From more than 12,000 state-owned enterprises (SOEs) the country now has just more than 2,200, thanks to equitisation.

The policy to restructure SOEs is set to improve their performance and reduce the burden, which comes from bad debts, on the state. Nearly 20% of state capital has been equitised and VND2,000-3,000 billion ($125-187.5 million) has been settled through equitisation. Many SOEs have worked much better since equitisation.

However, achievements from equitisation are just initial results. Equitisation has entered a new stage, restructuring ‘giant’ SOEs. This stage is considered a challenge for the equitisation policy.

Local and foreign experts share their experience and thoughts about the way of equitisation ahead for Vietnam.

Le Song Lai, Deputy General Director of the State Capital Investment Corporation, which manages state-owned capital in enterprises

SOEs are a significant element of the Vietnamese economy. They contribute 38% of gross domestic product (GDP), account for 33% of credit and 10% of the total jobs in Vietnam.

According the Ministry of Finance, 44.4% of SOEs belong to A group, or enterprises that operate at profit; 39.5% to B group and the remaining, to C group.

Loss-making SOEs account for around 19.5% of the total SOEs, with the total debts worth thousands of billion dong.

The equitisation policy was commenced in the 1990s and it has been implemented in different stages, in different ways.

From 1991-1997, the number of SOEs fell from 12,000 to 5,000 thanks to the SOE restructuring policy. In the following period, 1997-2000, efforts to reform SOEs seemed to be sluggish.

In the 2001-2005 period, SOE reforms were speeded up again, with 3,349 SOEs restructured of the total 5,544. The state was still a big shareholder in SOEs.

SOE reforms have contributed to strengthening the private economic sector and to reduce public debt. According to the Finance Ministry, nearly 20% of state capital has been equitised. On average, the state holds around 46% of shares in equitised SOEs. Workers hold 30% and the remaining is in the hands of others. The state owns more than 50% of stocks in 33% of equitised firms.

The forms of equitisation that have been applied so far are maintaining state capital and issuing more shares (accounting for 15.1%), selling all state capital (15.5%) and selling part of state capital plus issuing more shares (69.4%). Equitisation has created more than 200,000 redundant workers and this issue has been solved without any serious impact.

A survey conducted of 2,800 workers shows that 81.7% of redundant workers have found new jobs with higher incomes within six months after they leave SOEs.

There are many big changes for equitised SOEs. The financial situations of more than 2,000 equitised SOEs have been improved and their debts paid. The total debt of US$125-187.5 million was paid without any adverse impact on enterprise value.

Equitisation has promoted the development of the capital market. Two-thirds of listed firms on the stock market of Vietnam are equitised companies. A survey of 850 equitised firms revealed that their chartered capital had increased by 44%, turnover by 23.6%, profit by 139.7%, tax payment by 24.9%, average income by 12% and average dividend paid to shareholders by 17.11%.

The equitisation process has come to an important period – restructuring big SOEs. There are around 2,200 big SOEs which have the total capital of $31 billion, equivalent to 31% of GDP. The state will keep 554 wholly state-owned companies. This year Vietnam plans to equitise big SOEs with a total value of $10 billion.

The Prime Minister has approved the equitisation plan, which aims to list 71 big SOEs on the stock market before 2010. Vietnam will expand the scale of SOEs which are subjects of the equitisation policy to put them onto the list of wholly state-owned limited liability companies and financially independent subsidies of SOEs. The standards and the number of strategic investors will be suggested by the SOE Reform Steering Committee and strategic investors will have to fix the prices, which are not to be lower than the average winning bidding price.

Pham Quang Dung, Deputy General Director of the Bank for Foreign Trade of Vietnam (Vietcombank)

Equitisation of state commercial banks is facing challenges that arise from banks themselves and the fact of the economy.

The advantages of banks are their names are widely known and they have relations with many SOEs and big companies, nationwide networks, are large scale and are supported by the government.

However, they also have some disadvantages, for example their business decisions are not based on commercial purposes only, business administration mechanisms are unsuitable and do not help them increase their competitiveness, they do not pay attention to retail banking services and their restructuring process is slow.

