Divestment delay for state’s top ten

State Capital Investment Corporation (SCIC)

Earlier this month, the State Capital Investment Corporation (SCIC) announced its 2016 divestment portfolio totalling 120 enterprises. Of these, only two out of ten large enterprises that were specifically ordered to be fully divested in accordance with the prime minister’s Official Letter No.1787/ Ttg-DMDN dated October 8, 2015, are actually en route to be divested.

The two companies are FPT Corporation (HoSE: FPT) and Sa Giang Import Export Corporation (HNX: SGC).

The SCIC currently holds 23.9 million shares at FPT and 3.56 million at SGC, equivalent to 6.02 and 49.89 per cent of the enterprises’ stakes, respectively. At the current market prices of VND40,500 ($1.84) per FPT share, and VND39,200 ($1.78) for an SGC share, SCIC could be expecting to reap VND1.108 trillion ($50.59 million), should the divestment process go according to plan.

The other eight that have not been included as part of the SCIC’s divestment plan for this year are Bao Minh Insurance Corporation, FPT Telecom, Vinamilk, Ha Giang Mineral and Mechanics, Tien Phong Plastic, Binh Minh Plastic, Vietnam

National Reinsurance Corporation, and Vietnam Infrastructure Investment and Development.

As of December 31, 2015, the SCIC reportedly held between 30 to 51 per cent stakes of these companies, amounting to a total state capital value of roughly $3 billion.

Since Official Letter No.1787 came out last year, foreign investors have been eagerly and anxiously awaiting information on timeline and other details of the divestments at these ten enterprises as they are heavyweights with a strong appeal to both domestic and foreign investors. The stakes on sale will be in the billions of US dollars.

With reference to those companies that have yet to be divested, the SCIC stated on its website that it has been reporting these cases to the Ministry of Finance (MoF) and the government, and action is pending further instructions. “When necessary SCIC will adjust its 2016 divestment portfolio.”

In the case of Vinamilk (VNM), despite the company’s efforts to lift its foreign ownership threshold from 49 per cent to 100 per cent at its recent annual general meeting, investors are still awaiting action from the SCIC to make the sale of the state’s stake a reality, sometime in the coming year.

“At every single AGM held, I have to come back to the issue as to when the SCIC will fully divest the state’s stake at VNM, but there has not been an official answer as yet,” said VNM general director Mai Kieu Lien when asked about the SCIC’s divestment plan at the company. “I have no idea when the SCIC will eventually do it.”

Similar to the case of VNM, other large state-owned companies are uncertain about the government’s divestment route. The delay in divestment, when closely examined, could come down to the enormous profit that each of these companies have brought to the SCIC.

At an ownership ratio of 45.06 per cent at VNM (541 million shares), for instance, the SCIC can secure hundreds of millions of US dollars in dividend payouts each year.

In its 2015 financial report, the SCIC reported a revenue of VND10.5 trillion ($479.45 million), of which VND4.9 trillion ($223.74 million) alone came from dividend income. Of the $223.74 million, more than half came from VNM.

“Before questioning as to whether the SCIC wants to divest from VNM or not, I would ask myself the question: would I wish to miss out on an annual profit worth hundreds of millions of US dollars?” said VNM chairwoman Le Thi Bang Tam. “If I wouldn’t, why would the SCIC?”

Tam noted that the SCIC could not sit on the fence any longer in regards to the government’s divestment plan. It could not hold on to the state capital forever, as the state had ordained that it no longer needed to keep a controlling stake in the dairy industry.

According to the MoF, in the first five months of this year, the SCIC gained some VND2.81 trillion ($128.63 million) in revenue through the sale of state ownership at various state-owned companies.