Vietnam: Faster Equitisation Needed
December 22, 2016
Speeding the equitisation of State-owned enterprises (SOEs) and development of the stock market is important to secure a Government policy to restructure businesses over the next five years, a finance official said.
Hoàng Văn Thu, deputy head of the Ministry of Finance’s Corporate Finance Department, told a conference held by the Hà Nội Stock Exchange last week that the acceleration in equitisation was needed for the sake of enterprises and investors.
A report by the department said the nation has had 5,950 SOEs reorganised, with 4,460 of them equitised and the remaining firms restructured through mergers and acquisitions, dissolution, bankruptcy or conversion into limited companies with two members or more.
Forty-eight firms were equitised in the first 10 months of this year, after 591 companies were privatised during 2011-15. As many as 718 SOEs remain to be equitised.
The report said that in the five years until 2015, some 350 equitised companies showed better business performances, compared to the results they posted in pre-equitisation phases.
The combined charter capital of these firms increased 72 per cent, and their total assets rose by 39 per cent. Their combined pre-tax profits were up 49 per cent, and joint contributions to the State budget were 27 per cent higher.
The average workers’ income at these companies also increased 33 per cent.
Also, the local press cited several cases where equitisation notably improved operational efficiency of businesses.
The Việt Nam Dairy Products Joint Stock Company, or Vinamilk, has seen charter capital increase by 13 times from the VNĐ1.59 trillion (US$71.95 million) level recorded before it was equitised in December 2003.
Revenues of the company grew by more than 10 times, from VNĐ451.60 billion in 2003 to VNĐ40.22 trillion in 2015, and its after-tax profits increased from VNĐ56 billion in 2003 to VNĐ7.77 trillion last year, posting an average growth of 29 per cent per year.
The Việt Nam National Seed Joint Stock Company, also known as Vinaseed, posted revenues of VNĐ1.36 trillion last year, a rise of 20 times from the pre-equitisation figure recorded more than 10 years ago.
Its after-tax profits reached VNĐ157 billion in 2015, growing by 40 times; and asset values were up 22 times at VNĐ1.56 trillion, while equity was 40 times higher at more than VNĐ1 trillion.
The Việt Nam National Petroleum Group, better known as Petrolimex, obtained more than VNĐ3 trillion in profits last year, compared to a loss of VNĐ1.67 trillion the company suffered before it was equitised in 2011. The firm also paid dividends at a rate of 12.14 per cent in the first year of equitisation.
On the other hand, some equitised enterprises have reportedly shown declining performances.
The Việt Nam Rubber Group saw profits fall from VNĐ11.84 trillion in 2011 to VNĐ2.2 trillion in 2015, while its debt amounted to VNĐ21.22 trillion, compared to an equity of VNĐ35.21 trillion last year.
In 2015, the average debt to equity ratio of SOEs was 1.23. However, 25 companies, including the Military Petroleum Corporation, the Việt Nam Machinery Installation Corporation and construction firm Corporation No 36, had a ratio greater than 3.00.
Lê Mạnh Hà, Vice Chairman of the Government Office and deputy head of the National Steering Committee for Corporate Renovation and Development, told news website Infonet that equitisation has, overall, benefited various subjects.
The State had more resources for socio-economic development, enterprises were better financed, and managed to improve production and business activities, and workers’ interests were more assured. Investors also saw more investment opportunities emerging in a manner closer to market rules.
Phạm Hải An, another official from the Corporate Finance Department, said authorities must continue to complete policies and institutions needed to speed up equitisation.
Hundreds of companies, though equitised, have not yet listed shares on the stock market, as required. This makes SOE share auctions unattractive to investors and impedes transactions, he said.
On June 30, the Ministry of Finance issued Circular No 115/2-16/TT-BTC providing guidelines for initial public offerings and the use of money raised from SOE equitisations.
Last November, the Government issued Decree No 145/2016/NĐ-CP revising a former decree on treatment for administrative violations in the stock market, including violations of listings and transaction registering regulations.
A better legal framework is expected to boost the transparency of stock transactions and enable more stable and healthy operations of the market, said Phạm Thị Thanh Hương, Deputy Chief Inspector of the State Securities Commission.