State to speed up divestment by authorising selling under book value

July 05, 2017 | 22:09
It is expected that selling shares in blocks and withdrawing capital shares under par value will speed up the state’s divestment from enterprises; thus, a draft on these issues will be submitted to the government. Dang Tien Quyet, deputy head of the Ministry of Finance’s Corporate Finance Department, talked to VIR’s Manh Bon about these matters.
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The slow pace of state divestment has been decried at numerous forums, to no avail. What slows down the process so much?

Previously, state capital was mainly invested in larger groups, corporations or enterprises with a complex divestment process. Besides, conditions were not really favourable for the stock market at the time. The slow state divestment was believed to originate from this.

We cannot deny these reasons, but they are only the secondary cause. The primary cause is that, in accordance with regulations, every year enterprises have to list and recheck all their tangible assets, including land plots, overdue debts, receivable and payable debts, bad receivable debts, and inventories. However, this step is not implemented as regularly and monitored as closely as required. Thus, it usually becomes a mess when the state decides to divest from an enterprise. As a result, state divestments fail to lure in investors.

Another reason is that the prospectuses about production and businesses’ situation or enterprises’ finances and their assets’ origins may not be publicised in an open and transparent way. For example, they do not release detailed information about their land holdings, so investors cannot confirm whether their owned lands are allocated, leased or legally transferred plots—or even that they have the necessary documents and are not subject to a dispute. This bars investors from approaching the state’s stake.

Besides, current regulations do not spell out clearly the proper course of action if the sale of state capital through open auctions, competitive offers or private agreements among parties fall through.

To overcome obstacles in selling state capital, the Ministry of Finance (MoF) is drafting adjustments to Resolution No. 91/2015/ND-CP to submit to the government. This draft will cover selling state capital under book value. Do you think that this policy will lead to a loss of state assets?

Selling state capital under book value or under par value is a sensitive problem. Many enterprises are afraid of selling the state’s capital under book value. For example, a VND100 billion ($4.4 million) capital could be sold at VND60 billion ($2.64 million), drawing accusations of violations and misappropriation of state assets.

To solve this matter, the amendments to Resolution 91 will require publicity and transparency in releasing enterprises’ financial situations and assets, as well as the progress of selling capital. In addition, selling state capital through private agreements will be limited and gradually eliminated to avoid violations and misappropriation charges.

Accordingly, enterprises will be allowed to choose eligible appraisal organisations to determine the actual value of the capital on sale, including the value derived from usage rights of allocated lands, legally transferred or leased land plots that required a one-time payment of lease fees, and other intellectual property rights (if any).

A lack of publicity and transparency is a hotbed for violations. If we implement all legal regulations, we may sell the state’s capital at a price acceptable to the market.

Does it mean that when a VND100 billion ($4.4 million) investment is sold at VND60 billion ($2.64 million) and then subsequently sold again for VND120 billion ($5.28 million), those behind the first sale would not be prosecuted?

There are some sectors that should be invested by the private sector, yet the state holds a stake in enterprises in such fields. Thus, it is vital to divest these enterprises, as more efficient or better places could be found for the VND100 billion ($4.4 million) and the longer it stays in the wrong place, the more losses the state or society has to suffer. Selling under book value is better than leaving it to gradually depreciate.

An investment of VND100 billion ($4.4 million) may be sold at VND60 billion ($2.64 million), but afterwards, the enterprise may restructure its operational structure, organisational structure, financial situation, the market may recover or purchasers may find another investor agreeing to purchase at a higher price. In such cases, leaders that give the initial permission to sell the stake under book value would not be prosecuted, as long as they have implemented all the necessary procedures and the selling progress was transparent.

One of the new features in the state divestment policy is selling in bulk. Does an investor who purchases all the state’s capital have to become a strategic shareholder?

Purchasing in bulk means that investors have to purchase all the state capital on sale, thus, they may become the biggest shareholder, which heavily influences the enterprise—but they do not necessarily have to be a strategic investor. When the state decides to entirely divest from an enterprise, it will sell to the highest bidder, not to those promising to be a strategic shareholder to support the enterprise with capital, market, and experience.

However, we will carefully assess the process to add a provision that investors who purchase the state’s stakes are not allowed to dismiss the enterprise’s workers within a year.

This addition is for the workers’ benefits. In accordance with current regulations, only workers who pay social insurance and unemployment insurance for 12 months can receive support from the social insurance and unemployment funds while looking for a new job or getting retrained. Thus, if this new provision is passed, it will strongly support workers who have newly signed their labour contracts.

By By Manh Bon

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