Saturday, October 22 2016


Private interest in State firms

Update: June, 01/2015 - 08:17

Several large private companies have bought stakes in equitised SOEs, including Vingroup and the Viet Nam Investment Development Group, which have become strategic shareholders in the Viet Nam Textile and Garment Group (Vinatex) after buying 10 per cent and 14 per cent stakes. — VNS Photo Danh Lam

by Thien Ly

After several years of sluggishness, the Government's State-owned enterprises (SOEs) restructure programme regained speed early last year, with plans in place to complete equitisation of 432 SOEs in 2014 and 2015.

Last year saw 167 SOEs restructured, with 76 auctioning their shares on the stock market. Of the latter, 64 managed to raise a total of VND5.115 trillion (US$239 million), or 66 per cent of the planned amount.

The number of restructured SOEs was 1.65 times the 2013 number, and their sales fetched VND1.324 trillion (nearly $62 million) more than the government had hoped to get.

A striking factor this time was the strong participation of the private sector.

According to the Ministry of Finance, after 20 years of SOE equitisation more and more private investors have been encouraged to invest in them, which has made a big contribution to speeding up the task.

Several large private companies have bought stakes in equitised SOEs, including Vingroup and the Viet Nam Investment Development Group, which have become strategic shareholders in the Viet Nam Textile and Garment Group (Vinatex) after buying 10 per cent and 14 per cent stakes.

The Government recently allowed Vinalines to sell 8.5 million shares to the Vinpearl Nha Trang Group.

The Ministry of Transport has revealed that many State firms in the transport industry have already become shareholding companies with stakes owned by many private players.

For instance, Fecon Foundation Engineering Underground Construction Joint Stock Company has bought 10 per cent of the Civil Engineering Construction Corporation No1 (Cienco1) and 25.76 per cent of the Transport Engineering Design Incorporation (Tedi) to become strategic shareholders in the two companies.

Besides Fecon, many other shareholders of Cienco1 and Tedi are also private companies who had bought their stakes during the companies' IPOs last year.

Analysts said the private sector would have further opportunities to buy into State-owned enterprises since the Government was determined to complete the equitisation of the remaining 265 SOEs by this year and equitise more SOEs down the line.

To explain the increase in the number of private firms investing in equitised enterprises, analysts pointed to the Prime Minister's Decision No 37/2014 which liberalised investment in State-owned enterprises, allowing more of them to be sold, including to the private sector.

This change has created opportunities for eligible SOEs to sell their stakes at better prices, and it has also given the private sector the ability to hold the right to run the enterprises after being equitised.

But the analysts expressed concern that strongly encouraging the private economic sector to participate in SOE equitisation would likely end up in selling the State's assets in a non-transparent manner, resulting in huge losses.

Most SOEs had huge assets with values ranging from dozens to hundreds of billions of dong, while the Government lacked legal tools to closely monitor their sales, they said.

They said the National Assembly needed to pass a law on SOE equitisation to keep the process on the right track and better protect public assets.

Strong credit growth

The National Financial Supervisory Commission has said on its website that the year's credit growth was at 2.78 per cent by the end of April, the highest figure in the last three years.

The figures for the same period in 2013 and 2014 were 1.04 per cent and 0.53 per cent.

In HCM City and Ha Noi, the lending growth rate during the period has even outstripped the deposit rate — by 4.14 per cent to 1.91 per cent and 6.6 per cent to 5.5 per cent respectively.

Some banks have already reached the credit limit cap assigned for them by the central bank for the full year.

Nam A Bank, which is one of them, has now asked the central bank to raise the cap so that it can continue lending.

Sacombank, ACB and Techcombank have targets of around 13 per cent credit growth for the year. But after achieving 4 per cent in the first four months, they are set to easily go past the target if the normal surge materialises at the end of the year.

Analysts said the strong credit growth in the early part of the year was a pleasant surprise since it was often sluggish at that time and picked up pace in later months due to increasing demand from consumers and businesses in the run-up to the Lunar New Year in the early part of the subsequent year.

But they also expressed concern about the rapid growth, warning it could cause problems for the economy.

Some suspect that the speed of the growth was one of the reasons that forced the State Bank of Viet Nam to recently devalue the dong by 1 per cent.

This was how it worked: many companies involved in imports got dong loans from banks thanks to the reasonable interest rates and simple procedures and used the money to buy dollars for imports, thus increasing the demand for the greenback.

The NFSC report on the website also said the economy had showed rather clear signs of recovery in the first quarter, growing at an estimated 6.03 per cent.

This had caused the aggregate demand to improve significantly, thus increasing credit demand.

Analysts have warned that lending to the housing sector needs to be strictly controlled to avoid negative impacts on the economy caused by a possible bubble.

Banks keen to sell bad debts, VAMC to achieve target early

At its shareholders meeting in April, the BIDV board announced that the bank would sell non-performing loans (also called bad debts) totally worth VND8 trillion ($367 million) to the Viet Nam Asset Management Company (VAMC) to soon wipe out its bad debts.

BIDV sold VND6.2 trillion ($284.4 million) worth of bad debts last year and VND3 trillion in the first four months of this year.

Similar urgency has also been shown by another public giant, Vietinbank. Last year its bad debts had climbed to VND4.8 trillion ($220.18 million), accounting for 1.1 per cent of its outstanding loans. At its shareholders meeting the bank announced it would sell bad debts worth VND4 trillion this year.

As of March 31 Vietcombank had bad debts worth VND8.83 trillion, but it expects to sell around VND1 trillion to the VAMC and restructure the remainder.

Many other banks are also proactively selling bad debts to the VAMC, including VND6.12 trillion worth by SCB, VND2.5 billion by VIB, VND1.2 trillion by Lienvietpostbank, VND3.4 trillion by Techcombank and VND1 trillion by ACB.

This would enable the asset management company to achieve this year's plan to buy VND80 trillion worth of bad debts.

Analysts attributed the banks' scramble to sell to certain reasons, including the central bank's instructions to sell at least 75 per cent of their bad debts by June 30 and the rest by September 30.

All 32 credit institutions have registered with the VAMC to sell bad debts. As a result, it has so far this year bought an estimated VND40 trillion worth, increasing the total so far to VND170 trillion.

This result would likely enable the company to realise its cumulative target of buying bad debts worth VND200 trillion.

Besides selling their bad debts to the VAMC, banks have also undertaken many other efforts to reduce their bad debts, including liquidating collateral, converting debts into equity, accepting more collateral, and using risk provisions. — VNS

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