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Expectations unmet

Released at: 10:41, 10/12/2015

Expectations unmet

Mr. Takashi Sakakibara, Special Advisor to the Chief Representative of the Japan International Cooperation Agency (JICA) in Vietnam, shares his views on equitization plans for this year with VET.

by Le Huong

Many legal documents on State-owned enterprise (SOE) equitization and divestments from businesses outside of their main field have been issued since last year. What is your view of the process during that time? 

Since last year the Vietnamese Government has expressed their determination to implement the equitization of SOEs through a number of programs at a pace not seen before. These policies, solutions and legal frameworks contain aggressive changes but results have not reached expectations.

For example, it’s difficult to achieve a target to equitize 432 SOEs in two years - 2014 and 2015. In terms of quality, according to a report by a research firm, many enterprises after equitization still have State shareholdings of around 90 per cent. The goal of equitization is to reduce the holding of the State, to improve business efficiency. But when the shareholding is so high have these enterprises changed? In other words, equitization like this is only superficial.

What are the main reasons behind this happening?

Vietnam’s equitization process has set many ambitious goals. In terms of the equitization process, the first step is that SOEs conduct an asset valuation. After that they will auction shares at an initial public offering (IPO), calling for strategic investors. After the IPO they are listed if they meet certain conditions. Each business, though, has different production and business activities. Some are performing well and some are not, but they all undergo the same equitization process. 

Many investors feel the government does not want to sell SOEs that conduct business effectively. Besides that, the valuation method is inappropriate, and this is the main reason why targets in the quantity and quality of equitization have not met expectations.

Can you tell us more about the shortcomings in securing strategic investors?

During SOE reform the main point is to call for strategic investors. This is the shortest way to improve the operations of enterprises after equitization.

To call for strategic investors there must be a balance between their rights and obligations. Strategic investors are obliged to provide capital to the business and to retain their shares for at least five years. In addition, strategic investors can only hold a certain percentage of shares, mostly between 10 and 20 per cent. They invest in terms of capital and human resources, but they don’t have the right to make any important decisions for the business, so of course they see a risk. 

What needs to be addressed to make the equitization process more effective? 

In my opinion, the first thing that needs to be implemented is to sort out enterprises that are conducting business effectively from those that are not. For those that are effective, participation should be extended to investors. Strategic investors should be able to own more than 35 per cent of shares to guarantee their rights in decision making. If 35 per cent is not possible, there should be regulations and arrangement to guarantee the rights of strategic investors, for example giving them rights when critical decisions are made. 

There also needs to be a push in SOEs listing on the stock market right after IPOs. At the moment, many SOEs successfully conduct auctions of shares at an IPO but then do not list. This makes investors anxious about when their shares will be traded publicly and clearly and discourages them from purchasing shares in certain businesses.

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