No more attractive at 51%

Only 85% of the shares of the Pha Lai Thermo Power Company sold at auction last November, with investors explaining that, while Pha Lai is an attractive business, but its attractiveness is impaired by the State holding of up to 75%.

The Vietnam Association of Financial Investors has proposed the government reduce the percentage it owns in Electricity of Vietnam (EVN)’s Vinh Son – Song Hinh and Tach Ba hydropower plants, as well as the Pha Lai Thermo Power Company (EVN holds 60%, 75% and 75% of shares of those companies, respectively). At those rates, investors have no power despite their considerable investment.

This shows that investors are not only paying attention to business results or development potentials of equitised SOEs, but are also examining possible changes to administrative modes. To that end, they are not interested in equitised companies in which the State still holds high percentages of capital.

At a talk on the policy to develop the stock market in February 2006, Do Van Trac, General Director of the Cable and Telecom Materials Joint Stock Company (Sacom) suggested a reduction in the ratio of share holding that the State has in equitised firms.

According to Mr. Trac, the goal of the State in ownership of such a high share slice of said firms is to protect and develop the capital, not the capital structure, of the State. At the same time, reducing this rate will help equitised companies select appropriate managers.

An expert of a foreign investment fund in Vietnam said that around the world, companies that with 30-40% of State capital are still considered State-owned companies. Vietnam’s equitisation model is quite similar to China’s, where the State holds high percentages of shares. However, China has thousands companies listed on the bourse so when the government wants to sell more State capital, the market staggers. Vietnam should be careful to learn lessons from the Chinese experience.

“Investors and equitised companies themselves don’t like this rate because the voice of the State is too strong while it has not proved its ability in controlling large assets,” he said.

The survey of the Central Enterprise Reform and Development Steering Committee shows that the number of equitised companies in which the State still holds the lions-share of capital have remained almost the same since equitisation, a measure that was designed to improve their performance.

Le Dac Son, General Director of VPBank, said that if the 51% holding regulation stays, investment in SOEs will be remain small.

How much is enough?

In another view, many experts on enterprise reform of the World Bank (WB) in Vietnam said that the 51% margin is ‘guiltless’. It is not completely wrong to maintain high State ownership, and is even necessary in certain periods. However, if this measure continues, then large chunks of State assets will belong to unclear powers. Evidence lies in the fact that many shops with the best spaces in main centres are in the hands of state officials.

A WB expert said that if the State performs its ownership role well there would be no complaint. In fact, many businesses still want to buy shares of companies in which the State holds 51% of shares (or more) to take advantage of the name of the State-owned company.

Tran Bac Ha, General Director of the Bank for Investment and Development of Vietnam (BIDV) also said that State ownership of less than 51% does not mean that the State loses control, because if the State continues in its role as ruling shareholder, it can still control the enterprise.

However, Mr. Ha said that it is necessary to have a clearer itinerary on state capital in equitised companies. With the 51% percent margin, it will be difficult to bring modern technology and management skills, particularly risk management, into those firms when Vietnam integrates into the global economy.

Head of the Market Development Board of the State Securities Commission, Nguyen Thi Lien Hoa, acknowledged that high level of State ownership could not continue for long. Investors always want to own more shares in strongly performing companies, and that expectation is legitimate.

According to Ms. Hoa, the State will set specific policies for further selling out of State capital in selected companies, under a well-planned roadmap.

Source: TBKTSG