The state has made a successful IPO of Dung Quat oil refinery. Illustrative photo

Under Circular 03/2019/TT-NHNN regulating the use of foreign currencies by foreign investors in Vietnam, effective from May 13 this year, foreign investors will be able to put down deposits and collateral in foreign currencies when participating in auctions to purchase shares in SOEs.

Accordingly, the new circular allows foreign investors to pay deposits and provide collateral in foreign currency via transfer when taking part in auctions to purchase States stake or capital contributions in SOEs whose privatization or divestment schemes have been approved by the Prime Minister.

In addition to the change, deposits and collateral in foreign currency via transfer will also be used to acquire shares and capital contributions of SOEs that make investments in other enterprises which carry out the divestment of state capital as approved by the Prime Minister.

If foreign investors are successful during an auction, they are permitted to transfer their investment capital according to the country’s legal regulations on foreign exchange management in order to make payment for the purchased shares and capital contributions.

In the case of losing an auction, they may transfer abroad their deposits and collateral in foreign currencies after deducting the related arising expenses.

According to experts, previous regulations reportedly do not allow foreign investors to put down deposits and provide collateral in foreign currencies during initial public offerings (IPOs). Thus, the new regulations of Circular No.03 serve as a catalyst for foreign investors to further participate in the privatization and divestment of SOEs in Vietnam.

Liberalization pressure

The new regulations was applied when the privatization and divestment of SOEs in Vietnam remains slow amid the country’s commitments to liberalize the state sector under free trade deals including the signed Comprehensive and Progressive Trans Pacific Partnership (CPTPP) and the upcoming EU-Vietnam Free Trade Agreement (EVFTA).

Deputy Minister of Finance Vu Thi Mai admitted the privatization of the country’s SOEs remains slow, failing to meet the plans as directed by the Prime Minister. She said only two SOEs had their share selling plans approved with total value of VND295 billion (US$12.68 million) in the first four months of 2019.

From 2016 to April 2019, 161 SOEs had share selling plans approved with total value of VND442 trillion (US$19.11 billion), including VND206 trillion (US$8.9 billion) of State capital, she said, adding the remaining number of SOEs that must be sold is 97, accounting for 76 percent of the assigned plan.

Meanwhile, Rajiv Biswas, Asia Pacific chief economist at global information provider IHS Markit in Singapore said Vietnam’s ratification of the CPTPP compels the country to liberalize the state sector. A trade deal expected soon with the European Union may add pressure for these reforms, he added.

Over the next decade, a gradual transformation and more competition in the state sector are expected in Vietnam because as these are the terms committed of the trade agreements, Biswas noted.

Besides, the government also needs money from selling its shares in companies to pay for new roads and railways, in turn helping attract more foreign export manufacturers into Vietnam, they said, adding it ultimately wants the private sectors to take the lead in certain industries like the chaebols in South Korea.

However, to boost the participation of foreign investors in the country’s SOE privatization and divestment, experts suggested the government to improve the information publicity as SOEs sometimes release too little information, causing the investors difficulties to make investment decisions. Hanoitimes

Anh Hong