Easier said than done

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New restructuring measure cannot apply to several major SOEs, experts say

Security guards stand inside Vinalines' floating dock No 83M, which is anchored at a port in the southern province of Dong Nai. Photo: Reuters

The argument and the plan are fairly straightforward. State-owned enterprises (SOEs) in general have for long taken flak for being large, unwieldy organizations that are inefficient and wasting public money, and the government has approved a plan to restructure them.

Key elements of the plan are to declare bankrupt or dissolve those that have been making losses for a long time and ask others to divest from core sectors.

However, as rational as the plan sounds, implementing it is another matter all together, especially when it comes to big corporations that operate in important sectors.

In fact, experts say it is not possible to apply these conditions to the major corporations, some of whom enjoy a market monopoly, as they are important now for the country and will continue to be so in the future.

They cite Vietnam National Shipping Lines (Vinalines) and the Vietnam Shipbuilding Industry Group (Vinashin), prime candidates for restructuring on paper, as examples.

"Despite the plan, we cannot ask big state-owned corporations such as Vinalines, Electricity of Vietnam or oil group PetroVietnam to declare bankruptcy or dissolve should they make losses, as they play an important role in the country's development," said economist Bui Kien Thanh.

The three-year restructuring plan aims to reorganize companies with "more reasonable structures" into focusing on their key business, supplying basic products and services to the society and ensuring national security and defense, according to a statement on the government's website.

It divides state-owned companies into three groups. In the first group, the government fully owns companies that operate in key fields such as national defense and security, publication, electricity generation, railway infrastructure, airports, seaports, and money printing.

The second group comprises enterprises in which the government holds a majority stake of more than 50 percent and the third group has SOEs operating inefficiently and suffering prolonged losses.

The prime minister has called for determined action in the restructuring process, but Thanh said that while subsidiary companies of corporations can be dissolved to reduce financial burdens on the state if they were making losses, "we cannot do it with the parent corporations."

Pointing to Vinalines, he said a coastal country like Vietnam needs to develop strong shipping lines to ship its products abroad and its imports home. "Thus, we should strictly deal with leaders of Vinalines for wrongdoings at the company, but should not dissolve it."

Troubled shipper Vinalines posted losses of VND1.44 trillion (US$69.1 million) in the first half of this year. It attributed its losses to sluggish market demand and lower transportation fees.

The company lost VND434 billion ($21 million) in 2011 because of lax corporate management, according to the government. That means the first-half loss figure of this year is already more than triple the full-year figure of 2011.

Echoing Thanh, economist Nguyen Minh Phong said: "We cannot dissolve big corporations, as it can cause a big waste. Many sectors now may be underdeveloped, but would be very important in the future, so we need to retain them."

He also cited Vinalines as an example. "We cannot dissolve it, as the maritime sector is a very important sector that needs further investment."

In other countries, big corporations operating in important fields also make losses. They are not dissolved, but temporarily nationalized, and then privatized after gaining profits, Phong said.

Dinh Thi Quynh Van, general director of the consulting and auditing firm PricewaterhouseCoopers Vietnam (PwC Vietnam), said the dissolution of companies, even those suffering prolonged losses, should be carefully considered as it could cause many workers to lose their jobs.

However, the measure should be taken if indications are that they cannot overcome their difficulties, she said.

While "nobody wants to dissolve companies," the closure of weak companies could in fact be a "motivating power to boost economic development," Van said.

"The state, in its capacity as investor, should pour its investment in companies which could bring it higher profits," she said.

Tough ask

To speed up the restructuring process, the government has called for firms to focus on privatization, which is known as equitization in Vietnam, and withdrawing from non-core investments.

The companies have been asked to submit a restructuring plan to the government within the third quarter this year that includes an action plan for solving financial problems. All SOEs will have to withdraw their non-core investments by 2015.

Economist Phong said divesting from non-core sectors so that they could focus more on their main tasks entrusted by the government is quite necessary, but it has been very slowly implemented.

However, he said even this should be carefully considered.

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

Leaders of several corporations have also said it is not easy for them to withdraw from non-core investment due to shortcomings in regulations.

Dinh Quang Tri, deputy general director of EVN, has said that 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 EVN had paid earlier. As a result, the company could not accept the offers.

Tri 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 added.

Van of PwC said SOEs could not divest at any time they want, especially in the context of their investments being ineffective.

Withdrawing the investment at all costs could cause big losses, so the government could ask other SOEs, which focus on investment, to help manage these investments for some time. Then, the withdrawal can be implemented at a more suitable time and in more favorable conditions, she said.

In a recent report, HSBC said that Vietnam's new divestment and information disclosure policy for SOEs is a step in the right direction. However, more action is needed to ensure better financial discipline, it said. "Real progress will likely take time."

By some estimates, SOEs have an average capital efficiency ratio of 1.62, which means that they need 1.62 units of capital to generate an additional unit of revenue. In contrast, the average ratio for private domestic companies is just 0.47 and that for multinational corporations is 0.69, HSBC said.

To boost SOEs' effectiveness, Vietnam plans to privatize 367 firms by 2015. As many as 93 SOEs will go public this year under the plan. Many of them, however, have delayed their IPO plans.

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