Vietnam’s government hopes to finalize the equitization of at least 127 state-owned enterprises (SOEs) by the end of 2020. The list adds another 31 SOEs to the original plan of 406 SOEs to be equitized by the end of this year.
The government aims to raise at least US15billionfromthesaleofSOEs,valuingthematUS215 billion.
Major Divestments in 2020
The government will divest from SOEs from the agriculture and forestry sectors. In particular, the Vietnam Bank for Agriculture and Rural Development (Agribank), Vietnam National Coal-Mineral Industries Group (Vinacomin), and Vietnam Posts and Telecommunications Corporation (VNPT) are included in the list of SOEs to be equitized by the end of 2020. Along with the aforementioned SOEs, the government also plans to divest its stakes in several major SOEs, such as the Vietnam National Petroleum Group (Petrolimex), Vietnam Airlines, and the Airports Corporation of Vietnam (ACV), by selling its entire capital.
Other major divestments planned by 2020 include at least 35 percent in Vietnam Post and Telecommunications Group (VNPT), MobiFone Corporation (MobiFone) and Vietnam National Chemical Group (Vinachem).
In the power sector, the government plans to reduce its ownership to 51 percent in three electricity power generation corporations: Power Generation Corporation 1 (EVN Genco 1) and Vietnam Electricity Power Generation Corporation 2 (EVN Genco 2).
Under this process, investors have to wait until the prime minister approves the divestment plans for each SOE on the list. The list of SOEs is then submitted to the Ministry of Planning and Investment, the Ministry of Finance, and the Steering Committee for Enterprise Innovation and Development before submission to the prime minister.
Opportunities for Foreign Investors
The state divestment process is faced with a number of challenges but could be an, especially as large banks and financial institutions, opportunity for investors to get a slice of the pie.
For example, as large agriculture and forestry corporations are beginning their divestment projects, investors may find it hard to value the assets of these companies, due to the lack of transparent and adequate information. The process is further complicated by the country’s legal framework on land-use rights.
Besides this, investors may also be interested in large, profitable SOEs in the. The new list includes three leading telecommunication groups, MobiFone Corporation, VNPT, and Vietnam Television Corporation (VTC) for the first time.
Most of these businesses hold impressive property portfolios, with iconic hotels such as the Continental, Rex, and Majestic in Ho Chi Minh City under Saigontourist’s control. The government has also stated it wants to sell its full stake in several major SOEs such as Vinamilk, thus also tapping into the of Vietnam.
Regulations facilitating the sale of SOEs
The government has been making regulatory changes to ease the equitization process as well as to introducing supportive rules at certain state corporations to create a healthy investment environment for foreign investors.
To improve the legal framework, the government issued Decree No. 32/2018/ND-CP and other guiding legislations and supportive rules in the first half of 2018. Circular No.21/2019/TT-BTC provides a framework for book building, which is a process of price discovery based on demand from institutional investors, which is a popular method of divestment in other countries.
This helps enterprises determine market interest and purchase power prior to a transaction. This is particularly useful for large-scale IPOs. The new circular is expected to create a more accurate method of valuation and increase the effectiveness of the first public sales of the enterprises.
The State Securities Commission (SSC) also issued a new rule in May, allowing mistress investors to make deposits in foreign currencies instead of Vietnamese dong (VND). In the past, this had limited the time of SOEs and state divestments, with transactions allowed to be carried out at all-approved banks.
Factor behind slow equitization
The new decision includes some entities that were formerly scheduled to be equitized under Decision 58 by 2020. Some of these names include:
- Vietnam Bank for Agriculture and Rural Development (Agribank);
- Vietnam National Tobacco Corporation (Vinataba);
- Vietnam National Garment and Textile Group Holding Company (Vinatex);
- Power Generation Corporation 1 (Genco 1);
- Vietnam Electricity Power Generation Corporation 2 (EVN Genco 2).
Besides the aforementioned SOEs, there are another 23 SOEs with the, leaving firms to be better prepared for the equitization process. Some of these firms only have more time to tackle internal problems before the equitization to take place.
For example, to be able to attract investors, Agribank needs to restructure and deal with its non-performing loans. The government will need to invest a significant amount of capital to recapitalize the bank and restore the stability of a company’s financial situation. Besides this, EVN is also trying to successfully restructure its debt.
The process of finding a strategic investor is another challenge for the government. The government’s goal of these divestment plans is to reallocate resources, and create a fair business environment while enhancing transparency and boosting the growth of the stock market.
However, delays to the divestment process not only generate state budget loss but have also hampered the development of the stock market. According to the plan for 2017–2020, the government would complete the divestment in 181 SOEs and 135 SOEs in 2017 and 2018, respectively. However, so far it has been challenging for investors to go ahead with their investment plans.
In 2018, the government planned to divest from 127 SOEs, but only 35 enterprises were equitized in the first 11 months of the year, collecting a total of US8.14billion.ThetotalamountcollectedwaslessthanthetargetofUS15 billion.
A number of factors have delayed the process. The introduction of stricter regulations, including the requirement to have a valuation in which the government has invested more than US$775 million, adds to the administrative process time required.
Another reason for the slow process is the complex legal framework and cumbersome administrative procedures that makes SOEs valuable to investors. However, conflicts and overlap among legal documents on land use right certifications have been challenging for the process.
SOEs are required to secure provincial confirmation of their land use before equitization plans proceed. However, this has been challenging, due to the lengthy time required for provincial authorities to process such requests. The process of divesting from an SOE can be a long and complicated process, but if investors do their due diligence, the conflicts and overlap between legal documents can be avoided.
To ensure the success of the privatization process, with several divestments projects being in the pipeline, the government has taken a.
Government addresses slow divestment
The government will now allow investors a grace period, which it has to deal with for more successful divestment projects to take place.
Vietnam has also committed to creating a level playing field for all businesses under its. In particular, Vietnam has shown its commitment to creating a level playing field for foreign.
In addition, government leaders realize that divestment is needed to fund infrastructure projects which require large amounts of capital to boost the nation’s economic growth and accelerating the divestment process will be easy to funding such projects.