SOEs have to accept disinvestment losses: experts

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The government should accept losses if it wants state-owned enterprises (SOEs) to successfully withdraw their investments from non-core sectors amid the economic slowdown, economists say.

It will be very difficult for SOEs to complete their non-core divestment if the government insists on asking them to do it but without making losses on the sale, economist Nguyen Tri Hieu said.

"We should see this as the cost of restructuring of SOEs. The issue is how much loss is acceptable," he said. "The government should regulate specific loss levels that can be accepted in each sector."

Last month, the government issued a decree requiring SOEs to accelerate their divestment from non-core areas and refrain from investing in banking, insurance, property and stock markets. However, the decree did not remove the older stipulation that the divestment should not be made at a loss. 

At the end of 2011, state-owned firms' investment in non-core areas stood at VND23.74 trillion (US$1.12 billion), half of it in banking.

The Hanoi Stock Exchange (HNX) said it has canceled the auction to sell shares of the state-owned machine manufacturer Lilama in the Song Vang Hydroelectricity Plant. The auction had been scheduled for August 1, but no investor had registered to participate in it by the registration deadline on July 25.

The Vietnam Chemical Group (Vinachem) in June failed to withdraw its investment in the securities, trade and industry company VIG, as it could not sell any of 2.1 million shares because of high prices. VIG shares are selling for VND2,500 ($0.1) on the unregulated over-the-counter market, while Vinachem set a minimum price of VND10,600.

Economist Bui Kien Thanh said 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 lower than their original prices.

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.

"Only 15 out of 49 joint stock banks are earning any profits, so far from selling shares at high prices, it is already very good for SOEs to pull back their capital from them," Thanh said.

SOEs have been asked to divest from non-core sectors and concentrate on their core business ever since the economy began experiencing a slowdown three years ago. In 2009, the government issued a decree which asked SOEs to ensure at least 70 percent of their total investment would 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.

"The selling of stakes by state companies has dragged on for so long because of large investment costs incurred years ago," said Dang Quyet Tien, deputy general director of the ministry's corporate finance department. They don't want to sell now because of the decline in share prices and property values since then will result in losses, he said.

The finance ministry is drafting "strong" measures to force state companies to sell stakes in non-core businesses, which will include the removal of chief executives should they fail to meet timelines for share sales, Tien said.

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