Absorbing foreign capital to State-owned enterprise equitisation

Equitised enterprises expected to receive foreign capital from strategic investors. Photo: ST

The issue on the rate of ownership

In recent times, many enterprises completed equitisation and divestment such as Petrolimex, PVOil, PVPower, Binh Son Refining and Petrochemical Joint Stock Company (BSR), EVN GENCO3.

Many enterprises received concerns from foreign investors during the equitisation and divestment of State capital, however, the result of foreign investor’s attraction of each enterprise is different.

Mr. Pham Anh Tuan, Director of General Affair Department (Commission for the management of state capital at enterprises), said that besides enterprises that successfully attracted foreign capital, there were also enterprises failing to attract foreign investors.

Even in successful units, not all cases can take advantage of the benefits of foreign investors' experience in management, technology and financial capacity in the process of building brand names, market development and bringing efficiency to the State and enterprises.

Regarding attracting foreign strategic investors in the equitisation process, Bui Xuan Thu, General Director of Post and Telecommunication Joint Stock Insurance Corporation (PTI), said that this enterprise issued to raise capital for a foreign strategic shareholder in 2015 and sold more than 37% of its share capital to a foreign partner, namely Dongbu Insurance Company from Korea (DB Insurance).

After having a strategic shareholder, PTI’s revenue continued to grow at a high rate in the 2015-2020 period.

For example, in 2020, it reached VND6,500 billion, 4 times higher compared to 2014.

Currently, this enterprise is facing difficulties in raising capital because 6 years since raising capital through private placement to DB Insurance, PTI still keeps the charter capital level of VND804 billion. The capital increase of this enterprise is facing obstacles, including the issue of large foreign shareholders wishing to increase their ownership at PTI.

The reason is that even in mid-2020, PTI had a resolution of the shareholders' meeting on the approval of the policy of increasing the maximum ownership rate of foreign shareholders in PTI from 49% to 100%, but this ratio has not been approved by the competent authorities.

“We found that the main problem was the inconsistency between the current Law on Insurance and the WTO Commitments on insurance that Vietnam was participating for determining the health insurance that PTI was operating excluding medical insurance operations (which Vietnam excludes from its WTO commitments). In the case of failing to raise the foreign ownership ratio from 49% to 100%, it was difficult for PTI to attract more capital from foreign shareholders in order to expand the scale and develop business operations. DB Insurance also has limitations in expanding the scale of PTI support,” said Bui Xuan Thu.

The above obstacle is not only for PTI but also many non-life insurance companies that are facing the process of attracting foreign investment capital.

The issue on time limit

One of the difficulties in attracting foreign capital to equitisation shared by enterprises is the time limit.

Mr. Pham Quyen, Deputy Director of Economic Planning, Binh Son Refining and Petrochemical Joint Stock Company (BSR), said that, according to the approved equitisation plan, foreign investors were allowed to hold up to 49% of the capital ratio in BSR.

However, the sale of shares to foreign strategic investors of this enterprise during the equitisation process in 2018 has not been implemented due to the expiration of the selection period for strategic investors (within 3 months from the approval plan), must change to the form of divestment of the State after BSR transforms into a joint stock company.

Regarding problems in attracting foreign capital into BSR, Quyen said: “The regulation on the time of selecting strategic investors was too short while the share offering transaction to foreign strategic investors at BSR was considered one of the large-scale transactions in the market with an expected offering rate of 49% of equity, equivalent to more than 1.5 billion shares with a total expected offering value of around $1.5 billion. Therefore, potential strategic shareholders would have to spend a lot of time researching and evaluating investment before deciding to participate in the investment.”

Besides that, preferential policies for foreign investors in the refining and petrochemical sector such as import tariffs are no longer applied, so they are not attractive to investors.

The profitability of BSR in recent years has also decreased significantly due to the impact of Covid-19 pandemic. All of the above factors make it difficult to attract foreign capital of BSR even though many foreign companies were interested in learning about BSR.

The BSR representatives also shared solutions to attract foreign strategic investors in the future. Accordingly, BSR would optimize production technology and maximise costs to improve production and business efficiency in order to create attractiveness to investors, proactively seek and interact with potential investors to introduce investment opportunities in BSR.

Nguyen Duy Giang, Deputy General Director of PetroVietnam Power Corporation (PVPower) also proposed a number of solutions such as: proactively organising a credit rating for enterprises, creating transparency; converting financial statements to international standards; establish a joint stock company from the beginning to share opportunities, challenges and management skills with foreign partners.

On this issue, according to Pham Tuan Anh, businesses needed to find a truly qualified foreign partner and seize the opportunity to "transform" after the equitisation. The business lines of the equitised enterprises, the holding rate of foreign investors for each industry or field should be publicised and transparent.

At the same time, the method and order of procedures for the sale of shares of state-owned enterprises to foreign investors should ensure the highest principle that was ensuring the interests of the State besides other factors such as the interests of the enterprises, investors and employees.