Snail-pace progress puts equitisation target in doubt

In its update on Vietnam’s recent economic developments, the World Bank commented that reforms of state-owned enterprises (SOEs) were being conducted slowly. “Progress slowed somewhat during 2015 and only 29 SOEs were equitised in the first quarter, suggesting that the annual target of 298 SOEs may not be feasible this year.”

At a July meeting on SOE equitisation, Deputy Prime Minister Vu Van Ninh also noted, “if ministries, localities and enterprises do not make greater efforts, the government’s plan of SOE equitisation for 2015, and the whole period of 2011-2015, will fail.”

Two weeks ago, the National Steering Committee for Enterprise Renovation and Development also said Vietnam’s SOE equitisation was progressing very slowly. This year’s first half saw 61 SOEs equitised, meaning 38 SOEs must be completely equitised each month for the remaining six months of the year.

Experts have pinpointed a series of impediments to equitisation.

“In addition to complex procedural requirements, implementation of equitisation is also hampered by subdued demand for some of the assets, especially for non-controlling shares in SOEs”, said the World Bank’s senior economist Sebartian Eckardt.

“Implementing the legal and regulatory framework for SOE management and corporate governance and increasing the ownership cap for the private sector should remain key priorities,” he suggested.

Japan Business Association in Vietnam chairman Shimon Tokuyama said many Japanese investors wanted to become strategic investors of Vietnamese SOEs.

“Whether strategic investors, even minority shareholders at the start, holding over 50% of shares may run a business or not is a vital point when one considers his investment options,” he said.

“We hope the government seriously considers relaxing the restrictions on the ratio of equity financing in SOEs, and listed and publicly traded companies,” he stressed.

Echoing this view, European Chamber of Commerce in Vietnam’s vice chairman Tomaso Andreatta said the number of shares offered to private investors was often too small (only 5%-20%) to effectively attract private strategic investment.

“Foreign investors are usually only interested in buying SOE shares of they can obtain decision-making power in the enterprise. Instead, the state tends to retain the power to appoint all or a majority of the board members and SOEs continue to enjoy preferential treatment when compared to private enterprises. Furthermore, equitisation often means shares are bought by employees of the SOE.

“For these reasons, interest from the foreign private sector to invest in SOEs has been rather low,” he said.

Ninh required ministries, localities and state-owned economic groups and corporations complete the approval of equitisation plans for 44 SOEs and announce the value of 127 SOEs in the year’s third quarter.

In the fourth quarter, these 127 SOEs’ equitisation plans must be approved.

SOEs currently account for about one-third of all business assets, one quarter of output, and one eighth of employment in the business sector.