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Sep 11, 2017 / 12:46

State owned enterprise lacking attraction to foreign investors

Ngoc Thuy - Tran Cong

On September 8, America Chamber of Commerce in Vietnam (Amcham) has cooperated with the National Assembly Economic Committee has jointly organized the conference “State owned enterprise (SOE) equitization from the foreign investor’s perspective”.

Overview of the Conference.
Overview of the Conference.
The conference has focused on discussing practical issues and challenges foreign investors are facing during the process of equitization and divestment from SOEs. Representatives have joined the discussion on reasons and solutions on why the legal procedures and practical issues have made this process less attractive to foreign investors. For example, the maximum shared foreign investors are allowed to own; limited information; lack of transparency during the implementation process; impractical value definition, which does not reflect the true value of enterprises. Mr. Adam Sitkoff shared, in order to maximize revenue from the equitization process and build confidence from investors, it is necessary to show them a transparent equitization and divestment process, in which investors are provided with sufficient information about the enterprise in subject.

Meanwhile, the Head of Vietnam economic Institute – Dr. Tran Dinh Thien showed a paradox in the SOE equitization process, as 96.5% enterprises are equitized, but 8% the state fund is transferred to the private sector. “One of the reason for this situation is the limited rate of state’s capital allow to sell in private sector, as in many cases 49% is at most” – Mr. Thien said. At the same time, with limited rate of share ownership, private enterprises are excluded in the direction process, not to mention the management’s rights. This is also the main reason for private investors, including foreign enterprises are not eager in purchasing SOEs.  

Balancing risks and profits

Efficient enterprise valuation is one of the main topic getting attention from representatives. Some has expressed concern over calculating the company’s value based on the transaction price in the market – which does not accurately reflect the enterprise’s value. Expert on Merger & Acquisition (M&A) of PriceWaterhouse Coopers Jonathan Ooi said, between investors and equitized enterprises there are differences in understandings on valuation. As such, in order to sovle this issue, Mr. Jonathan Ooi recommended there must be an independent evaluation unit to calculate enterprise’s value based on international practice and accepted by foreign investors. “Investors only decide to do business when they see the balance between risks and profits” – Mr. Jonathan said.

Concluding the conference, Deputy Chairman of the National Assembly Economic Commisison – Nguyen Duc Kien said, in order to improve efficiency and quality of SOE’s equitization and divestment process, administrative agencies and SOEs must exchange information frequently, listen to opinions and suggestions of investors. Moreover, it is neccessary to learn experiences from domestic and foreign experts to understand reasons and develop solutions to attract investors’ attention. In parallel, administrative agencies to review and remove legal barriers restricting foreign investors; increasing transparency during the process of SOE’s equitization and divesment.

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