State-owned Enterprise Equitisation" Finding the Right Track

According to the report at the “Reshuffling and Reforming State-owned Enterprises in the 2006-2010 period” meeting recently held in Hanoi, Vietnam reshuffled 4,447 enterprises as of September 2006, including the equitisation of 3,060 companies. The sales of preferred shares to strategic investors have created new capacities, widened markets and increased financial capacities to expand production and business and improve the management level in State-run companies. The year-long continuous speedup of the equitisation is gradually heating up the stock market. However, many problems also emerged during the reform and reshuffling process.

 

According to the report by the National Steering Committee for Enterprise Reform and Development, the equitisation pace remains slow, the proportion of equitised share volume is still small, the number of wholly State-run enterprises (SOEs) is still small and the debt-to-equity ratio of SOEs remains too high. In addition, many equitised enterprises are puzzled in organising and managing when they operate in a new form. For example, when a corporation was transformed into a holding company, the management and operation are still similar to those in an SOE. Especially, the so-called suitable proportion of State-holding stakes in an equitised SOE is a barrier.

Mr. Pho Thai Binh, Vice Chairman of Hanoi People’s Committee, said if the State doesn’t keep the controlling share; the private shareholders will corner the enterprise in the initial stage. In Hanoi, for example, when a SOE was equitised, their staff sold out all stakes immediately to take bargains and the private shareholders overpowered the Board of Directors. Mr. Trinh Thanh Hoan, General Director of Vietnam Insurance Corp. (Bao Viet) said the State should hold the dominating stake.

 

However, Mr. Vu Viet Ngoan, General Director of Vietcombank, said if the State holds the controlling share, the SOE will fail to attract big investors. On the other hand, if this way of thinking is not eradicated, the equitised firm will be neither a State-owned enterprise nor a joint stock company because it is still being operated as an SOE.

 

A representative from the Electricity of Vietnam (EVN) said the holding proportion can be flexible but the State must still have a suitable percentage of stakes to control the decisions of the shareholders’ meetings, etc.

 

Vietnam now has some 245,000 DN companies of all economic sectors. Of the total over 5,000 SOEs, more than 3,000 SOEs went public in the 2001-2005 period. The remaining SOEs now make up 40 per cent of GDP and provide more than 50 per cent contribution to the State Budget. These are very important SOEs.

 

Dignifying the decisive role of SOEs in the economy, Prime Minister Nguyen Tan Dung said at the meeting that only by rearrangement and reform, SOEs will grow more strongly and promote efficiency in the market-oriented economy and the competitive integration. The Prime Minister emphasised the focus of the 2006-2010 is equitisation to basically complete the SOE arrangement. Under the plan, Vietnam will equitise 79 out of 105 giant corporations and 1,500 out of the current 2,176 SOEs. The remainder will be public utilities companies and collective farms. Vietnam will limit the transformation of an SOE into a one-member limited liability company.

 

To speed up the equitisation process, the Prime Minister reminded relevant bodies of focusing on checking and perfecting the regulations under the spirit of Resolution of the Party Congress X, the Enterprise Law and Land Law.

 

In evaluating land, the Prime Minister mentioned the addition of the land use rights value to enterprise value before privatisation. Over 3,000 equitised enterprises did not have this addition. The pilot will be conducted carefully and tightly. According to the Prime Minister, the land use rights value can be in forms of transfer and auction on the market or the rental collection will be based on the value provided by the province-levelled People’s Committee.

 

In evaluating enterprise value, the evaluation of enterprises must base on the market principle. Besides, the equitisation must also count the benefit of labourers. The labourers should be discounted 40 per cent. Meanwhile, the discount for strategic investors should be recalculated.

 

As regards financial transparency, before equitisation, the SOE must be audited by an independent or international auditing firm. As for corporations and groups, member companies should be quickly equitised.

 

Enterprises must draw experience from the equitisation of previous SOEs to have firm progresses after transforming into a holding company. The president of the Directors Board must be answerable to the State.

 

Regarding listing on the bourse, Vietnam currently has more than 60 listed firms and has proved the value of this development direction. Therefore, equitisation must be further sped up in the coming time.