Vietnam openness to equitization loss a positive development: analysts

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Analysts and industry insiders have welcomed the government of Vietnam's increased openness to losses made by state-owned firms in the process of share sales.

The government has allowed its investment arm SCIC, or State Capital Investment Corporation, to slash prices of shares it holds in unlisted businesses.

The decision, manifest in decree No. 151 set to take effect on December 20, has been welcomed by analysts who had earlier warned that state-owned firms' fear of disinvestment loss was slowing down reforms.

The state-owned sector, which includes 127 corporate groups and corporations and 846 wholly government-owned firms as of last year, has been under pressure to sell shares at original prices amid the economic slump.

While SCIC will be able to sell its stakes at lower prices, the government still allows only three price cuts of less than 10 percent each, and the aim is to recoup as much of the invested capital as possible, the decree says.

Huynh Anh Tuan, general director of SJC Securities, said the move would facilitate privatization of state firms, which would actually help the sector grow.


Hence it should be seen as a decision allowing the market to decide share prices rather than causing losses to the government, he said. 

Louis Nguyen, chairman of the investment fund manager Saigon Asset Management, said domestic investors "highly appreciated" the decision.

The government has changed its mindset, he said.

He suggested that the loosened rules be applied to more state-owned firms.

However, economist Pham Chi Lan said the government should not let the decree apply to all state firms so as to avoid capital losses caused by mismanagement.

She said clear standards should be set to assess share prices.

Huge equity source

Given the big size of SCIC's portfolio in the state sector VND71 trillion (US$3.3 billion), the privatization of even a small portion can have significant impacts on the stock market, said Terry Mahony, chairman of fund management company VinaCapital.

The government would be able to use proceeds of share sales to ease state budget constraints instead of opting for tough measures like salary cuts, he said.

Tuan of SJC Securities Co expected SCIC's huge supply of shares to immediately impact the stock market.

He forecast an opportunity for foreign investors to increase their ownership in domestic firms, especially given the government's consideration of increasing the limit of foreign ownership in local businesses (excluding banking) to 60 percent from the current 49 percent.

SCIC restructuring

Early this month, the government approved SCIC's restructuring plan through 2015.

Accordingly, the corporation will finish withdrawing from 376 state firms, reducing the number that it holds stakes in to around 100.

It will retain its stakes in telecom firm FPT Telecom, dairy food producer Vinamilk, re-insurer Vinare, and pharmaceutical company DHG Pharma.

These four, which account for 80 percent of SCIC's portfolio investments, act as leading firms in their industries and earn the corporation several thousand billion dong (1 thousand billion dongs equals $47.4 million) a year.

SCIC has thus far sold off government's stakes in around 600 firms, business news website CafeF said, quoting analysts Nguyen Duy Long and Vu Thi Lan Huong from the Department of Entrepreneurial Finance.

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