Monday, 25 Jun 2018
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Foreign ownership limit disheartens investors in SOE equitization

Updated at Tuesday, 12 Jun 2018, 10:21
The Hanoitimes - The equitization of State-owned enterprises (SOEs) has remained unattractive to foreign investors due to regulations on limiting the foreign ownership at 49 percent, experts said, suggesting the government to remove it.
In fact, only about eight deals between large SOEs and foreign strategic investors have been completed over the past years, including Japan’s Bank of Tokyo-Misubishi UFJ to acquire 20 percent stake of VietinBank for US$743 million.
 
Japan’s Bank of Tokyo-Misubishi UFJ acquired 20 percent of VietinBank’s stake.
Japan’s Bank of Tokyo-Misubishi UFJ acquired 20 percent of VietinBank’s stake.
The remaining deals have had small stakes sold to foreign investors, such as Carlsberg’s 17.08 percent stake ($115 million) in Habeco, Mizuho’s 15 percent stake ($550 million) in Vietcombank, ANA’s 8.77 percent stake ($109 million) in Vietnam Airlines, HSBC’s 18 percent stake ($350 million) in Bao Viet Insurance, JX Nippon and Energy’s 10 percent stake ($117 million) in Petrolimex, and Itochu’s 5 percent stake in Vinatex.
According to the National Assembly (NA)’s members, many SOEs still only sell 1-2 percent of their charter capital. The equitisation process may prove to be meaningless, as the majority of SOE stakes were still kept by the State, which should perform the function of a regulator and facilitator, not that of a trader.
Meanwhile, foreign investors want to see whether their rights can be protected after a stake purchase and they need to have the management rights to protect their investment in the enterprises.
According to NA deputy Leo Thi Lich representing the northern province of Bac Giang, if the state continues to control the stakes, the performance of enterprises cannot be changed, because they are still managed by sitting people who are often unwilling to sell the stakes to private investors.
NA deputy Tran Van Minh representing the northern province of Quang Ninh stressed that with such low stake rates being on offer, SOEs will not be able to attract private investors, especially strategic ones.
If investors have a larger ownership rate, they can further pursue the reform of SOEs. It is extremely important to increase the ownership rate of strategic investors, who can bring in healthy financial sources and high technologies, as well as access to strong markets. This will ultimately benefit the state budget, Minh said.
Lifting the cap
According to experts, besides  becoming less attractive to foreign investors, enterprises will find it hard to succeed post-equitization if they still retain such large amounts of state capital, while holding on to the old structure and outdated technologies.
They suggested that the government should review the equitization of all SOEs and consider relaxing the 49 percent foreign ownership rule to permit foreign strategic investors to hold dominant stakes in industries that do not directly affect national security and sovereignty.
According to NA deputy Mai Thi Anh Tuyet from the southern province of An Giang, only SOEs operating in key sectors of the economy should be kept, and the remaining SOEs should be transformed into joint stock companies.
Results of a report titled "Strategic shareholders in the equitisation of state-owned enterprises" conducted by the Central Institute for Economic Management (CIEM) with supports from the American Chamber of Commerce (Amcham) also showed that the reinforcement of regulations on the foreign ownership limit in specific industries is one of main causes explaining why the equitization process in SOEs has failed to appeal to strategic investors, especially foreign ones.
Based on the outcome of the research, CIEM also recommended that the state should consider allowing foreign investors to hold primary stake in enterprises, especially those in industries unrelated to national security and sovereignty.
Minh Tam
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