Clearing a path (09/9)
09/09/2011 - 10 Lượt xem
For more than a decade the equitisation process of Vietnam’s State-owned enterprises (SOEs) has been characterised as “a long and winding road” because of the time involved and the complexity of related matters. According to official figures from the Ministry of Finance, only 211 enterprises have carried out equitisation over the last two years, with 144 enterprises equitised in 2010. The numbers perhaps say it all.
The reforms introduced under “doi moi” lifted Vietnam into the middle-income group of countries earlier this year but analysts warn that the country’s economic success will soon be under pressure if it hesitates in further reform. For foreign investors, the implementation and initial results of SOE equitisation has to some extent provided them with an approach in evaluating the government’s efforts at reform.
More than ever, they understand that their opportunities to become involved with and in local companies are directly proportional to the number and quality of the SOEs where the State decides to relinquish its control.
Ideological matters
The SOE equitisation process is still high on the government’s “to do” list and no one has any serious doubts about that. Prime Minister Nguyen Tan Dung, at a recent meeting with World Bank Vice President James Adams, affirmed that “Vietnam continues with equitising SOEs as we regard the process as an important, fundamental part of the renewal process.” The PM’s words, along with the schedule for the equitisation of State giants such as MobiFone within 2011 and Vietnam Airlines next year, reveal Vietnam’s commitment to the process.
But the simple truth is that mere words are not enough. In talking about equitisation, analysts and observers believe that the process has slowed down as local authorities weigh up the prospect of the massive job cuts necessary when restructuring the SOEs.
As a result, targets for SOE equitisation have not been reached for a number of years. “If we take 2010 as the deadline for the equitisation of SOEs targeted under the Enterprise Law (2005), then obviously the equitisation process has not even met the government’s expectations,” wrote Mr Oliver Massmann and Ms Phan Thi Mai, lawyers at Duanne Morris Vietnam.
Moreover, equitisation has also been met with resistance from influential enterprise leaders, who are unwilling to change. Leaders at SOEs tend to rely on State support as much as possible and may fear they will no longer be provided funding from the State once their companies are equitised. According to official figures from the Ministry of Planning and Investment, a total of VND350 trillion ($17.5 billion) was reported as having been distributed to 22 SOEs in 2011. Vietnam clearly still supports its SOEs a great deal.
Mr Vo Tri Thanh, Deputy President of the Central Institute for Economic Management (CIEM), believes that controversial issues remain regarding the role of State enterprises. “The point here is that enterprises need to focus on making a profit based on fair competition in the market,” he said. “But some SOEs also serve as State instruments to stabilise or even interfere in the market when required. So if Vietnam does not resolve this ideological problem quickly, it will be hard for the equitisation process to proceed further and faster.”
Excessive caution
SOE equitisation has indeed received increased attention but the selling of enterprises is a thorny issue. Authorities often say that the process has been hampered over the years by the impacts of the global financial crisis and the downturn in the stock market. Enterprises, meanwhile, have become very cautious regarding their equitisation plans and it has become fashionable to actually be overcautious and a touch pessimistic.
Most enterprises are clearly waiting for the stock market to fully recover so that they can kick off their listing plans. But more often than not they find themselves in a vicious cycle: the market continues to decline rather than fully recover and their equitisation plans are delayed yet again.
Mr Thanh, while recognising a declining stock market could slow down the SOE equitisation process, still believes it should press ahead. “In general, the stock market and the SOE equitisation process are closely related to each other,” he explained. “During a market upswing, many SOEs can find the right circumstances to carry out equitisation. When the market goes down, however, if some SOEs were still willing to continue offering shares then the stock market would have more resources to bounce back.”
Meanwhile, there are a few State enterprises, such as the Vietnam Steel Corporation and the Vietnam National Petroleum Corporation, that preferred to carry out their initial public offering (IPO) on schedule this year, regardless of the performance of the stock market. Vietnam Steel Corporation, the country’s largest steel manufacturer, decided to sell nearly 10 per cent of its stake in an IPO at a price of VND10,101 ($0.49) per share. Although the company did little in the way of promotion, it still sold over 39 million out of 66 million shares.
Given the fact that no foreign investor registered to buy shares, the result of the first sale is acceptable for leaders at the Corporation, who are realistic and consistent in their expectations about an IPO. According to General Director Le Phu Hung, the IPO was carried out based on a well-drafted roadmap, without any influence from the stock market. “The main goal of the first IPO was to transform the company’s current operating model into joint stock companies, laying the foundation for us to find good strategic investors,” he was quoted as telling local media.
Market watchdogs, meanwhile, believe that the corporation’s shares are fixed at their true price and that it can be content with the results of the first IPO. Clearly, fixing share prices at their true value helps investors become more confident in putting their money down and this view is shared by lawyers at Duanne Morris. “The stock price should closely reflect the business conditions of a company,” Mr Massmann and Ms Mai noted. “Although the expectation on future earnings growth is calculated into an investor’s decision, a company with weak financials cannot expect to get a large audience and an exorbitant stock price. We think that many SOEs should be realistic with equitisation and focus on re-structuring their companies to bring more added values before equitisation.”
In 2007, when the stock market was booming, there were a number of major SOEs declaring plans to go public. But they missed their chance due to tardy preparations. The recent Vietnam Steel Corporation IPO, to some extent, could serve as a point of reference for other SOEs as it shows that an IPO can still work during difficult times. But if SOEs prefer instead to wait for the stock market to bounce back they should at least do their best to prepare the legal paperwork needed for equitisation so they can seize the chance when it presents itself.
Stoking momentum
It seems that both authorities and SOE leaders have much ground to make up in the equitisation process to ensure final targets are reached. The government expected to equitise all SOEs by 2015 at the latest, with the exception of sectors where the State wishes to maintain full control.
An examination of the facts and figures shows that the number of equitised enterprises in recent years remains modest to say the least. In the early 2000s Vietnam equitised about 200 enterprises each year, while in the second decade of the new century the total stands at just 144.
During difficult times, many countries around the world choose to sell large stakes in SOEs to lessen the burden on the State budget and rekindle foreign investor interest. Vietnam, perhaps, should follow such a trend as it needs a push in the right direction, much like happened in 2005.
For their part, Mr Massmann and Ms Mai are of the opinion that there is no single panacea to solve all of the problems besetting the equitisation process. Apart from introducing a clear and predictable timeline, they suggest that the government and SOEs have equitisation regulations within relevant legislation such as the Enterprise, Investment, Accounting and Banking laws and address any inconsistencies between these laws once and for all. “The government and enterprises should also consider added values after equitisation as essential criteria in deciding when and how to equitise, as well as who the strategic partners should be,” they noted.
Source: VNEconomy.
