State-owned enterprises restructuring: Waiting for a new thrust

The first auction of a State-owned enterprise in Hanoi Stock Exchange

Additional divestment of 2,870 billion dong

According to the latest data from the Ministry of Finance, during the first 7 months of 2016, there were 43 addition companies with actual value of 29,907 billion vnd, which have 22,240 billion vndof State capital, which have been approved for equitization by competent authorities. There are 6 corporations including Industrial Machinery and Equipment Corporation, Engine and Agricultural Machinery Corporation of the Ministry of Industry and Trade; Vietnam Construction Consulting Corporation (VNCC) of the Ministry of Construction; 36 Corporations under the Ministry of Defense; Forestry Corporation and the Corporation of Agricultural Materials of Ministry of Agriculture and Rural Development.

Also in the last 7 months, the divested amount of units was 2,870 billion vnd(book value), the revenue from selling shares was 5,632 billionvnd. Specifically: corporations have divested 381 billionvnd (book value), collected 424 billion vndfrom the sale of shares in five sensitive sectors (including securities, insurance, banking & finance, real estate and investment funds). Another 1,259 billion vndof divestment, collected 1,959 billionvnd, was from the sale of shares in other sectors. State Capital Investment Corporation (SCIC) has sold 1229 billion and collected 3,248 billionvnd.

The Ministry of Finance said that the mechanism policy for restructuring, reorganization and equitization has been fully promulgated, facilitated implementation of enterprises. Performance of State-owned enterprises after equitization is gradually improving. The non-core divestment in 5 sensitive sectors is implementing drastically and business administration is renewing continually. Enterprises equitization have improved and developed the capital market, especially the stock market, facilitated equitized enterprises to raise capital, innovate management methods, technology, keeping enterprises in steady development along with the trend of economic integration with the region and the world economy.

The Finance Ministry also frankly acknowledged thatin the first 7 months of 2016, the progress of equitization and divestment have not achieved as expected. However, the remaining amount of equitization is not ssignificant, mostly focused on large enterprises, thus the currentrate of progress is now still meeting expectations. Forthese reasons, Mr. Dang QuyetTien- Deputy Director of Enterprises Finance under Ministry of Finance said: At this time, units are continuing to deploy equitization progress of unfinished units for the period of 2011 - 2015, simultaneously with establishment plansfor restructuring, reorganization and equitization under the direction of the Government and the Prime Minister. Additionally, the subjects of restructuring and equitization is now mostly large-scale enterprises, with wide operating range, multi-industry businesses and with complex financial status that requires a lot of preparation and handling. On the other hand, the implementation of equitization, restructuring of enterprises with large-scale capital need the participation of big investors with financial strength and good management capability, investment, so time for preparation is needed.

According to Mr. Tien, the progress of non-core divestment of investments before 2011 is so far delayed, partly due to what "good" is sold. According to a report, by the end of 2015, the outside divestmentactivity of State enterprises in the five most sensitive areas are real estate, securities, finance and banking, insurance, investment funds only reached40% of requests. Cutting losses is the hardest part. Accordingly, the shares of the companies that do business inefficiently, losses would be less attractive to investors and difficult to sell, the divestment progress cannot be as quick as the sale of shares in otherefficient enterprises. Besides, where investments show signs of law violation that areunder investigation by authorities, the investor must also wait for the results of that investigation.

Completing classification criteria

To overcome and speed up the equitization process, divestments, projects and policies on arrangement, management innovation and improvedState enterprises performance will continue to be focused on, constructed, and finished.

According to the Department of Finance Enterprises, during the equitization process, caution, and avoiding losses aremost important. With that prudence, authorities are aware of the issue of enterprises usingconsulting firms with limitations in terms of quality. "We also proposed the Government to allow the State Auditor to review to determine the value of enterprises and evaluate the quality of consulting firms to ensure the correctness, fullness, and the accuracy inthis operation "- MrTien said. This solution will create more confidence for investors to access information about enterprises.

Currently, the Ministry of Finance has also submittedto the Government Decree amending Decree No. 59/2011/ND-CP on transformation of enterprises with 100%State capital into joint-stock companies.This opens up some form of sharesselling and addsprocessor content of stronger decentralization to agencies representing the owners, to reduce administrative procedures and create more opportunities for the Steering Committee havingmore buying choices.

Besides, it is important that ministries, localities, economic groups, and corporations must reflect, and implement the plans and itinerary ofState enterprises restructuring, asthis as a key task to focus on completing in accordance with the approved scheme; strictly deal with business leaders whofail to comply, or to effectively perform restructured and assigned tasks in management and operation of enterprises.

In particular, under the direction of the Government, SCIC has developed a roadmap ofState capital in 10 major enterprises include: Bao Minh Corporation of shares; Reinsurance National Stock Company; Ha Giang Mineral and Engineering Company; ThieuNienTienPhong PlasticsCompany; Vietnam Infrastructure and Real EstateCompany; Binh Minh Plastics Company; Vietnam Dairy Products Company; FPT Joint Stock Company;Sa Giang Import Exportshares Company; FPT Telecom Company. These 10 are the enterprises whose shares are expectedon the stock market by investors, including foreign investors. If the sale is successful, the State could collect $US 3 billion, and this promises to be a boost to the market in the near future.

Another solution proposed by the MOF is offering specific remedies for equitized enterprises but are still not listed on the stock market. Initially, the government has been directing and urging the heads of ministries, departments, agencies, and owners to comply with regulations, unless there are unqualified objective factors. In the context of sanctions State bodies can only recommend enterprises to implement whilethey are fully aware that onlybeing listed on the stock market can ensurehe publicity and transparency - one of the goals that the enhancing enterprises afterequitizedare heading towards.

Those macro and particular solutionsare expected to accelerate the process of equitisation as well as divestments of State enterprisesto soon achieve the desiredobjectives.