the initial public offering (IPO) of SOEs. Adding the land-use right value to the enterprise value to sell shares under Decree 32/2018/ND-CP exposes some shortcomings, he added. Specifically, for listed companies, their share trading prices reflect their business performances, development prospects and business advantages, including land advantage and intellectual property value.

A SCIC representative said that common obstacles in SOE equitization are prolonged financial and cross-investment problems. But, an important obstacle to the delay and prolongation of SOE equitization process is slow adoption of building and land restructuring plans and land-use plans by competent authorities, resulting in late disclosure of corporate value. In addition, some new provisions in Decree 126/2017/ND-CP like approval of land use plans, settlement of emerging issues in connection with the formulation of equitization plans and layoff policies lack specific instructions. Some new regulations  equitization and divestment, aimed to protect State interests, force enterprises to start over some equitization contents.

Solutions

At the forum, business representatives and specialists recommended solutions to improve the efficiency of state capital management and divestment. To accelerate equitization process, Vietnam Valuation and Financial Consultancy Company (VVFC) proposed that the State allows combining business valuation and completes approving land-use plans prior to the completion of enterprise valuation. In addition, there is a need for regulations specifying the responsibility of each unit and each stage for causing any delay in the approval of land use plans.

Economic expert Ngo Tri Long said that it is necessary to specify more clearly the responsibility of ministries, branches and related parties in equitization and divestment when the plan and the list of equitization has been already approved by the Prime Minister for the whole period.

For cases where there are emerging issues or there are case-specific particularities or unclear legal provisions, there is a need for regulations that specify who have the authority of proposing settlement plans and who have the authority to approve to avoid congestions in progress because of fears of responsibility.

A SCIC representative also noted that competent management agencies should consider and evaluate the performance of state-owned enterprises as a whole while ministries and localities seriously transfer the right to represent state capital ownership in enterprises subject to the transfer to SCIC.

Particularly for the equitization process, SCIC has proposed competent authorities approve property arrangement plans and land-use plans in enterprises that SCIC will perform equitization according to regulations.

Nguyen Thanh