Breakthrough policies essential to drive state capital divestment process

Dr. Huynh The Du

Local businesses divested merely around VND3.77 trillion ($446 million) of state capital out of the proposed several dozen trillions in the first eight months of this year. Why was divestment so slow?

That is mainly because the state still holds the lion’s share (over 80-90 per cent) at many state-owned enterprises (SOEs). At such SOEs, buying 1-2 per cent or even 5-7 per cent is less significant, as all decisions on corporate governance, human resources, payments and bonuses for employees and the board of management, as well as production and business plans will stay in the hands of the state’s representative.

In this case, investment proves risky due to the lack of transparency in business operations.

So what are the most promising investment fields in your view?

In listed stock, because listed companies must be transparent in their operations. When investing in the stock market, investors can easily buy or sell stock, change their investment portfolio or take back their money when needed because of the market’s high liquidity.

Many public auctions of SOEs have reported poor results. What is the main cause behind this?

The matter is that though investors want to buy large stock volumes or even the whole batch, they are not be given any more incentives than those available to conventional retail investors.

In light of Decree 126/2017/ND-CP, in case a single strategic investor is allowed to buy stock under a direct negotiation method, the selling price must not be lower than the average successful bid price in the stock’s public auction. If there are two or more strategic investors, a public auction must be held, and the selling price must not be lower than the average successful bid of the public auction.

For joint stock companies where the state still holds part of the capital that are listed or registered for trade in the stock market, Decree 32/2018/ND-CP regulates that the negotiated price for a single strategic investor must be based on the floor price (traded floor price in the stock market) if the negotiated price is set lower than the floor price. In case the negotiated price is higher than the floor price, the selling price must be the negotiated price.

Generally, investors wanting to buy the whole batch to become the enterprise owner do not get better price incentives than conventional investors, leaving the deals less attractive. This explains why the state capital divestment and SOE equitisation has reported limited progress, albeit the relevant regulatory framework has been increasingly completed in recent years.

How can we speed up the process in your view?

There needs to be breakthroughs in relevant state policies. For instance, at investment projects and investment works under BT or BOT formats, the method of contractor appointment might be an option in case a bid could not be held or turn out unsuccessful, and only one investor meets the set criteria.

Similarly, in case a public auction, competitive bidding or negotiated sales could not be held or turn out unsuccessful, selling to an investor meeting the set criteria through appointment might be an option.

But are these methods not risky or prone to corruption?

The state still does not encourage selling the stocks of SOEs under private placements maybe due to concerns over corruption. In my view, there would be little chance of corruption if we followed the rules on setting the value of state capital at SOEs and set an initial bid price close to the market price, as well as ensured transparency throughout the process.

The amended Law on Anti-Corruption is slated to be approved in the upcoming session of the National Assembly, which envisages the application of several anti-corruption measures to cases outside the state sector.

The Penal Code also has regulations dealing with corruption at non-state organisations and businesses, imposing sanctions on wasting state capital and assets during stock sales.