Vietnam pushes divestment in state-owned firms to counter rising public debt: HSBC
The country’s public debt is on the verge of hitting the mandated limit set by the government.
There is a new sense of urgency in Vietnam to equitize state-owned enterprises (SOEs) and use the money raised from public offerings to alleviate the government’s fiscal burden, HSBC said in a new report on the country's economic prospects for August.
Equitization is the term Vietnam uses to describe the process of issuing shares to partially privatize state-owned businesses in which the government will still hold the majority stake.
Vietnam’s policymakers, in recent statements, have framed the sale of SOEs as a means to both increase fiscal revenue and reduce government expenditure, the London-based lender said.
Late last year, Prime Minister Nguyen Xuan Phuc signed off on a decision which pushes for further divestment of state capital in existing SOEs by eliminating or reducing the minimum level of ownership that the government holds in certain industries.
The decision provided a clearer roadmap for equitization by saying that the state will equitize 137 SOEs and sell its entire stakes in 103 firms.
The Ministry of Finance said in June that the country’s public debt, which includes central government debt, government-backed loans and local government debt, may reach the ceiling set by the legislative National Assembly of 65 percent of gross domestic product (GDP) from 2017-2018.
Assuming that economic growth hits 6.7-7 percent this year, public debt will account for 64.8 percent of GDP, the ministry projected. Vietnam has set an economic growth target of 6.7 percent this year, but many experts call it too ambitious.
Deputy Prime Minister Vuong Dinh Hue told local media in April that 97 percent of SOEs have been equitized so far, but only 8 percent of the equitized stocks have been sold to private investors.
Slow equitzation also means that Vietnam’s earnings from SOE divestments have been lower than expected. HSBC cited media reports as saying that equitization and divestments netted nearly $3.4 billion for the state budget from 2011 to 2015, which is low for a five-year period, especially when compared to total SOE assets of roughly $130 billion.
These are problems the government is aware of and aims to address through reforms, HSBC said.
In an interview with Tuoi Tre (Youth) newspaper last Friday, Dang Quyet Tien, the deputy director of the Corporate Finance Department under the Ministry of Finance, said the government is reviewing a list of businesses from which the government will gradually divest over the next three years, including leading dairy firm Vinamilk and top brewer Sabeco.
He said 747 SOEs have been equitized but have yet to launch their IPOs to give foreign investors the chance to jump into the Vietnamese market through mergers and acquisitions (M&A).
Minister of Planning and Investment Nguyen Chi Dung said Vietnam is facilitating M&A between SOEs and private firms and local and foreign companies in the fields of transport, infrastructure, food, agriculture, telecommunications, trade, services, tourism and construction, according to Tuoi Tre.
The government’s recent push is welcome news as the pace of equitization has decelerated in recent years, according to HSBC.
The number of SOEs dropped by 1,538 between 2003 and 2008 but only by 312 over the next five years, the bank said, explaining that part of the reason is that “the low hanging fruit of earlier reforms had already facilitated the sale (or closure) of most small loss-making SOEs while many remaining companies are much larger with more complex ownership and management structures, with sometimes unclear financial and debt obligations.”
Official government data shows the country had 718 operational SOEs as of late 2016 compared to 6,000 in 2001.
In February, PM Phuc issued a directive to the finance ministry to enact regulations for further equitization of SOEs in accordance with international standards.
SOE reform also topped the agenda of a major meeting of the ruling Communist Party in May. The Party's Central Committee, a powerful grouping of 200 senior Party members, then passed a resolution stressing the need for accelerating SOE reforms and equitization.