Restructuring of Vietnamese SOEs marred by significant asset valuation missteps

Despite the governmental focus on SOE reform, specifically through equitisation and divestment, the report indicates that the initiative has been neither timely nor exhaustive.

These deficiencies persist in numerous SOEs, with several sizable ventures grappling with delays, stagnation, and financial losses. The investigative report underscores that considerable financial deficits stemmed from improper asset valuation processes, according to local media Tuoitre.

Oversights lead to significant undervaluations

At the Vietnam Steel Corporation (VNSteel), the approved asset valuation was identified as being fundamentally flawed. The evaluation of the remaining useful life of 127 pieces of machinery at Southern Steel and Phu My Flat Steel was incorrectly assessed, which led to an undervaluation of approximately $14.36 million.

Two land plots in Hanoi and Ho Chi Minh City, valued at around $13.08 million, saw VNSteel failing to complete the required procedures for budget contributions during the equitisation process.

The report also drew attention to the erroneous valuation of the PetroVietnam Ca Mau Fertiliser JSC (PVCFC) during the equitisation process by the Vietnam Oil and Gas Group (PVN). The error resulted in an undervaluation of state capital by approximately $10.87 million. Additionally, unresolved foreign exchange differentials amounted to about $3.33 million.

In the case of the Binh Son Refining and Petrochemical JSC (BSR), the unjustified application of the maximum extraction rate (10 per cent) for its sci-tech fund led to an overcharge of about $15.88 million. Consequently, BSR underreported post-tax profits due to PVN by approximately $15.1 million and corporate income tax by about $790,000.

Inaccurate asset valuation for equitisation was also found at the Vietnam Engine and Agricultural Machinery Corporation (VEAM), where complete reconciliation of debts was not undertaken. This oversight, amounting to hundreds of millions of USD, was identified as a serious violation.

Rectification measures and potential legal consequences

The Government Inspectorate also detected violations in land use during the equitisation processes in companies including VEAM, Fococev, Vinatrans, and Power Generation Corporation 3 (EVNGENCO3).

Fococev's management of state-owned properties in several provinces, including Danang, Khanh Hoa, Quang Ngai, Gia Lai, and Dak Lak, was found to be non-compliant with the regulations, with some properties being sold or transferred without completing the due procedures.

Additionally, the report highlighted flaws in the share sale process and the selection of strategic investors, affecting companies like EVNGENCO3, MIE, and VEAM, among others. Payments for shares and equitisation settlements were incomplete or incorrect in several companies, including VNSteel, PVCFC, and VEAM. The majority of these firms had not executed divestments according to the stipulated regulations.

In response to the findings, the inspectorate has recommended that Prime Minister Pham Minh Chinh instructs relevant ministries and agencies to address these economic discrepancies. The total value earmarked for rectification is estimated to exceed $97.42 million.

The inspectorate also suggested that Fococev's alleged land use violations in Khanh Hoa and Dak Lak be referred to the Public Security Ministry for further investigation. The Ministry of Industry and Trade, the State Capital Management Committee, the Ministry of Finance, and related localities have been urged to assume responsibility for these lapses and violations concerning the restructuring of SOEs.

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