Dr Burkhard Schrage, Senior Programme Manager of Management at RMIT’s School of Business & Management. — Photo courtesy of the school

How do you assess the divestment of State-owned enterprises (SOEs) in the ongoing pandemic and economic insecurity?

The push to continue divestments of SOEs in the second half of 2020 is welcome news and in line with the goals set out by the Government. It creates exciting opportunities for both foreign and local investors and addresses the issue of the slow equitisation programme, much slower than the Government’s plan. The slow pace of implementing the equitisation programme has often been a point of critique by international investors and political and economic observers. While the timing may appear difficult due to the COVID-19 pandemic and other global uncertainties, it makes a lot of sense to accelerate the equitisation programme. 

First, stock markets around the world are close to historic highs, mostly due to a low-interest and low-inflation environment we are currently experiencing. In other words, there is still a lot of appetite for equities globally. There seems to be a consensus right now in the market that a quick economic recovery will happen once the pandemic tapers out.

Secondly, there is a significant interest of investors in Vietnamese assets. The outstanding handling of the pandemic by the Vietnamese Government has been noted by the international community. The ensuing performance of the Vietnamese economy for 2020 has put Vietnam on the map for foreign investors. In a recent update, the IMF projects that global GDP will shrink by around 5 per cent this year, whereas Vietnam's GDP will grow by around 4 per cent.  

Thirdly, the investor interest is strengthened by the structural reforms of the corporate governance codes and the implementation of best-of-class governance mechanisms across Vietnamese firms. It increases transparency and reduces investment risks related to minority shareholdings, increasing investor confidence in Vietnam.

The State plans to divest its stakes in Sabeco, in which a majority stake was bought by Thai Beverage for $5 billion this year. Is it a good choice as the current revenue of the beer market has been reduced by COVID-19 and Decree 100?

These are long-term strategic investments, and the valuation is based on forward-looking projections over the next 10 to 20 years. Of course, there is an assumption that the pandemic will be reined in, rather sooner than later.  

The key value driver for Sabeco and the underlying investment hypothesis is however still intact: Vietnam’s beer market is growing faster than GDP, and as studies have shown, beer consumption is somewhat resilient to potential economic crises.  

Finally, the global beer industry is very concentrated: the largest beer company in the world, AB Imbev, serves around 30 per cent of the worldwide market. In such concentrated market, companies need to be very large and cost-efficient to survive.

There are large economies of scale in the beverage industry and it is important therefore to have at least a regional footprint to compete and to implement best-of-class management processes. While it remains unclear whether Thai Beverage will continue to hold its stake in Sabeco, selling the outstanding 36 per cent to private investors will provide the path forward for Sabeco to compete in this industry, free from any constraints imposed by authorities.

What should the State do to sell shares in SOEs at good prices?

We have done a study on the equitisation policies and processes. This study demonstrates that the Government should consider introducing several measures to optimise the selling price for the remaining SOEs. Some key recommendations to speed up the equitisation process and to optimise the divestment revenues are to pursue pre-equitisation restructuring measures, increasing the transparency of the overall process, implementing world-class corporate governance mechanisms, and appointing internationally reputed institutions for the equitisation.

To be more specific, the authorities should consider carving out problematic assets of any of the companies being equitised. For example, the Government can take over the non-performing loan portfolio of banks before divestiture and equitise only the performing assets. The Government should also provide transparent and predictable regulatory frameworks for industries in which the SOEs operate.

Overall, the surging interest in Vietnam from international investors and companies bodes well for continued economic growth. But it also requires strong commitments by the authorities to the equitisation programme in order to increase market forces in the economy.  VNS

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