The MoH has set ambitious plans for the equitization of some of its business units but all have a range of issues to address.
Eight enterprises under the Ministry of Health (MoH) must immediately follow the government’s decision to equitize despite lacking in preparation. Most only began the groundwork in early November but have been directed by the Prime Minister to complete the process by next year.
Of the eight, three have actually been directed by the MoH to wrap up the process by the end of this year: the Pasteur Dalat Vaccine Company Ltd, Biophaco 1 Ltd, and Nha Trang Biophaco Ltd. The end of the year may be clearly in sight but the companies only have vague answers regarding the timeframe. A representative of Pasteur Dalat Vaccine said that their equitization plan still has many problems and it is yet to determine a precise timeframe. Biophaco 1, meanwhile, did not have an equitization plan in place as at November 10. A representative from Nha Trang Biophaco said the company was confident its equitization plan would be completed around mid-November. The company is trying to finish the process as requested by MoH, so guidance from the Equitization Steering Committee at the ministry will play an important role.
The five other MoH enterprises are at varying levels of preparation. The Vietnam Pharmaceutical Corporation (Vinapharm) and two of its units, the Pharmacy Company of the Hanoi University of Pharmacy and the Vietnam Medical Equipment Corporation (Vinamed), are all to be equitized. As the Pharmacy Company is quite small, its equitization plan hasn’t been of much concern. The process at Vinapharm and Vinamed, though, is under pressure.
Both Vinapharm and Vinamed have had a long time to prepare. The process began in 1998 for Vinapharm, but it still has four units that have 100 per cent State capital. While its process been uninterrupted, the process at Vinamed began in 2007 but then stopped.
The MoH has blamed delays on the legal framework creating obstacles to valuations at enterprises. An official at one of the eight enterprises said that the ministry wants to retain companies that are in a healthy state, such as Vinamed. Vinamed has now restarted its equitization process, several weeks after receiving the decision from the ministry, but there is no timeframe for completion.
The 2015 deadline presents a number of difficulties for the eight enterprises. Asset valuations are one of the most common problems causing delays in equitization. Biophaco 1 Ltd, for example, used to belong to several State business units, so when it has to separate from them the property valuation faces problems in determining land possession. Pasteur Dalat Vaccine was in a similar situation, because some of its medical equipment wasn’t considered official assets by the State.
Poor performance has also been a cause of equitization delays, according to Mr. Tran Van Bong, Deputy Director of Vinamed. After recording losses for many years, the present value of the company and the value of its units is different from the value assessed and approved by the State years ago. “The value of these companies can’t be established accurately if the evaluation is based on figures from old documents,” he said. Secondly, a delay at one unit can lead to delays for the whole company in the equitization process.
The eight enterprises have the same equitization guidance - Decree No 59 from the government. The matter of property valuation remains complicated, and there are questions over the process as it relates to those companies that have already had an initial public offering (IPO) that failed to attract much interest. Their stock price fell as a result, casting a shadow over any current valuation.
The matter of control is also an issue, as many investors were hoping to secure a 65 per cent stake in Vinamed. They were disappointed to learn that, under the decree, they could only buy a 41 per cent stake at maximum.
Vinamed is expected to accelerate its equitization process as quickly as possible. Mr. Bong said that the company doesn’t have any bad debts, large inventories, or investment in areas outside of the medical field. “As a parent company, Vinamed can possibly meet the MoH deadline,” he said. But the most difficult part for its equitization will be completing the valuation at one of its business units, the Medical Construction and Consultant Joint Stock Company.
Leaders at Vinamed, though, expect that finishing the process on time will provide the company with certain benefits. “After completing equitization, the manufacturing and trading abilities of enterprises will improve,” said Deputy Minister of Health Pham Le Tuan. “Equity can increase quickly, from profits and delayed dividends.” The State also benefits from this increased equity.
If the equitization of the eight enterprises is successful then enterprises, investors and the government will all benefit, but that’s a long way off. Not only opportunities but also challenges await stakeholders. One of the eight enterprises said that it has only just begun its equitization plan, but expects the biggest difficulties will relate to land use rights after equitization.
Transparency and accountability
Deputy Minister of Health Pham Le Tuan spoke with VET’s Minh Tuyet about the equitization of the ministry’s enterprises.
How would you comment on the equitization process of enterprises under the MoH since 1998?
The MoH manages 35 State-owned enterprises, including 20 under the Vietnam Pharmaceutical Corporation (Vinapharm), nine under the Vietnam Medical Equipment Corporation (Vinamed), and six independent enterprises. The ministry has completed the equitization process of 25 enterprises since 1998, including one unit of Vinapharm in the 1998-2000 period, 17 enterprises in the 2001-2005 period, and seven enterprises in 2005-2010 period.
The legal framework to complete the equitization of enterprises is contained in Decree No.44 and Decree No.64, which make it easier to accelerate the process. Moreover, the faster the equitization process is completed the more benefit the State and enterprises will receive, especially when the stake value increases.
However, Decree No.109 doesn’t help MoH complete the equitization. Land use rights are an obstacle in the process. Even so, both the government and the enterprises will benefit from the equitization process. For the government, State capital in the joint stock companies increases when the owners’ equity increases because of annual profits and share issuances increasing charter capital. Secondly, the productive capacity of enterprises post-equitization will improve, serving society better. Thirdly, annual dividends of enterprises are another significant contribution to the government. Finally, income tax paid by enterprises post-equitization is often higher than that pre-equitization.
For enterprises, equitization creates multi-owned companies, ensuring greater transparency and accountability and enhancing the role of shareholders. Enterprises also become more active in capital mobilization and can increase their charter capital by issuing more shares. Post-equitization, enterprises will operate under the Law on Enterprises, so their autonomy is also greater. In summary, enterprises will operate more effectively and the government has more financial sources.
What lessons can be drawn from previous MoH equitizations to improve the process this time and ensure it will be completed in 2015?
All agencies of the MoH have to cooperate well and support enterprises during the equitization process. Enterprises, meanwhile, need to fully understand the guidance documents on equitization. They also need to pass this information on to their workers. Above all, land use problems during equitization should be dealt with as soon as possible.
What difficulties will the equitization of the eight MoH enterprises pose and what are the solutions?
Some enterprises still have bad debts that must be listed in the valuation and many fail to fully meet all of the related criteria for equitization. Bad debts make shares unattractive, so they must be resolved with a flexible mechanism to improve the financial position of the enterprise
Several enterprises have set a price that is too high or set the price too late. The public price set most recently by the local people’s committee should be selected because it was set at a level suitable for local policies. The approval of an enterprise’s land use plan always comes late, so the people’s committee must have specialized departments to resolve land use and land price problems. This department should be streamlined so it is not time consuming.
Stipulations on the enterprise’s land use plan after equitization should be reviewed, especially the stipulation on waiting for approval from the people’s committee for the plan. This is very time consuming because the approval process involves many departments. For this reason, if the enterprise’s land use purpose post-equitization does not change then they shouldn’t have to wait for approval in accordance with Decree 187. If an enterprise changes their land use purposes, they should still have to wait for approval from the people’s committee and pay a fee. The government will not be affected in either scenario.