Preventing capital loss in equitisation – Article 1: Pressure on equitisation progress and risk of capital loss

	Strict management of revenue from equitisation
	After equitisation, the land used for the wrong purpose will be withdrawn
	Equitisation plans of seven more SOEs receive approval in July

It should prevent state capital loss after equitisation.

Companies "race" for equitisation to reach the plan

According to the plan approved by the Government, in the 2017-2020 period, the country has to complete the equitisation of 127 SOEs, including 44 enterprises in 2017, 64 enterprises in 2018, 18 enterprises in 2019 and 1 enterprise in 2020.

In 2017 (as of 20th December 2017), although 47 enterprises were approved for the equitisation plan with a total value of nearly VND 336 thousand billion, only nine enterprises sold shares for the first time.

It can be said that equitisation in 2017 was slow and failed to reach the plan. According to the Ministry of Finance, these results affected the SOEs restructuring and failed to meet the target assigned by the National Assembly for the use of revenue from equitisation and divestment to the state budget.

In 2018, under the plan, 64 enterprises will have to be equitised. This is not only a big quantity but also has a big value when the equitized list includes large corporations such as: MobiFone Telecom Corporation; Power Generation Corporation 1, 2; Urban Infrastructure Development Investment Corporation; and Hanoi Housing Investment Development Corporation. This does not include the inventory list of 150 enterprises that have been approved to be equitised in the period 2011-2016 and in 2017.

This situation is similar to the divestment. In 2017, 10 enterprises have been divested in accordance with Decision No. 1232 / QĐ-TTg of the Prime Minister, of which 8 enterprises under the divestment plan in 2017 and 2 enterprises under the divestment plan in 2018 (meanwhile, 2017 divestment plan was 161 enterprises).

181 enterprises will be divested in 2018. It means that 15 enterprises will be divested per month on average, excluding the number of enterprises with divested capital at the State Capital Investment Corporation (SCIC) according to a separate plan. Thus, the amount of state capital sold to the market is also very large. In addition, the enterprises subject to this divestment have large amount of state capital and a high turnover rate, such as, Vietnam Petroleum Group 24.86%, Vietnam Industrial Construction Corporation 46.75% and Machines and Industrial Equipment Corporation 63.54%.

This situation puts great pressure on 2018. It may pose the risk of capital loss when the enterprises "race" for equitisation and divestment to achieve the plan

Risk of capital loss due to “pressure”

According to Mr. Dang Quyet Tien, Director of Corporate Finance Department under the Ministry of Finance, the enterprise valuation before equitisation is the key step as the premise for the approval of equitisation plan thereafter. During the past time, the valuation showed many inadequacies, leading to the possible reduction in the State resources in these enterprises.

Regarding enterprise valuations, Dr. Luu Bich Ho - former Director of the Development Strategy Institute under the Ministry of Planning and Investment analysed that the equitisation of Vietnam Television Film Center was typical. The brand name of Vietnam Television Film was valued at VND 0, but when it was first sold to the public, its value was estimated at VND 50 billion. Vivaso corporation only paid VND 33 billion to own 65% of the shares and thousands of square meters of land in prime locations in Hanoi and Ho Chi Minh City, in which the firm center was hiring from the State. This is one of the loopholes that make the state assets vulnerable to be lost when the land is changed on use purposes.

According to TS. Luu Bich Ho, another issue in equitisation and divestment process that may cause state losses of state owned assets is the valuation of enterprise assets. The valuation plays a particularly important role in the asset transfer market in general and SOEs equitization in particular. However, some enterprises do not comply with the application priority of basic construction unit price and capital construction investment rate issued by the competent authority at the latest time for a valuation of assets, house and architectural materials.

The Party's objective on SOEs restructuring, changing the governance model in SOEs is necessary. SOE equitisation under joint stock company model is an advanced model in the world. However, economic expert Nguyen Minh Phong expressed his concern that if we do not implement equitisation in a smart way, with the right roadmap and in a rush, it will cause the loss of state capital.

Is there a solution?

Mr. Dang Quyet Tien said that in order to prevent the loss of state capital after equitisation, the Ministry of Finance submitted to the Government for promulgation of Decree No. 126/2017 / ND-CP on transfer of SOEs and one member limited liability companies of which 100% charter capital is invested by SOEs into joint stock companies. This Decree has new provisions that will limit the loss of state capital.

During the past time, the consultation is the concern of many enterprises because bad consultants will lead to incorrect valuation or prolong the time. Therefore, Decree 126 clarifies on improving consulting organization on valuation. The new provisions set additional conditions for foreign consulting organizations that provide services related to equitisation. Accordingly, foreign consulting organizations are organizations which operate in the fields of price appraisal, auditing, accounting, financial consultancy and consultancy on enterprise ownership transformation according to the law of the country where their head offices are located. They must have prestige, capability, brand and at least 5 years of experience in one of the following areas: appraisal, auditing, accounting, financial consultancy and consultancy on enterprise ownership transformation

Decree 126 also clarifies the valuation of intangible assets. According to current regulations, the value of intangible assets (if any, excluding the land use right value) shall be determined according to the remaining value recorded in the accounting books. In fact, there are intangible assets that have been fully depreciated and of which capital has been recovered and still used by equitised enterprises, but they are not re-evaluated to be included in the value of enterprises. Or there are intangible assets of which a book value may be very low because they are determined at a short depreciation term but their actual value is still high. The new provisions clearly provide that the value of intangible assets must be re-determined to be included in the value of enterprises. The re-determination must comply with the provisions of law on value appraisal and defined by the organizations with value appraising functions.

VNPT targets to complete equitisation within the year Vietnam Posts and Telecommunications Group (VNPT) is accelerating preparations to complete the equitisation in early 2019.

In particular, to enhance publicity and transparency of the equitisation process, the Government has requested that equitised enterprises must disclose the information on the Government Portal and send it to the Ministry of Finance and the Steering Committee for Enterprise Renovation and Development to monitor the roadmap and progress of equitisation as well as the information of enterprises. At the same time, when preparing the documents for the first share auction, equitised enterprises must prepare a document of depository registration and listing registration on the securities market (if all conditions are met). Within the maximum period of 90 days from the expiry date of public share offering, equitised enterprises must complete the registration procedures at the enterprises, the depository registration of shares at the Vietnam Securities Depository Center and the trading registration on the UpCom trading system.