Four difficulties in divestment capital to foreign investors

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It is not easy to attract foreign capital to buy shares of SOEs. Illustration: Internet.

The divestment value is fifteen times the cost of capital

Recently, the State Capital Investment Corporation (SCIC) shared information related to the status of foreign investors participating in buying SCIC's capital in the process of equitization and divestment at enterprises.

Accordingly, in the 2016-2020 period, foreign investors participated in buying SCIC's capital in a number of divestments at large enterprises such as Vinamilk (2016, 2017), Binh Minh Plastics (2018). The value earned through these large divestments reached VND22,600 billion, nearly fifteen times higher than the cost price (VND1,508 billion).

This result is due to the attention and direction of the state management agencies and the initiative and efforts of SCIC in the divestment process. Specifically, this unit has cooperated with consulting units to sell shares including foreign investment banks to approach and introduce investment opportunities widely to domestic and foreign investors, review and advising on procedures to ensure compliance with international practices and creating the most favorable conditions for investors to buy shares.

According to SCIC, the participation of foreign investors helps to enhance the competitiveness and improve the efficiency of SCIC's divestment of state capital.

During the divestment at Vinamilk, SCIC collected VND20,270 billion, sixteen times higher than the cost price; divestment at Binh Minh Plastic Joint Stock company earned VND2,330 billion, 9.65 times higher than the cost price. SCIC's capital sales have made a good impression on investors about state capital transfer.

In many cases, after buying shares in these enterprises, foreign investors help improve the business performance of enterprises. Foreign investors, who play the role of major shareholders in enterprises, contribute modern management experiences and rich international information sources to help improve information transparency and contribute ideas in the process of developing strategies of enterprises.

In case foreign investors participate in direct management at enterprises, they can have technological improvements, help enterprises improve competitiveness, and expand markets.

However, this unit said that there are many obstacles and difficulties in terms of mechanisms, policies and implementation in attracting foreign investors to buy shares of enterprises.

Many risks and pressures for investors

With the problem of deposits, SCIC said, according to regulations, investors have to arrange a large amount of money to deposit for registration to buy shares while they don’t know if they can buy shares or not. This creates anxiety for investors when they decide to participate in the offering.

Regarding the deposit currency (Vietnamese dong) creating the risk of exchange rate difference (selling - buying foreign currency) when converting from foreign currency to Vietnamese dong for deposit for foreign investors registering to participate in the offering but do not win the price - cannot buy shares and must convert back from Vietnamese dong to the foreign currency to repatriate. In addition, there is an international money transfer fee for the deposit just to sign up for the offering.

Besides, the regulation that the payment currency is Vietnamese dong is also difficult for investors. With the purchase of shares with a large value of thousands of billions of dong, in a short time to pay for the purchase of shares (usually 7-10 days from the date of winning the price) will affect the domestic currency market when a very large amount of foreign currency is transferred into Vietnam and needs to be converted into Vietnamese dong.

This creates exchange rate pressure for winning investors when the demand for Vietnamese dong is too large over a short time, exceeding the supply limit of commercial banks, as well as creating the risk of losing deposits when the investor fails to arrange a sufficient amount of Vietnamese dong on time for payment according to the contract.

According to SCIC, difficulties related to trading codes show that, for investors who do not have an indirect investment capital account as well as do not have a securities trading code in Vietnam, who want to participate in the transaction, they must complete the following steps: The above conditions, which require a long time to complete the consular notarization procedures and complete the documents, will not be able to participate in the offering in time.

From the problems in the implementation process mentioned above, SCIC has some recommendations to propose solutions to attract foreign investors to buy shares of enterprises.

Regarding the method of capital sale, SCIC proposes the Government and competent agencies amend and improve the mechanism and policy on divestment, adding some forms of sale in accordance with international practices such as the method of book and sale to strategic investors.

Regarding deposits, it is proposed to consider adding a form of bank guarantee to be in line with international practices.

Regarding the payment currency, SCIC recommends that, for special transactions with large value, it is allowed to use USD according to the exchange rate of state-owned commercial banks at the transaction date.

In addition, in order to attract the participation of foreign investors who do not have a securities trading code, while participating in the offering, it is not possible to guarantee the purchase of shares, it is necessary to be flexible in allowing the issuance of trading codes after the investor has won the share purchase price to simplify the procedures when investors register to participate in the transaction.