Policy issues
According to the Department of Finance of Enterprises under the Ministry of Finance, by the end of the third quarter of 2020, they had received the approval report on equitization plans of seven enterprises. In the first nine months of 2020, state capital divestment in 27 enterprises with book value of VND 900 bn had been made, collecting a total of VND 1,845 bn.
In addition, state capital transfer had been completed in five corporations with total value of VND 8,185.6 bn and sent to State Capital Investment Corporation for divestment. From 2016 to September 2020, the total divestment showed VND 25,669 bn, collecting a total of VND 172,917 bn. Thus, equitization progress of divestment in nine months of 2020 was quite slow, so it is not feasible to implement the equitization for enterprises in the remaining three months of 2020.
Among the enterprises that have to be equitized according to the plan for last three months of 2020 are many big state-owned companies such as Agribank, Vietnam Coal-Mineral Group, Vietnam Post and Telecommunication Group, Vietnam National Chemical Group, Saigon Construction Corporation, Saigon Agriculture, Ben Thanh, Saigon Transportation Mechanical Corporation, Saigon Trade, and Saigon Tourism. These are large enterprises with many problems in policies and assets, so they cannot be equitized as planned.
For example, the building of the Operation and Transaction Center project invested by the Vietnam Cement Industry Corporation (VICEM) is located in Cau Giay District in Hanoi over an area of 8,476 square meters, which includes a 31-storey building and four basements over floor area of about 78,270 square meters.
Although the Ministry of Construction approved the transfer of the project before the company can be equitized, until now, VICEM has not completed the procedures for approval. The main reasons are problems related to land documents, complicated procedures, and other bottlenecks such as arrangements for the equitization process.
Enterprises delay equitization
According to Mr. Nguyen Hong Long, Deputy Head of the Steering Committee for Enterprise Innovation and Development, one of the reasons why the equitization of SOEs is so slow this year is because of the impact of the Covid-19 pandemic, along with many uncertainties in a volatile world economy.
This makes equitization and IPO of enterprises unfavorable. Mr. Long assessed that if enterprises are still determined to equitize and offer IPO in the present time, it will be difficult to sell and not attractive to foreign investors.
However, according to Dr. Vu Dinh Anh, an economist in the Ministry of Finance, the main reason why enterprises delay equitization is because of time-consuming and tedious procedures for land valuation. Even the equitization process of SOEs has shown many mistakes in land handling, causing some property loss.
For enterprises in general and equitized enterprises in particular, land has always been a sensitive issue and attracts the attention of investors. There have been many cases related to the improper use of land or the loss of state assets in the process of changing land use purposes in enterprises.
One of the reasons that makes it difficult to determine the land value of enterprises is that there are not yet any concrete regulations. Currently, only Decree 126/2017/ND-CP regulates the price of land. However, Decree 126/2017/ND-CP still has some unclear content. Specifically, according to Article 30, the land of an equitized enterprise is divided into two cases.
First is for the allocated land to be used for the purpose of building houses for sale and building infrastructure for transfer or lease. This type of land, according to the land use plan of an equitized enterprise has been approved by a competent state agency which must determine the value of land use rights to be included in the enterprise value, have specific land price at location of enterprise with allocated land area, which all will be decided by the People's Committee of the province according to the provisions of the Land Law.
However, the land price bracket announced by the People's Committee is often lower than the market price, leading to difference in valuation if calculated according to market value, which can greatly affect the results of determining value of an enterprise.
Second, determining value of leased land area of SOEs is also very difficult. Accordingly, land rental with annual payment according to specific land price at location of the enterprise shall be decided by the People's Committee of the province according to provisions of Clause 3 and Point d, Clause 4, Article 114 of the Land Law.
For this area, there is no advantage, therefore, the unit rent determined by the People's Committee is often much lower than the rent in the market, because the land rent benefits are not determined, affecting determining the value of enterprises.
The Ministry of Finance is currently completing a draft decree for amending and supplementing Decree 126/2017/ND-CP to accelerate equitization of enterprises in the period 2021 to 2025. Notably, when the amendment of the Decree will add equitization conditions, there must be an approved plan for rearranging and handling housing and land.
With this requirement, SOEs must reorganize their land use plans. If they do not represent the owners, they must take responsibility and be in accordance with the law on civil servants. This method will prove more effective for the equitization process.
