Why is equitization slow? The essence is the efficiency of corporate governance

Dr. Nguyen Duc Kien, Deputy Chairman of the National Assembly's Economic Committee

Sir, what is your general perception of the progress and effectiveness of the equitization process of SOEs?

Since the beginning of the equitisation policy, 96.5% of SOEs have been equitized, but their total equity is only 8%. Thus, 92% of the state capital is not equitized. What do these numbers say? We have spent a great deal of time discussing something that everyone recognizes as necessary, but it seems to have done so reluctantly, slowly. I am wondering if there are many places still suffering achievements, following the number of equitized enterprises or not? Is equitisation too difficult or do we deliberately delay the sale of the state capital in areas where the state does not need to hold? And of course, this means that social capital is not attracted to economic development.

But I think that just looking at the number of shares sold to evaluate the effectiveness of this work is not enough, not even the nature of the problem.

So, in your opinion, what is the core factor?

Changing corporate governance practices to improve the efficiency of the use of state capital is our ultimate goal. Ownership is related to the type of governance, but not the only determinant. The executives of many of the major corporations in the world today are not the same owners of the majority of the shares in the business, even if there are no shares, but only the general director is hired. Many businesses, even in the most advanced countries, still have state-owned capital and are therefore not operating at all. But even if the business is well-managed then the macroeconomic management must also move in sync.

If only in particular the sale of capital at SOE, what do you pay attention to?

As I said, the crux of the problem is efficiency. At the sale of capital, to create continuous cash flow, we should not try to "sell at any prices". In other words, simultaneous with the sale of capital, it is necessary to prepare the address to continue investing the collected amount in the most effective manner, in accordance with the purpose and criteria of the Law on Public Asset Management, State equity in SOEs.

To do business effectively, there is a need to separate the functions of the economy and social work. Source: The Internet.

But the fact is that although the state needs high capital, the sale of shares to collect capital is also struggling. Many SOE leaders argue that the principle of "capital preservation" is a "hard" rule that is challenging them?

It is right to say that there are some issues in business valuation need to be corrected. Sometimes we ignore or inadequately calculate the value of the business, especially the value of land use. Sometimes we evaluate too high, that not attractive to investors.

In addition, I think that the requirement of "capital preservation" should be understood more flexible and taking into account the opportunity factor. Understanding this is, if you sell the capital today with the price X VND, then invest and profit Y VND, so should sell, instead of waiting to sell for Z VND, that Z is greater than X but less than X + Y. Here we eliminate the possibility of negative, collusion to "drown" the price, causing the loss of state property in the enterprise.

And the fact that the state retains an overwhelming proportion of capital in enterprises as it still wants to retain control of the business is a situation that makes investors not willing to buy shares, sir?

It is true that this situation is also maintaining, stem from not abolishing the subsidy thinking, to intervene deeply in microeconomic activities. We do not unsee this fact. The Party and the State have advocated the separation of the state management of ministries and sectors from the management of state capital in state-owned enterprises, but this principle has not always been fully understood and executed. Basically, except for some special areas where the state is still in control, in the remaining sectors, the state should play the role of the regulator in order to harmonize the interests of all parties and make sure the rules are followed correctly.

Explaining for the low interest, the leaders of SOEs now often call themselves to be in charge of social responsibility etc. For those businesses where the state retains a certain percentage of capital, lead investors to hesitate, since money is “their intestine”?

In order to ensure fairness, without distorting the problem of business efficiency of enterprises, they must separate the function of doing business with the function of social work. The state can regulate by "ordering" the business. The state should also strictly adhere to fiscal discipline, meaning spending only on its budget. Even the sale of shares in SOEs is only spent on the right purpose, not to be compensated regularly.

Thank you, Sir!