Lawmakers should decide use of state firms’ share premiums: economist

By Bao Van, Thanh Nien News (The story can be found in the March 14 issue of our print edition, Vietweek)

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Staff at work at a garment factory owned by Vietnam National Textile and Garment Group (Vinatex), which plans to make initial public offerings this year

The government should not be allowed decide whether a portion of the share premiums collected from SOEs’ IPOs should be retained by the firms instead and not go into the state budget, economist Bui Kien Thanh tells Vietweek.

Many SOEs, including Vietnam Airlines, Vietnam National Textile and Garment Group (Vinatex), and building and construction materials maker Viglacera Corp, plan to make initial public offerings this year. What is the level of interest among foreign investors?

Bui Kien Thanh: SOEs can make successful IPOs only when they prepare well for it. They have to make transparent disclosures, which should be audited by independent financial companies. Foreign and local investors will be interested in their shares if the firms’ valuations are done right. They can only make a decision about buying the shares when they know about their growth prospects and market share. Investors are also interested in the firms’ management quality. If the firms have good products, good management, and good business strategies, their shares could attract investors.

The stock market has recovered recently, but not strongly. So it is not easy to sell shares as it was when the market was booming a few years ago. However, the government should find ways to sell state firms’ shares now to implement its target of equitizing 500 SOEs in the next two years. We should not delay the equitization waiting for the stock market to fully recover, which may take five to seven years. The firms should find the best way to make IPOs in the current stock market situation.

The most important thing is whether the SOEs’ bosses are determined to make an IPO, whether they want their firms to be equitized, or they want to delay it to remain in their current positions.

How should SOEs’ valuations be done so that they will not lose yet their shares will be attractive to investors?

One of the issues that investors are interested in is the valuation of SOEs before their IPO. We should ensure that the valuation is done in an unprejudiced manner. If the value is too high, it will be difficult to sell their shares. But public capital will be lost if it is lower than actual. So they should hire independent consultancies to do it. There should be regulations to ensure that SOEs’ executives cooperate with auditors and consultancies.

In many cases, we have not rightly assessed SOEs’ value. We assess their value based just on their plants or machinery, [but] their assets include their products’ brand names. So we should hire prestigious independent consultancies to assess their value.

Some SOEs with prolonged losses and debts of tens of times their capital still manage to attract strategic investors when equitized. Why?

No investor wants to buy a firm with debts of tens of trillions of dong, much higher than their capital. The government may have paid off debts of those SOEs with prolonged losses before their equitization, and so they could attract investors.

In fact, to attract investors, firms should drastically restructure their business before their IPO. They should draft plans for personnel and product restructure.

There is an opinion that a portion of the share premium collected from their IPOs should be given to the SOEs instead of the state budget to increase their attractiveness for investors. What is your opinion?

The important thing is how many shares will be sold when SOEs are equitized. If the state wants to retain large stakes in many equitized firms to control their businesses, it will make them less attractive to investors. The equitization process will be successful only when the equity allowed to be sold to investors increases.

It is now small. Investors are not keen on buying SOEs’ shares because of the low ratio. Many investors do not want to buy stakes in firms in which they cannot participate in decision-making.

In a democratic regime and market economy, the state should not do business to earn profits.

As for leaving a part of the share premium collected from IPOs to SOEs, instead of giving it to the state budget to increase their attractiveness to investors, I think the National Assembly should decide. Money collected from IPOs should go to the state budget. It is public money, and so how it is used should be decided by the National Assembly. It should not be decided by the government.
Le Xuan Nghia, a member of the Government Advisory Board, said it takes a lot of time, may be 6-12 months, to choose prestigious financial companies to value SOEs.

The cost of hiring foreign financial companies is too high, maybe millions of US dollars, for many firms, he said. Hiring local financial companies may be cheaper, but they are not capable of valuing big SOEs, he said.

The valuation might take a lot of time, and so it would not easy to accelerate the equitization process, he added.

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