Gov't investment arm helps itself at the expense of troubled firms

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Workers in a milking parlor of a dairy factory owned by Vinamilk Company. SCIC holds 375 million shares worth $1.88 billion in Vinamilk. File photo

Economists are questioning the role of Vietnam State Capital Investment Corporation in a cash-strapped economy after it reported that it had bank deposits of nearly a billion dollars last year.

They say that while the government is borrowing from people through bonds, and firms are desperate for cheap funds, it is "ineffective" that the government's investment arm leaves VND19 trillion (US$908 million) or 38 percent of its assets idle at banks.

The corporation, also known as SCIC, was established in 2005 following the model of Singapore's sovereign wealth fund Temasek Holdings.

Its stated purpose is to make profits from state capital by equitizing state-owned firms, of which there are 408 at present.

On its website, SCIC says its goal is to become the government's strategic investor by bringing steady growth to investments, being an active shareholder and financial consultant for state firms.

But economists are skeptical that the corporation has ever been on the right track of guaranteeing good use of state capital.

Le Dang Doanh, former head of the Central Institute for Economic Management, said, "The motto sounds professional, but saving trillions of dong with banks for interest is not professional at all."

Doanh said that by earning interest on its deposit, SCIC is making profit from small and medium enterprises borrowing from banks at high rates. "So it is indirectly causing trouble to businesses (instead of helping them)."

SCIC has been saving money at banks for several years now VND7.2 trillion ($344 million) in 2010 and more than VND10.5 trillion ($502 million) in 2011, according to a Tuoi Tre report.

Nguyen Dinh Cung, vice chairman of the Central Institute for Economic Management, told Tuoi Tre that if capital trade is as "simple" as putting money in banks and waiting for interest to come up on due dates, a single person can do it and the country does not need such a giant corporation.

Pham Chi Lan, another economist and former government advisor, said that in a slow economy, making a deposit is the easiest and possibly safest investment, "but it brings the least value."

Lan said SCIC should not act like a private company that chooses to invest for high or quick profits.

"Like Temasek, it should bring money into key industries, sectors that need new technologies where private companies are not being effective, such as auxiliary industries or agricultural processing."

Last year, the corporation made three investments. It invested VND63.5 billion in the Vung Ang Port Company in central Vietnam for a joint project with Laos, VND130 billion to buy a southern office for itself, and to help with a building project by the country's oil giant PetroVietnam, and VND1 trillion to Vietnam Construction and Import, Export Corporation (Vinaconex) as additional capital.

The last mentioned investment, the largest one made last year, has economists concerned because Vinaconex already owes more than VND1 trillion to banks.

Poor manager

SCIC reported profits of $186-million last year, up 30 percent from 2011.

But economists say the figure is not evidence of effective operation, as 40.32 percent of the money came from interest on deposits, 55.32 percent from dividends, and only 4.36 percent from selling state-owned stakes, which should have been its major activity.

The group said since it officially operated in 2006, it made more than $158 million from selling stakes in nearly 600 state-owned businesses.

But this trading did not go well last year. It managed to sell stakes in just 37 businesses, SCIC said, blaming macroeconomic instability and the stock market slump.

The corporation's reports also showed that 46.6 percent of its dividend income came from Vietnam's biggest dairy firm Vinamilk, where it holds 375 million shares worth $1.88 billion according to benchmark prices earlier this week. Vinamilk shares make up 79 percent of SCIC's total assets.

Economists say SCIC can do better if it sells its stakes in better-performing companies such as Vinamilk, telecom giant FPT or Hau Giang Pharmaceuticals JSC.

Cung said the group has to be more transparent about its activities, making regular reports, so that the public, including experts, can assess its operations and apply pressure to improve its effectiveness.

Manu Bhaskaran, a lecturer at the Singapore Institute of Policy Studies, said transparency is what makes Temasek a success, besides the fact that it has been an "active" investor in fundamental sectors such as financial services, real estate, transportation, and telecommunications.

Bhaskaran said the 39-year-old Temasek makes detailed reports every year about its total assets and investments in different sectors.

Its management board is an independent unit comprising prestigious people from different sectors, and members can be replaced if they prove ineffective, he told Tuoi Tre newspaper.

SCIC's board, on the other hand, is chaired by the finance minister and comprises of various deputy ministers, giving it more of an administrative role than that of an investor, economists said.

An executive from Vinamilk told Tuoi Tre that the company has to consult SCIC on everything and it often receives inconsistent answers, which delays and negatively impacts its business.

If SCIC had a quick and business-oriented mind, Vinamilk would have been more competitive, the executive said, adding, "SCIC has not performed its role properly. There's some governmental administration here and that has hindered our development."

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