State’s “super-corporation” also bears competition pressure

VietNamNet Bridge – If another state’s capital management company which would compete with the existing State Capital Investment Corporation (SCIC) is set up as suggested, SCIC would no longer obtain advantage.

Vietnam, SCIC, capital, profit, Hanoi, finance center, investment

Hanoi’s authorities are now seeking the permission to establish a company which specializes in making investment in businesses with the state’s capital. The company would have the similar functions like the ones of the existing SCIC, but this would be a company to be put under the Hanoi authorities’ control.

One or many SCICs?

Established some years ago, SCIC was hoped to become a “super power,” which, like the Singaporean Temasek, takes the responsibility of using the state’s money in the most possible effective way. It injects money in the potential businesses for profit or carries out the investment deals as instructed by the State.

Hanoi also wants to have an SCIC of its own. A senior official of the Hanoi People’s Committee said the Hanoi’s SCIC, if established, would help speed up the process of restructuring state owned enterprises in the locality.

Hanoi now has 30 fully state owned enterprises subject to the equitization and restructuring, and hundreds of other equitized enterprises, where the state still holds certain proportions of capital.

Prior to that, HCM City also asked for the permission to set up an SCIC of its own on the basis of the existing HIFU, the city’s investment and development fund. The city has 25 state owned enterprises which would have to complete the equitization by 2015 and a lot of equitized enterprises.

Meanwhile, the Ministry of Finance has been pursuing its idea. In the draft plan on restructuring state owned enterprises in 2011-2015, the ministry mentions the establishment of a general directorate to be in charge of supervising enterprises’ finance, which would be put under the control of the ministry.

SCIC, the controversial business model

The state once put a high hope on SCIC when it made its debut in 2005. However, the business performance of the “super corporation” has been disappointing. What SCIC has been focusing on since its establishment is selling the state’s capital contribution in the enterprises and business fields where the state’s investment is not necessary.

Meanwhile, no effective investment deals have been reported, and SCIC has not poured money into the big projects Vietnam called for both domestic and foreign capital.

To date, SCIC has not made any important investment deal in the role of the state’s investor.

The powerful corporation has recently reported a “bountiful crop” 2012 with sky high profits from the investment deals. However, economists have pointed out that most of the profits came from one investment deal in Vinamilk, the dairy producer which now holds the biggest dairy market share in Vietnam.

Vinamilk and some other state invested enterprises, including FPT Telecom or Hau Giang Pharmacy, affirmed that SCIC has not played any important role in their successes, even though SCIC is a big shareholder.

The SCIC’s finance report showed that the corporation got VND1,568 billion from deposit interests in 2012. If noting that the average interest rate was 8 percent per annum, one could make a guess that SCIC is now holding VND19 trillion in cash, or 25-30 percent of the VND62 trillion worth of total assets.

As such, the SCIC’s profits came from some enterprises operating in the business fields with big advantages, and from bank deposits, rather than from their successful investment activities.

Doanh Nhan

Vietnam, SCIC, capital, profit, Hanoi, finance center, investment