Equitised Enterprises Governance and Financial Access Remain Poor

The Vietnam Chamber of Commerce and Industry (VCCI)-summarised reports about equitised enterprises, which have operated for more than one year show that these enterprises’ economic norms have seen a high growth rate. Their average revenues increased 1.4 times. The figure was put at 200 percent profits, 120 percent for budget contribution, and 22 per cent for incomes of workers and cadres.

 

However, these enterprises face many difficulties relating to the State’s macro-economic management, enterprise governance and post-equitisation strategy development, debt settlement, foreign investment attraction, in particular financial governance and access. ViB Forum interviewed Nguyen Duc Tang, deputy director of the Department of Corporate Finance, the Ministry of Finance, about the issue.

 

In fact, State-owned enterprises, after their equitisation, still maintain an old concept of capital use. Apart from their equity, enterprises have focused only on loans from banks, especially commercial banks. They have not yet paid due attention to finding other sources, such as the stock markets, bond issuance and increase of charter capital.        

 

On the other hand, after their conversion into joint stock companies, in many cases these enterprises no longer enjoy priorities in interest, credit duration and limits apart from having to mortgage their assets. Equitised enterprises face difficulties in gaining access to loans, in particular at present, when banks cannot meet the borrowing demand of enterprises.

 

Not only equitised enterprises but State-owned enterprises have not yet paid proper attention to enterprise governance. Private enterprises account for 90 per cent of the number of enterprises in Vietnam. However, the number of private enterprises with well-trained owners is very low, so almost all enterprises face difficulties in enterprise governance. When the Enterprise Law was issued in 1999, many private enterprises suggested that there should be financial regulations for private enterprises instead of enterprise governance. In fact, financial regulations are not the same to enterprise governance. The law stipulates ‘frames’ in which enterprises have to decide their own governance.  

 

I think that Vietnamese enterprises should attempt to gain experience from enterprises in developed countries, foreign-invested enterprises or enterprises listed on the stock market to develop their suitable governance programmes. For enterprise managers, such as general directors, directors and the executive boards, requirements should be introduced in conjunction with the application of modern and advanced management methods and models based on real situations.

 

To have adequate capital for their business and production activities, enterprises should be more active in increasing their charter capital by issuing shares and bonds, and listing on the stock markets, reducing their dependence on loans from banks.

 

At the same time, enterprises should develop effective accounting and financial management policies, applying suitable methods to reduce losses.

Regarding profit distribution, enterprises should develop suitable mechanisms on post-tax profit distribution, using part of their profits to supplement charter capital and compensate risks.   

 

Internal supervision mechanisms should be developed to discover weaknesses and shortcomings in financial governance in a timely manner.