The Vietnamese government should strengthen the protection of strategic shareholders’ rights in the country’s privatized state-owned enterprises (SOEs) to ensure their long-term investment in the businesses, experts proposed.

Petrolimex wants to postpone its share sale plan until 2019-2020

Koji Ito, chairman of the Japanese Chamber of Commerce and Industry in Vietnam, said Japanese investors are strategic investors of many Vietnamese SOEs, in which the Vietnamese government still holds dominant stake in accordance with the country’s Law on Enterprises.

According to Ito, if investing in private enterprises, shareholders often sign contracts with each other. The contracts will include provisions to prohibit investors from selling shares to competitors and limiting stock dilution as well as priority rights in buying or negotiating when selling shares.

However, the rights of Japanese investors were restricted when they invested in many SOEs recently, Ito said, suggesting the Committee for Management of State Capital (CMSC) and the State Capital Investment Corporation (SCIC), who are major shareholders in SOEs, enhance measures to protect the rights of strategic investors, or minority shareholders, in the businesses.

In addition, Ito said, the interests of existing investors in SOEs will be also affected negatively if winners of the next share sale auctions at the SOEs are the existing investors’ competitors. Ito expected the government to urgently consider the cases and take solutions to prevent it from happening.

To make the divestment of loss-making SOEs more attractive, Ito also recommended that the government should not rush to sell the shares to many investors right after privatization. Instead, he said, measures, such as strengthening corporate governance, improving production and business efficiency, restructuring, handling overdue debts and applying policies to promote the public and private cooperation, should be taken to enhance the attractiveness of these businesses.

Sluggish divestment

As the stock market is experiencing high volatility and shows little signs of strong recovery, the state is struggling to sell its stake in SOEs on schedule.

Under the SOE divestment plan approved in 2017 by Prime Minister Nguyen Xuan Phuc for 2017-2020, the government had to offload its stakes in 316 SOEs during 2017-2018, but it has only done so in 31 firms.

Many SOEs have so far also asked for delays or cancellations of their divestment plans. Vietnam National Petroleum Group (Petrolimex) asked the government’s permission to change its share selling plan to 2019-2020 from 2018 as the market share price is lower than expected and due to market volatility.

Some SOEs, such as Vietnam Steel Corporation, Vietnam Pharmaceutical Corporation, Vietnam Industrial Machines and Equipment and Hanoi Construction Corporation, even have had no signs of preparing for the divestment.

Meanwhile, some other deals either received little attention from investors, including the initial public offerings (IPOs) of Power Generation Corporation 3 (Genco 3) and Vietnam Rubber Group, or were cancelled like the IPO of the Vietnam Television Cable Corporation (VTVCab).

According to experts, divestment encountered many obstacles, notably the influence of interest groups and difficulties in the search for consultants, enterprise evaluations and approval of land use plans and complicated pre-divestment auditing processes of big corporations.

Nguyen Hong Long, deputy head of the Steering Committee for Enterprise Renovation and Development, said that authorities need to strengthen inspection and supervision, as well as sanction leaders of delaying SOEs. It is also necessary to revise the list of SOEs awaiting equitization and divestment and urge them to follow the plan.

Hanoitimes