Vietnam to make $835 million on radical divestment bout


The Vietnamese government continues to publicise the portfolio of investment assets to be restructured. This time, it laid out the detailed list of state-owned enterprises marked for divestment during the 2017-2020 period. The opportunity to renew the asset structure of state-owned enterprises is being shifted to the private sector.

The total revenue gained from state divestment activities in 2017 is expected to add at least VND19 trillion ($835.62 million) to the national budget. The above figure was calculated based on the par value of the portion of state capital that is expected to be withdrawn from 135 enterprises this year. However, the value calculated based on the price of shares on the stock exchange can go far beyond VND29 trillion ($1.28 billion).

Among these, 26 enterprises are operating under the management of particular ministries and government bodies, 109 are local businesses, and four other businesses will be transferred to State Capital Investment Corporation (SCIC) for divestment.

This is part of Decision No.1232/2017/QD-TTg approving the list of state-owned enterprises marked for divestment during 2017-2020, signed by Deputy Prime Minister Vuong Dinh Hue on behalf of the prime minister, dated August 17, 2017.

However, this is not the final sum that the state can raise from divestment activities in 2017.

Le Manh Hung, deputy director of the Enterprise Development Agency under the Ministry of Planning and Investment, said that the Decision No.1232/2017/QD-TTg adopted a drastic mechanism to not only accelerate the progress, but also improve the effectiveness of the work.

“The prime minister has allowed ministries, related government bodies, and localities to speed up the execution of divestment plans and increase the rate of divestment compared with the approved annual minimum rate based on market developments and the actual situation at enterprises. The active role of ministries, government bodies, and localities to take action is clearly highlighted,” Hung commented.

Moreover, the number of enterprises marked for divestment in the portfolio only illustrates the minimum target. Ministries and other government bodies may increase the number of enterprises to be divested earlier than planned for each year or propose additions to the list.

“Apparently, the ultimate principles are still effectiveness, openness, and transparency. In particular, the total revenue from divestments at the end of the period must reach the goal approved by the prime minister,” Hung said.

A challenging plan

Looking at the divestment plan for 2017, great pressure is being placed on the shoulders of ministries, government agencies, and localities, especially the Ministry of Transport, the Ministry of Construction, the Hanoi People’s Committee, and the Bac Giang People’s Committee. These government bodies are in charge of divesting state capital in quite a number of businesses (around 7-17 enterprises) in about four months.

Moreover, during the implementation of the plan for SOE restructuring from 2011 to 2015, the speed of state capital withdrawal had always been slow and could only meet requirements in enterprises with positive business performance.

Meanwhile, several cases of divestment failed to follow market principles and were undertaken in many other forms, such as debt clearing or debt conversion into capital contribution.

However, from a market standpoint, these numbers are not too challenging. Quite a lot of names are drawing great market interest. Investors are also keeping their money until a more appropriate rate of divestment is announced.

Moreover, the principles of divestment have also been well-defined in accordance with market mechanisms. It is possible to divest these businesses in instalments several times, but the rate of divestment must lie in the range of 20-36 per cent of the total capital holding.

This is the reason why the approved number of enterprises marked for divestment each year during 2017-2020 has surpassed the announced number of 375 enterprises.

“Allowing ministries, sectors, and localities to actively follow market signals will attract more major investors and increase the feasibility and effectiveness of each sale. Of course, completing the plan remains a remarkable challenge which requires drastic efforts from ministries, related government bodies, and localities,” Hung openly admitted.

Also, it must be added that the implementation of the divestment plan is part of the government’s goal to open up capital flows and boost growth. Hence, discipline is significantly prioritised.

Thus, besides the divestment plan of 2017, other divestment plans in the coming years, especially in 2018, should be gradually activated from now to sustain the pace of progress.

Valuable market opportunity

It should be noted that the state’s capital holdings in the remaining 375 state-owned enterprises is worth approximately VND108.502 trillion.

The list does not include other enterprises under the Ministry of Defence, the Ministry of Public Security, the Ho Chi Minh People’s Committee, SCIC, and other businesses which would perform divestments on their own as requested by the prime minister’s guidelines (Habeco, Sabeco, Central Transport Hospital…). It means the over-VND100-trillion ($4.4 billion) state-owned capital on the list to be sold in the upcoming period is just the minimum.

It is worth saying that the first opportunity to transform and restructure the portfolio is not only significant, but also very profitable for both domestic and foreign investors who are interested in this market.

This is the first time the government has published its investment portfolio and the proportion of state capital in SOEs to be sold. In addition, the 2016-2020 equitisation plan approved in Decision No.58/2016/QD-TTg has also been published with the book value of the recovered state equity reaching over VND296 trillion ($13.02 billion). Investors can clearly perceive the need to restructure the state’s portfolio of assets to prepare resources for replacement strategies.

Investors, however, were not provided with sufficient data to grasp the opportunities offered during the previous bout of state-owned enterprise restructuring, as divestment activities were carried out individually without guidance from an overall portfolio.

Also, this divestment plan is quite different from the state divestment strategies usually mentioned in 2011-2015. In this period, state-owned corporations and economic groups were forced to divest their investments into five sensitive sectors (real estate, securities, finance-banking, insurance, and investment funds), meaning the sales revenues might be kept in state-owned enterprises. These divestment activities only changed the investment portfolio of SOEs.

However, this time, together with the promotion of SCIC’s divestment of state capital in equitised firms, the divestment of the remaining state-owned enterprises will actually change the state’s portfolio of assets. In addition, this time, the state seeks to sell its stakes to raise revenue for the national budget, which will be allocated to public investment projects in turn, whereas the revenues from previous divestments could have been held back in the enterprises and might eventually increase the proportion of state capital in the business.

Inevitably, the distribution of asset accumulation by economic sectors will follow a direction in which the private sector will continue to expand.

“This is one of the goals pursued by restructuring of state-owned enterprises. This is also the message that the market is waiting for,” said Nguyen Dinh Cung, director of the Central Institute for Economic Management.


Photo: CBR Investment AG