This is the reason why investors are not sure if divestments and equitization of big state-owned enterprises will go smoothly in 2020.
Equitizing process lagged in 2019
According to the Ministry of Finance, the process of divesting and equitizing of state-owned enterprises (SOEs) took place rather slowly all throughout 2019. Altogether only nine SOEs were approved for equitization by competent authorities, of which three SOEs were on the list of equitization as per Official Letter 991/TTg-DMDN and one SOE under Decision 26/2019/QD-TTg. From 2017 to now, only 28% of the equitization plan has been implemented, which means there are 92 enterprises more that still need to be equitized before 2021.
In 2019, only thirteen enterprises were divested under Decision 1232/QD-TTg, earning around VND 1,839 bn. Since 2017 to now, only 8% of the number of enterprises accumulating for divestment have been covered. Among the enterprises equitized, those in Hanoi and Ho Chi Minh City account for 54%, but they still remain static. Hanoi still has to equitize thirteen enterprises which includes four corporations, and Ho Chi Minh City still has 38 non-equitized enterprises for divestment.
Besides these two regions, the Commission for the Management of State Capital at Enterprises has six non-equitized enterprises which includes three groups and three corporations, while the Ministry of Industry and Trade has four enterprises and the Ministry of Construction has two as yet non-equitized corporations.
On the above list of enterprises that need equitization and divestment, there are a number of large companies, groups and corporations as well. In particular, the Commission for the Management of State Capital at Enterprises proposed a 15% divestment in Vietnam Airlines for the period 2019-2020, and raising of capital in the period 2019-2025, to reduce the proportion of state capital to 51%.
In addition, some large equitized companies in previous years, such as the Binh Son Refining and Petrochemical Joint Stock Company (BSR), Petrovietnam Oil Corporation (PV Oil) and Petrovietnam Power Corporation (PW Power) may also continue to divest capital in 2020 when they finish the final settlement after equitization. Power Generation Corporation 1 (Genco1) is choosing an appropriate time to determine the enterprise value, while Power Generation Corporation 2 (Genco2) has approved consultion with their contractors.
Many obstacles remain
According to Mr. Dang Quyet Tien, Director General of the Department of Corporate Finance in the Ministry of Finance, despite being reminded and urged to comply, the equitization progress of SOEs continues to lag behind and is failing to keep pace with the set plan. The slow equitization is also being caused by large enterprises.
Large enterprises have many assets, and it takes a lot of time to handle land and inventory assets, such as in Vietnam Bank for Agriculture and Rural Development (Agribank) and Vietnam National Coal-Mineral Industries Group (Vinacomin), so the equitization cannot be as fast as in small businesses. Especially where the problem of establishing legal documents of land by the local People's Committee is slow and regulations take longer to complete, leading businesses to adjust the equitization progress.
Explaining the cause of the equitization delay of SOEs in the area, Mr. Nguyen Thanh Liem, Vice Chairman of the People’s Committee of Ho Chi Minh City, said that the problem of the city is to guide the representation of state capital ownership in enterprises.
Similarly, Mr. Nguyen Van Suu, Vice Chairman of the People's Committee of Hanoi says that there are many documents and decrees guiding equitization but only guiding for agro-forestry land, and as Hanoi is an urban area, which is a prime central location, it will not be easy to handle negative public opinion. Therefore, when implementing equitization, the city government must work with businesses in the area to discuss solutions, tackle publicity and have transparency in resolving all related problems.
At the press conference to summarize the results of restructuring and equitization of SOEs in 2019, the representative of the Ministry of Finance admitted that besides some objective reasons, subjective reasons lie within a number of ministries, sectors, localities and SOEs themselves which are not really seriously considered in the equitization plan, divesting of capital, and restructuring of SOEs under the direction of the Prime Minister or in compliance with concerned departments.
Renewing the activities of an enterprise and being transparent in doing so, while also complying with the regulations and the law, ensuring market principles, and resisting group interests in equitization and divestment of state capital are all part of the responsibilities that any head of an enterprise can follow and commit to.
Need to clear bottlenecks
Based on comments from concerned parties about the above situations, the Ministry of Finance has implemented measures to tackle with bottlenecks in two Decrees, namely, 126/2017/ND-CP and 32/2018/ND-CP and submitted these to the Government. In a positive scenario it is hoped that the draft will be issued and take effect in the first quarter, with expectations that divestment and equitization activities will take place vibrantly in 2020.
Whereas Decree 32 states that when determining the initial price for capital transfer, the value of intellectual property rights must be included, along with other cultural and historical values, trademarks and any trade names according to the regulations. This draft will abolish the content for including other cultural and historical values, trademarks and any trade names.
Since the process of equitization of SOEs takes a lot of time in dealing with financial, land and labor issues in the period before equitization, it extends the time of implementing equitization. Therefore, the equitized SOEs urgently need to review the entire land fund management and formulate land use plans according to regulations of the land law.
These can then be submitted to the People's Committee of a respective province or city for further discussion on the plan and the land price. Competent authorities can then approve before establishing the value of the equitized enterprise in accordance with regulations.