When being equitised, state commercial banks need to be reformed in many aspects, such as financial capability (no state commercial bank has $1 billion of ownership capital), asset quality and operation effect.

State commercial banks also have other problems associated with their administration models and their organisation, the qualifications of staffs and the recruitment system.

Therefore, the equitisation of state commercial banks needs to target the improvement of administration ability, financial ability, competitiveness, modernisation of banking technology, and maintain the key role of state commercial banks after equitisation. Equitisation is a process of various steps and various targets. It is not simply the sale of part or all state capital at those banks.

I think for state commercial banks, the equitisation form should be maintaining the state capital and issuing more shares to increase capital.

Equitisation will yield good results when it is performed in some stages and combines some processes like selling part of shares to strategic investors, part to the public in the form of IPO (initial public offering), directly selling shares to adjust the state ownership.

The characteristic of state commercial banks is they are groups with various economic operations such as commercial banks, securities trading companies, investment fund management, financial leasing, insurance, etc. So equitisation can be performed on two levels.

First is equitising the parent banks and the second is equitising both the parent banks and their subsidies. Equitisation should be carried out at parent banks to speed up the process of restructuring. Restructuring the operation model after equitisation is needed to build suitable and sustainable ties between companies in the groups and equitisation can be considered for subsidies.

Lito Camacho, Vice Chairman of Credit Suisse Asia Pacific

In 2004-2005, more than 60 countries performed nearly 400 cases of equitisation worth around $90 billion. The two newly emerging economies, China and Turkey contributed more than one-third of this with the value equivalent to $18 billion and $12.6 billion, respectively. India and Pakistan were also positive with nearly $8 billion worth of equitisation.

In the Organisation for Economic Cooperation and Development (OECD) and some market economies in Latin America, the equitisation process is slowing down because many countries have completed equitisation in the past two decades.

There are many reasons explaining why governments pursue equitisation. In almost all cases, it is the change in economic philosophy of governments, which leans to the market economy.

I was a Finance Minister and the leader of the Equitisation Council in the Philippines. I have some comments about the equitisation programme of Vietnam because I have participated in consulting works for some enterprises. The equitisation programme is an element in the cause to transform Vietnam from a state-controlled economy to a market economy.

In the transitional economy, one of the first steps is turning key SOEs into joint stock ones to sell their shares, not their assets. I want to share some experience of equitisation in other countries in the past several decades: (1) seriously consider the interests of workers in equitisation; (2) equitisation must go with some market reforms; (3) transparency, clearness and predictability are very important to attract serious investors and to maximise value; (4) a sole government agency with sufficient power is needed to lead the equitisation programme to success; (5) equitisation remarkably changes the form of the economic environment of a country so the government must have a plan to inform all related sides about it; (6) it is necessary to realise that to reach success, equitisation policy must be an element of the reform programme toward market orientation; (7) the results of equitisation are a function of market conditions at the time of implementation.

The last thing is the government’s political will and ability to gather the strong agreement among related sides is the essential factor for the success of equitisation policy.

Nguyen Van Tuan, Chairman of the Board of Directors of the Vietnam Construction Import Export Corporation (Vinaconex)

Vinaconex experimentally equitised two members in 2000-2001. Based on the experience learnt from this, Vinaconex has successfully equitised all of its 30 members.

Since equitisation, those companies have developed well. Their average turnover has risen from 15-30%. The profit/chartered capital rate is 35-40% and up to 65% for some companies. The average incomes of workers have also increased by 10-30% each year and dividends from 13-17%.

Some member companies have met conditions to go to the stock market. Three members of Vinaconex are listed on the Hanoi Securities Trading Centre.

Vinaconex became a joint venture corporation on June 21, 2007. The group is performing formalities to list its shares at the Hanoi Securities Trading Centre.

Since equitisation, Vinaconex’s chartered capital has risen by 50%, to VND1,500 billion ($93.75 million), enabling the corporation to expand investment and business.

Source: TBKTVN