PetroVietnam divestment from non-core areas a hard task

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Experts say economic climate not conducive for withdrawal



  A file photo shows the PetroVietnam building in Hanoi. The group has been ordered to withdraw from non-core sectors. Photo: Bloomberg

The government's order for state-owned Vietnam Oil and Gas Group to withdraw from non-core sectors is necessary to restructure the firm, but it will not be easy to implement amid the current economic slowdown, experts say.

In a recent statement, the government said that the group, often known as PetroVietnam, would have to divest from its financial arm, PetroVietnam Finance Corp (PVFC), and that it should submit a restructuring plan this month.

The group has been deeply involved in ineffective operations that have hurt its core businesses, it said. However, financial details were not disclosed.

Economist Le Dang Doanh said the divestment is needed because non-core activities could cause big losses for the state budget.

PetroVietnam accounts for nearly a third of the combined debt held by Vietnam's 12 largest state-run groups, which is estimated at VND218.7 trillion (US$10.4 billion), or 8.76 percent of the banking system's total loans as of September 2011, according to the Ministry of Finance. The ministry has not qualified the statement about the quality of debt held by PetroVietnam.

"The divestment should have been implemented sooner, as the government had made a common request on the issue to all state-owned enterprises (SOEs) a long time ago," Doanh said.

"Now, PetroVietnam will find it hard to do it, as it is not allowed to sell stakes to investors at lower prices than their original value. Meanwhile, the stock market is still going down.

"Moreover, investors now do not have a high appreciation of Vietnam's business environment. Thus, they will carefully consider investing in the country," he said.

PetroVietnam's website states its operations extended into areas such as banking and securities, the construction of public housing, hotels and a taxi firm.

The group will be restructured to focus on oil and gas exploration and production, petrochemical production, gas development, electricity generation, and oil and gas services, the government has said.

Vo Tri Thanh, deputy head of the Central Institute for Economic Management, said it is not easy for PetroVietnam to sell shares amid the market downturn. However, the group could seek other ways to divest, he said.

"The market is seeing a lot of merger and acquisition activities now. So, the situation is not so bad that firms cannot sell their stakes even when they offer low prices," he said.

PetroVietnam holds a 78 percent stake in PVFC. It also owns 20 percent of Ocean Bank. Despite asking PetroVietnam not to maintain PVFC, the government did not say if PetroVietnam should sell PVFC or dissolve it.

PetroVietnam has invested some VND5 trillion ($238.1 million) into non-core sectors, the group's chairman Phung Dinh Thuc told reporters in July.

The group has proposed that the government allow it to refrain from withdrawing its total investment in PVFC, as the financial firm can help arrange capital that the group needs, he said.

PVFC may become a bank and issue shares to raise its registered capital by 50 percent to VND9 trillion ($431.9 million), local media reported in May.

Slow progress

Prime Minister Nguyen Tan Dung has recently approved a three-year restructuring plan for state-owned corporations that focuses on equitization and withdrawal from non-core investments. Under the plan, all SOEs will have to withdraw from their non-core investments by 2015.

An economist said SOEs have been asked to divest from non-core sectors and concentrate on their core business ever since the economy experienced a slowdown three years ago. In 2009, the government issued a decree which asks SOEs to pour at least 70 percent of their total investment into their core business.

The issue of SOEs' divestment from non-core sectors reemerged recently with the government seeking ways to improve their effectiveness. Many of them have faced big losses after investing in non-core sectors some years ago.

"However, their divestment decision is often too late," he said.

When the stock and property market developed strongly a few years ago, many firms poured big investments into non-core sectors, but without specific business plans. They held on to their stakes expecting higher prices in the future.

When the economy went down, too many rushed to sell their stakes, but found it difficult to find buyers, he explained.

Over the past three years, there have been very few successful divestments like the one by Electricity of Vietnam, which divested from EVN Telecom, he said. The firm was acquired by military-run telecom giant Viettel early this year.

Economist Doanh said the divestment plan was being implemented too slowly, and the government and state-run groups should make "stronger efforts to accelerate it."

Divesting from non-core sectors so that SOEs could focus more on the main tasks entrusted by the government is quite necessary, but even this should be carefully considered, economist Nguyen Minh Phong said.

"The bearish stock market cannot withstand trillions of dong being withdrawn," he said. "We should have a concrete, sector-specific roadmap for this."

Dinh Quang Tri, deputy general director of EVN, has been cited often as saying the withdrawal of SOEs' non-core investments cannot happen as fast as expected, partly because they are not allowed to sell stakes to investors at a lower price than their original value.

For instance, some investors agreed to buy EVN's stakes in other companies but they offered less than what the utility had paid for them earlier. As a result, the company could not accept the offers.

Tri has said the government needs to give SOEs more autonomy and allow them to sell shares at market value. For companies that the government wants to divest completely from, it is necessary to accept losses and sell shares below their original value, he said.

Dinh Thi Quynh Van, general director of the consulting and auditing firm PricewaterhouseCoopers Vietnam, said SOEs cannot divest at any time they want, especially in the context of their investments being ineffective.

Withdrawing at any cost could lead to huge losses, so the government should ask other SOEs that focus on investment to help manage the ineffective investments for some time. Then the withdrawal can be implemented at a more suitable time and in more favorable conditions, she said.

Thanh said it is difficult to say whether SOEs can pull back their total investment from non-core sectors by 2015 because it depends on market changes.

However, Doanh argued that there is sufficient time between now and 2015, if there is "strong determination."

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