Vietnam's state firms sitting on billions in uncollected dividends

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An engineer of PV Gas, a member of the Vietnam National Oil and Gas Group (PetroVietnam), examines gas pipelines at a processing plant in central Vietnam

State-owned enterprises, SOEs, are holding billions of dollars in their coffers, money that could have been submitted to the state budget for spending on infrastructure projects that urgently need funding, experts say.

At a recent sitting of the National Assembly, Tran Du Lich, a representative from Ho Chi Minh City, called it "a waste of resources" that the government, as an investor in hundreds of businesses, does not collect its annual dividend.

"Why are we leaving hundreds of trillions of dong there [in the
SOEs], when we do not have money to improve highways and do other necessary things?" he said.

In fact, the SOEs' annual financial statements show that they are making huge profits from their activities, many of which are subsidized by the government, but most of the profits are not going into the treasury.

For instance, PV Gas, a member of the Vietnam National Oil and Gas Group (PetroVietnam), earned a profit of VND10.1 trillion ($477 million) after tax in 2012. Such profits have allowed the company to run investment and development funds, as well as pile up huge financial reserves amounting to trillions of dong.

The 2012 annual report of Vietinbank, where state-owned shares account for 64.46 percent, showed that bank earned nearly VND6.17 trillion ($316.5 million) in profit after taxes last year.

Pham Huy Hung, chairman of Vietinbank, once said that thanks to the bank's sales and the dividends that the government has left with the bank over the past 24 years, its capital now is over VND26 trillion ($1.23 billion).

The Vietnam Rubber Group has also kept most of its profits. Last year it posted pre-tax profits of VND8.5 trillion ($401.5 million), and after paying VND2.8 trillion ($132.3 million) in taxes and fees, they spent the rest on re-investment, said Truong Minh Trung, spokesman of the group.

Nguyen Hoang Hai, vice chairman of the Vietnam Association of Financial Investors, said it is "food for thought" that SOEs do not submit to the budget state dividend which is "definitely" not small.

He said his association has calculated that if the government collected its dividend from big businesses like Viettel, Vietnam Posts and Telecommunications Group and PetroVietnam, like any other investor, every year it would be able to earn at least $2 billion.

Tran Huu Huynh, former head of the legal department with the Vietnam Chamber of Commerce and Industry, said it is "unfair" for private-owned businesses that the government did not collect its dividend from SOEs.

Funding for SOEs, in fact, comes from taxes, a part of which is paid by private companies, Huynh explained.

SOEs are operating in the market and competing with other businesses so they have to be treated equally, the expert said.

Bui Van Dung from the Central Institute for Economic Management pointed out that the 2003 Enterprise Law stipulated the establishment of a fund to receive state dividend from SOEs.

But, ten years since the law was approved, the fund has not been established yet, and most of the businesses are still keeping state dividend, he said.

Even proceeds from the sale of shares during privatization of an SOE go to the business' restructuring fund, or the Vietnam State Capital Investment Corporation (SCIC), and end up being spent on supporting SOEs, according to Dung.

However, an official with the Ministry of Finance said even if the dividend collection fund was established, most of it will not be submitted to the budget.

They will instead be kept at the businesses in accordance with regulations on SOEs' financial management, he said.

Under the regulations, the government allows SOEs to keep their profits after extracting a portion for mandatory funds and compensating for earlier losses, if they have yet to receive enough funding from the government to match their charter capital.

In case they have received sufficient funding, the state's dividend will go to SCIC for supporting restructuring of businesses, said the official, who wished to stay unnamed.

In response to the official's comment, Tran Hoang Ngan, member of the National Financial and Monetary Policy Advisory Committee, said the law on SOEs needs to be reviewed and revised, as it contains many loopholes.

As a shareholder of SOEs, the government should collect its dividends, he said.

Cao Sy Kiem, former governor of the State Bank of Vietnam, also said the law needs to be revised so the state budget can enjoy income from dividend paid by SOEs.

