Why are investors not interested in purchasing shares of SOEs?
VietNamNet Bridge - Reviewing the 30 years of innovation in order to see what we have accomplished, what we have not yet fulfilled and what we should adjust to fit the reality ... is a very big issue that we cannot just discuss in several talks. This talk, with the participation of Mr. Pham Viet Muon, former Deputy Director of the Government Office, deputy head of the Enterprise Innovation and Development Committee, therefore, only focuses on the corporate sector.

VietNamNet: Restructuring state-owned enterprises with a focus on equitization is defined as a critical political mission. Looking back at the 30 years of renovation, what do you think about the implementation of this goal?


Vì sao bán DNNN người ta không mặn mà?

Mr. Pham Viet Muon








Pham Viet Muon: We have been implementing 30 years of innovation and we're summarizing 30 years of innovation. The corporate sector has benefited a lot from the economic renewal of the country since 1986.

In fact, state-owned enterprises had formed much earlier, since the government was held by the people.

In the past 30 years, state-owned enterprises have always played a very important role in the cause of social and economic development, defense and security, and even international relations.

Regarding the management mechanism, we have gradually improved policies to enable SOEs to take the initiative, and become responsible for their activities in the market economy with a socialist orientation and access to world markets.

Regarding ownership diversification, equitization has become the main form of ownership diversification, creating fundamental changes in the restructuring of state-owned enterprises to focus more on key sectors and important areas.

In 1992 and 1993 the country had more than 12,600 state-owned enterprises, and the number has fallen fell to 5,655 or more than half. From 2001 onwards ownership diversification was further strengthened.

Since then, the mechanism for equitization has been increasingly synchronized, comprehensive, and completed. Thanks to this implementation, the number of State-owned enterprises in 2015 dropped to only 1,069 wholly state-owned enterprises. 

If in 2001, state-owned enterprises were present in almost all sectors of the national economy, they now only operate in over 10 sectors. We have attracted a large number of social capital to invest in production and business. Management of joint stock companies is now more public and more transparent, there is better access to markets, and the majority of the joint stock firms after ownership diversification operate more efficiently.

We can see that the results we have achieved are good but still far from the requirements and goals.

We must be steadfast on the path of ownership diversification, mainly equitization of state-owned enterprises, to attract outside shareholders. Then the operations of equitized firms will be better. We have  said that there is no owner of public assets but actually there are a lot of owners. We used to have the slogan: the cooperative is our home, where cooperative members are the owners; Enterprises are our home, where workers are the owners. But when everybody is the owner, nobody is really the owner.

VietNamNet: An economist once said that the state is like a father with three children, including the "biological child" or state-owned enterprises and two adopted children – meaning private and foreign-owned enterprises. Normally, people often put high expectations on their biological child and give him a leading role to lead the other children. What do you think about this comparison?

Pham Viet Muon: The situation is different in different periods. In the past, when we did not recognize the private sector, we only had the state and collective economic sectors with the major organizational models of state-owned enterprises and cooperatives. At that time, the state owned enterprises were the key because we did not have others to rely on.

But then we conducted renovation. We issued the Enterprise Law and the Foreign Investment Law. We formed and encouraged the private sector and attracted foreign investment, and the state gradually withdrew from the sectors and areas that other sectors can do better.

To be the key, state-owned enterprises must have financial strength, human resources and technology. They can no longer play the key role just by shouting slogans.

Now, the proportion and the face of state-owned enterprises have also changed. State-owned enterprises have narrowed their operational range to some key areas, and of course, with a dominant role.

Looking at businesses in the sectors of transport, trade, consumer goods ... and even mineral processing industry we can see this movement.

We have the following types of business: State owned enterprises, foreign invested enterprises, private enterprises, cooperatives, cooperatives and business households.

These entities with production and business activities make the economy vibrant and diverse, with both competition and cooperation.

VietNamNet: What you said is right. However, it is said that we do not have a level playing field yet, and the pie is still divided with a bigger piece for state owned enterprises.


Vì sao bán DNNN người ta không mặn mà?



Pham Viet Muon: Now let's see who made that complaint, and in which aspect?

If you look at the policy and mechanisms, clearly we no longer distinguish between the state owned enterprises, private enterprises or foreign invested enterprises. Specifically, in tax policy, land use policy, the policy on access to resources, and the import-export policy ... there is no distinction based on economic sectors or the type of businesses.

When I worked at the Government Office, monitoring the innovation and development of enterprises, I and my colleagues recommended many policies. I affirm that the Government has never created inequality between economic sectors.

