Investors need better information about equitization terms

State-owned enterprise evaluation remains a controversial issue

Tardy and impractical

A seminar themed “Equitization of state-owned enterprises from the point of view of foreign investors” was recently sponsored by the National Assembly’s Economic Committee and AmCham in Hanoi. Nguyen Duy Long, head of Technical Office I of the Ministry of Finance’s Enterprise Finance Department, said at the seminar that state enterprises have been renovated and restructured, with the number of enterprises decreasing from nearly 1,500 in 2010 to about 600 in 2016. In the first eight months of 2017, 33 state enterprises, capitalized at VND80.6 trillion (including VND21 trillion in state capital) had their equitization plans approved by the relevant authority.

However, Associate Professor Dr. Tran Dinh Thien, director of the Vietnam Institute of Economics, disputed the figures, explaining that while 96.5 percent of state-owned enterprises were equitized, only eight percent of their capital was transferred to the private sector. He attributed this disparity to the law limiting the transfer of state capital to private investors to 49 percent.

Economists foresaw this “new bottle with old wine” situation. At the 2017 Economic Forum held in December 2016, Vietnam Chamber of Commerce and Industry (VCCI) President Vu Tien Loc pointed out that state capital transferred from 2012 to October 2015 accounted for only two percent of related enterprises’ book value.

Opening doors to investors

With limited shareholding, private investors do not have a controlling say in the company’s management and are therefore less interested in buying holdings in state-owned enterprises, said Associate Professor Dr. Tran Dinh Thien.

Adam Sitkoff, Managing Director of AmCham in Hanoi, said investors should be persuaded by clear and explicit information about equitization and the withdrawal of state capital.

Attorney Tony Foster from the UK’s Freshfields Law Firm recommended government agencies consider amending the law in order to allow foreign investors to hold more than 49 percent of equitized enterprises’ holdings.

Johnathan Ooi, a mergers and acquisitions (M&A) expert from PricewaterhouseCoopers, said investors and equitized enterprises have different understandings of enterprise evaluation. He recommended involving an independent evaluation organization, which offers international standard evaluation services accepted by foreign investors.