Foreign investors call for faster reform

Foreign investors are calling for wider entry into sectors such as telecommunications Photo: Le Toan

Resolution 15/NQ-CP dated March 6 laid out specific measures to speed up the equitisation and divestment of state capital from state-owned enterprises (SOEs), aimed at preventing companies from continuing to drag their feet.

Under the resolution, state-owned groups and corporations are required, based on the set of criteria on classifying SOEs and their roles in developing industries, to determine the rate of state capital ownership they need to retain. This amount cannot exceed 65 per cent of their chartered capital.

“It is not clear whether Resolution 15’s stipulation of 65 per cent will also apply to key sectors such as airlines, telecommunications infrastructure and the press,” Nicolas Audier, member of the EuroCham Executive Committee, told VIR.

Currently the criteria for classifying SOEs and determining whether the state must hold 100, 75, 65, and 50 per cent or no stake at all were stipulated in the prime minister’s Decision 14/2011/QD/TTg, dated March 4, 2011 and Decision 929/QD-TTg, dated July 17, 2012.        

Resolution 15 also detailed measures to speed up the process of selling state-owned equity. For example, it permits the sale of shares under par or book value if a company is suffering losses and also makes company leaders personally responsible for implementing any approved equitisation or divestment plan.

However, Audier said it did not deal with restrictions on foreign investors that want to buy shares of Vietnamese companies. For example, Decree 01/2014/ND-CP dictates that a single foreign investor can only have a maximum 15 per cent stake in a credit institution and that total foreign shareholdings in a credit institution cannot exceed 30 per cent. Another policy, Decision 55/2009/QD-TTg stipulates that foreign ownership in a public company cannot exceed 49 per cent.

According to Eurocham, foreign investors are concerned that state-owned companies will not produce reliable asset evaluation reports, financial and accounting data, and a transparent prospectus, and therefore would not be able to accurately assess the value of these securities. Resolution 15 and current regulations do not seem to address these issues effectively.

Foreign investors are also concerned about the operations of an SOE in which they buy shares. Matters such as corporate governance, appointments of board members, call and put options and their rights in re-shuffling the workforce of the company are important in their decision to purchase shares. Eurocham added that these issues are similarly not addressed thoroughly in current regulations.

Resolution 15 comes amid the achingly slow pace of SOE equitisation and state capital divestment in recent years.

According to the Steering Committee for Business Renovation and Development, between 2011 and 2013 only VND4.16 trillion ($198.3 million) was divested out of a total VND21.79 trillion ($1.03 billion) in state capital invested in non-core businesses. This accounts for only 19 per cent of the original plan for this time and of these amounts. Only VND267 billion ($12.7 million) in assets were publically offered with the rest being sold internally.

To put it another way, only 180 SOEs were restructured during the period, of which just 99 were equitised. This is far below the initial target and is partly a reflection of prevailing low share prices and a low priority being set on the active disposal policy. In a recent monthly cabinet meeting members laid down the law, requiring 432 SOEs be equitised in 2014-2015.

In fact, despite equitisation the state still held a significant ownership in many SOEs for several years after they were equitised. One example, Sabeco has been equitised for nearly eight years and the state still holds a dominant 89.95 per cent stake in the company. Petrolimex has been equitised for two years and the state still holds a 95 per cent position.

These and other SOEs have admitted that due to the state holding such a massive block of shares, it is difficult for them to find strategic investors.

State-run creditor BIDV chairman Tran Bac Ha suggested the government lower the state ownership rate at joint stock commercial banks to under 65 per cent with a gradual reduction thereafter to 50 per cent.

“Only when state ownership is effectively reduced will Vietnamese enterprises successfully attract strategic investors, particularly foreigners,” said Ha.

Nguyen Hoang Hai, deputy chairman of the Vietnam Association of Financial Investors (VAFI) agreed, saying that foreign investors would only be willing to become strategic partners of local SOEs if they could buy big enough stakes to be involved in corporate governance.

Recently several SOEs in Vietnam have expressed the intention to continue the equitisation process, for example, through the issue of shares to increase chartered capital via initial public offerings. Companies currently in this stage include GAS, ACV, Vietnam Airlines, BIDV, SBIC (formerly operating under the infamous Vinashin name), Vietnam Railways, Vinatex, and Vinalines.

However, Eurocham noted that to this day foreign companies have not yet really benefited from the privatisation and equitisation process.

Issues that foreign investors have experienced in this regard include the fact that they have no access to the board of directors and that key decisions were taken to and made by another body in which foreign investors have no participation. Furthermore, they are not able to take key positions in companies, they are unlikely to be able to increase their shareholding in said companies in the near future and there is no possibility of a clear and binding put and call option, added Eurocham.

It went on to say that in addition to the aforementioned concerns SOE due diligence is often problematic, with the true value of a company often difficult to determine and it has proven difficult to have a binding and valid indemnification clause in place.