So obviously, what people complained about is not the policy and mechanism. They are complaining about specific opportunities and procedures.

Actually, people feel assured to do business with state-owned enterprises and prestigious private businesses. While many private businesses did not meet procedural requirements, there are also many other private enterprises that could access loans.

So I think for the complaints, people complained about specific staff who handled specific tasks rather than the law and mechanisms.

We should not complain about a policy in general just because of the specific behavior of some public servants. It’s unfair and not objective.

VietNamNet: Recently, the Minister of Planning and Investment also stressed that state-owned enterprises are bottlenecks that need to be removed. As the fact that everyone sees, many said that we should not let state-owned enterprises keep their "expansionism" forever?

Pham Viet Muon: Minister Bui Quang Vinh said correctly. The number of equitized enterprises is large, but we have only equitized small businesses. For big companies, we have just conducted equitization in recent years and started this year with economic groups.

But it is inaccurate to say that state-owned groups are expanding because in order to survive, businesses must invest. When state-owned groups are not equitized yet, they still have to exist and they have to invest in development.

State owned enterprises are also under pressure and it is not true that they only enjoy preferences and can do anything they want.

VietNamNet: Obviously, state-owned enterprises have always received special offers, and more favorable conditions than businesses in other areas while their contribution to the country’s prosperity is still incomparable?

Pham Viet Muon: Nobody has banned private enterprises from borrowing capital for investment.

State owned enterprises have to suffer pressure.

It is true that for a period of time, state-owned enterprises were allowed to invest in various sectors. But in fact, investment in many places was ineffective, particularly in the non-core areas. Therefore we have tightened up investment of state-owned enterprises and they are not allowed to invest in the non-core areas.

VietNamNet: There was a time when many state-owned corporations invested a lot in estate and banking. 

Pham Viet Muon: Yes, but this has been fixed and now no state-owned groups invest in these fields. 

VietNamNet: When we talk about restructuring the economy, one of the most important tasks is to restructure state-owned businesses. This is not only about their divestment or sale of shares, but is it more important that the state sector should contribute more actively to create leverage for the national economy?

Pham Viet Muon: That’s right. If we restructure state-owned businesses but are only interested in equitization and divestment, it is incompatible with the party’s instruction.

The restructuring that we are pursuing includes many issues, but there are two essential issues.

Firstly, the restructuring of the operational mechanism for state-owned enterprises is in the direction of autonomy and self-responsibility and must be linked to efficiency. 

Secondly, ownership diversification, mainly equitization.

VietNamNet: Did you know that, at a number of international conferences, many investors and donors raised a straight question, "is Vietnam actually reforming state owned enterprise?”


Vì sao bán DNNN người ta không mặn mà?




Pham Viet Muon: I met with many foreign investors, representatives of the World Bank (WB), the International Monetary Fund (IMF), and the International Finance Corporation (IFC) and they asked me this question.

I answered them clearly, "It is true that we consistently are renovating state-owned enterprises with high determination, but the results are still very limited."

Since we started equitization, we have only equitized small and medium sized firms, not big ones.

The number of shares for sales was also less than the rate held by the state. Some SOEs could sell only 3% - 10% - 15% of their offering.

Currently, the sellers are ready. The remaining problem is the buyer.

I once told foreign investors that we offered a lot of shares but foreign investors did not buy much. We and you are the two faces of a piece of paper. It is nothing to lack one of the sides.

VietNamNet: Do you know why foreign investors are not interested in shares of our SOEs?

Pham Viet Muon: There are many reasons.

Firstly, the operation of state owned enterprises is not effective. They buy shares for dividends. For example, if I spend VND1 million to buy shares, how much I will earn from the shares after a year? If the profit is less than bank interest money, I will deposit my money in the bank rather than purchase shares.

Buyers always look to the value of the shares. If I buy these shares, how will I sell it the future?

Secondly, many SOEs were equitized but the state still owns a high rate of shares after equitization. In fact, the share of any SOEs where the State retains 50% of charter capital is very difficult to sell because investors do not want to invest in the equitized firms that will still operate in the old form.

Thirdly, it is the way we determine the value of the equitized businesses, which must not be lower than the book value. This is unreal because there is a lot of invisible spending outside the books. 

Fourthly, I think the most important thing are people. In equitization the person is the decisive factor. The person will decide, yes or no? Are we determined to pursue equitization or not. Mechanisms are also associated with people. It is also the person who implements policies and the human role is very prominent in equitizing SOEs.

To be continued…

VietNamNet 


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