SOE Equitisation Needs Stronger Solutions

According to the Steering Board of State-owned Enterprise (SOE) Renewal and Development, over 2,500 enterprises have been equitised but only around 1,750 enterprises have become profitable. These figures show a slow progress and poor quality of the equitisation of SOEs. Therefore, according to experts, the State should have stronger solutions to promote the process.

 

The equitisation of SOEs started in Vietnam in 1992. At that time, the State selected some small and medium-sized profitable enterprises, which were voluntary to pilot equitisation. In four years, from 1992 to 1996, only five enterprises were equitised but they all became more profitable than they had been before the process began.

 

Since 1996, the State has issued many policies on equitisation in order to promote the process. The resolution of the third plenum of the Party Central Committee, ninth congress, in 2001 is considered an important landmark. The resolution states that the promotion of equitisation of SOEs without needing 100 per cent of their capital is an important factor to create a basic change for the better of SOEs’ operations. In the period, SOEs were reorganised in various forms, including merging, dissolution, bankruptcy, leasing and equitisation. As a result, the number of SOEs dropped sharply but remaining SOEs’ capital scale has seen an improvement. The structure of SOEs changed with the State holding major fields with a dominant stake of main products and services instead of holding a large stake in all fields and aspects of the economy.

 

A recent survey conducted by the Steering Board of State-owned Enterprise Renewal and Development with 500 enterprises, which have been equitised for more than one year, shows that revenues of the surveyed enterprises have increased by 43 per cent, their profits have seen an increase of 2.4 times, and their staff members’ income have increased by 54 per cent. Their dividends now reach 15.5 per cent. Furthermore, the role of workers in equitised enterprises has been improved as workers are shareholders. This has helped create a motivation in enterprises’ business and production activities.

 

However, according to some experts at the Steering Board of State-owned Enterprise Renewal and Development, the conversion process remains too slow and more importantly, it has not created a change in quality of SOEs’ operation.

With such a speed, to gain a target of equitising 800 enterprises in 2005, the State should implement stronger solutions. In fact, the State holds 38 per cent of capital of equitised enterprises and the number of shares sold to outside investors accounts for only around 10 per cent. This shows that a close equitisation within enterprises remains popular, constraining the ability to attract investors with great potential in capital, technology and management.

 

In this context, experts from the Steering Board of State-owned Enterprise Renewal and Development said that it is necessary to promote the selling of shares of equitised enterprises to outside investors, even foreign investors. In addition, enterprises to be equitised are not only small and medium-sized enterprises but also major corporations. Authorised agencies are promoting the equitisation of commercial banks and corporations, including the Electronic and Informatics Corporation, the Vietnam Construction Import and Export Corporation and the Trade and Construction Corporation. Also, the evaluation of enterprises has become the most urgent issue during the equitisation process. The existing enterprise evaluation board with experts from ministries, and agencies should be replaced by an independent unit with experience and knowledge on enterprise evaluation to ensure that enterprises’ value close to the market price. Some commercial banks have become pioneers in hiring foreign evaluation firms. Another solution is that the Ministry of Finance has recently proposed that the Government allow enterprises with their assets valued at less than VND 20 billion to declare and evaluate for authorised agencies to announce their value during equitisation. The solution will help accelerate the equitisation of enterprises, as the number of enterprises with assets valued at less than VND 20 billion accounts for a large proportion.