A sea change may be coming to Vietnam's business climate as the state investment arm has made public its intention to completely privatize one of the biggest companies in the country, signaling a quickening of a decades-long share sale program.
The government’s investment arm SCIC will gradually sell its shares in Vietnam’s largest dairy producer Vinamilk, where it currently owns a 45 percent stake, said Deputy Minister of Planning and Investment Dang Huy Dong.
The company’s shareholders will decide on the divestment process of SCIC, or State Capital Investment Corporation. “Vinamilk is a business which the government does not need to have a stake in,” he was quoted by news website Saigon Times Online as saying at a recent M&A forum in Ho Chi Minh City.
After being asked by the government to speed up share sales, SCIC has remained a major stakeholder in key industry players, including telecom firm FPT, re-insurer Vinare, pharmarceutical company DHG, and Vinamilk.
But Dong’s new statement seems to signify a strong determination to accelerate the privatization of state-owned enterprises (SOEs), considering that Vinamilk is one of the best performing companies in Vietnam which has consistently brought huge dividends to SCIC over the past years.
At the end of last year, the dairy producer had a market capitalization of US$5 billion, the second highest in Vietnam. With an annual growth of 22 percent, its revenue was estimated at over VND34.9 trillion ($1.58 billion) last year, including more than $200 million from exports.
Prime Minister Nguyen Tan Dung said at a recent meeting that the state needs to divest faster from SOEs and use its financial resources on more important areas. He stressed that there are businesses that can be operated well by private investors.
The private sector should be considered a key driver of economic growth, and that means the government should introduce favorable policies and upgrade infrastructure to support it, he said.
This business-friendly rhetoric has been appreciated by economists, who for years have criticized big SOEs for using their advantages to compete against private companies, limiting the expansion of the private sector, and investing in various non-core and risky sectors.
Economist Pham Chi Lan said companies like Vinamilk or FPT have gained successes thanks to qualified members of their management boards, and not because the state has continued to invest in them.
These firms are big enough to compete well in the market, and to attract foreign investors, she said.
The participation of SCIC in the corporate governance at the companies could actually hinder them from making "daring" business decisions and seizing new opportunities because they will be bound by many rigid regulations, Lan said.
Bui Ngoc Son, another economist, said Vietnam will only have a genuine market economy when enterprises are totally privatized.
The state should stand back and collect taxes from them, instead of investing in them for a chance to earn profits, Son said.
Echoing him, economist Le Dang Doanh said state enterprises may consider focusing only on industries vital to the country, including energy and security, and leave other business areas to the private sector.
For instance, it is not necessary for the country to have SOEs making garment and footwear products, since private companies are the ones that account for most of the exports, he added.
But experts have pointed out that it is often a long way from intention to action.
Despite the government’s determination, a majority of SOEs have failed to divest from non-core businesses this year, as ordered, according to a government committee.
Only 61 SOEs finished selling shares to private investors in the first six months, accounting for a mere 21.1 percent of the number of businesses scheduled for privatization this year, the committee said.
Those with investment in risky sectors such as real estate, insurance and venture capital funds managed to sell only $176.87 million worth of shares, or 15 percent of the divestment target.
Vietnam is trying to quicken a share sale program that began in the 1990s as the government seeks to spur economic growth to a four-year high of 6.2 percent this year. The complexities of the privatization process have hindered plans to overhaul inefficient state companies, whose borrowings have burdened the banking system with bad debt and strained lending.
While policy problems have been the main cause of the tardiness in equitization, as privatization is known in Vietnam, the current economic situation has also made it difficult for SOEs to sell their shares, according to the committee.
The sluggish pace is also attributed to a reluctance on the part of current SOE leaders, because it would mean a dilution of their power, said economists.
Assessing the equitization process, a representative from the Asian Development Bank said at a recent meeting that the official target for a further 228 companies to be equitized this year looks ambitious, and many of these exercises are expected to take place later, in 2016 and beyond.
One obstacle is a lack of strategic investors willing to participate in initial public offerings of shares, he said.
The easing of foreign ownership restrictions on listed companies aims to address this shortcoming, though foreign investors may still be discouraged by concerns over corporate governance and financial transparency, he added.
“There’s a genuine desire and effort from the government to speed up the process as much as possible, but delays are inevitable given that current laws make the privatization process rather lengthy from a procedural standpoint,” Bloomberg quoted Michel Tosto, head of institutional sales at Viet Capital Securities in Ho Chi Minh City, as saying.
“It’s impossible for the government to achieve its privatization goals as originally planned,” he reportedly said.