He said whether such income is big or small, the fact that SOEs are allowed to take it for granted makes it hard for small and medium enterprises to compete with them.

"Theoretically, since SOEs' funding comes from the state budget, their profits need to be submitted to the budget," said Nguyen Dinh Chung, deputy director of the Central Institute for Economic Management.

It is for the government to decide how it will invest next in the businesses; and that investment needs to be shown in the budget's statement to increase transparency, Chung said.

As of 2012, the state's investment in SOEs was VND735.29 trillion ($34.73 billion), according to a report from the government's Steering Committee for Business Renovation and Development.

The businesses had revenues of VND1,621 trillion ($76.57 billion) last year, it said, noting that businesses in oil and gas, electricity, post and telecommunications, and aviation posted big turnovers.

Call to divest

At the National Assembly sitting, Lich, the HCMC lawmaker also urged the government to review its investments in hundreds of businesses, and then "quickly" withdraw investment from "unnecessary" light industries.

He said it should be one of the measures that Vietnam should take over the next three years in order to revive its economy.

The divestment call comes as the privatization of many big SOEs is making slow progress.

PV Gas, for example, had its initial public offering (IPO) in 2010, and then listed 100 percent of its shares on the Ho Chi Minh Stock Exchange two years later.

The initial objective was that the government would hold 75 percent of PV Gas's charter capital.

However, the company's annual report last year showed that 96.74 percent of its shares are still owned by the government.

An expert with the Viet Capital Securities Company, which was the IPO consultant for PV Gas, said on condition of anonymity that local and foreign investors are interested in PV Gas, but PetroVietnam does not want to sell.

The same holds true of the Vietnam National Petroleum Corp., or Petrolimex, another affiliate of PetroVietnam, where 94.99 percent of shares are owned by the government.

Bui Ngoc Bao, chairman of Petrolimex, said the group held its IPO in mid 2011, and some foreign investors expressed their interest in buying, but due to "many difficulties" that the stock market faced at that time, Petrolimex could not sell much.

Petrolimex wants to speed up its privatization to decrease state ownership to 75 percent of its shares, but things still depend on the stock market situation, Bao said.

At a recent shareholders' meeting of Vinamilk, Vietnam's biggest dairy firm, SCIC, which manages the state's shares in the company, rejected an employee stock ownership plan that was aimed to keep capable staff and increase Vinamilk's competitiveness.

Le Song Lai, representative of SCIC, said they were concerned that it will affect the state's 45.08 percent stake in Vinamilk.

A senior Vinamilk official who wished to stay unnamed said many investors are interested in the company, but they can't buy its shares.

The privatization of Vietnam's biggest listed insurer Bao Viet Holdings is also happening slowly. The Ministry of Finance currently owns 70.91 percent of its charter capital, while SCIC holds 3.26 percent, even though the company has listed 680.47 million shares in the market.

Although the Saigon Beer-Alcohol-Beverage Joint Stock Corporation (Sabeco) listed 20 percent of its shares during its 2008 IPO, and planned to list another 20 percent later, the government now still holds an 89.59 percent stake.

The government needs to withdraw its investment from industries like dairy, sweets, garments, and alcoholic beverages to increase competition in these industries, said Le Dang Doanh, former head of
the Central Institute for Economic Management.

In businesses like Petrolimex and PV Gas, the government should hold majority shares because of their national energy security implications, but it is not necessary for the government to hold almost all of the stake as it does now, Doanh said. 

"[The government] takes over everything, but [it] cannot manage them all. Gradually it will not be able to do anything but let go of them," he said.

No need

Nguyen Canh Nam, representative of the Vietnam National Coal-Mineral Industries Holding Corporation, Vinacomin, opposed the idea.

He said at a recent conference that SOEs that are 100 percent owned by the government do not need to pay dividend.

He said that while regulations allow SOEs to keep dividend, they are required to use them to maintain financial reserves, welfare funds, and especially investment funds.

Since the regulations require at least 50 percent of the businesses' after tax profits to be put into the investment fund which is spent on new projects, the government does not lose money, Nam said.

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