Feb. 5 (Bloomberg) -- Vietnam will unveil a plan to overhaul 52 state-owned groups by June and lay out steps to sell stakes or unprofitable assets in most of the companies, seeking to curb bad debt that has hurt economic growth.
A roadmap to clean up state-owned enterprises that account for about 37 percent of gross domestic product will be ready by then, Deputy Finance Minister Truong Chi Trung said in an interview. The government plans to sell all non-essential units by the end of 2015, and will retain just 50 percent to 75 percent in most of its companies, he said.
Trung’s remarks are the first indication of a mid-year target for the proposals, which would mark the biggest effort yet to clean up state-owned monopolies whose operations have swelled since the 1986 “Doi Moi” economic renovation allowed private business. The companies now tie up 60 percent of bank lending and account for more than half of bad debt, crimping credit growth and slowing economic expansion to a 13-year low.
“Restructuring the state sector is one of our most crucial and urgent tasks in the process of reforming the Vietnamese economy,” Trung, 56, said in the Feb. 1 interview in Hanoi. “We aim to have state companies focus their resources on their core businesses and leave the opportunities in those non-core areas to be developed by others.”
The VN Index of stocks slumped 11 percent during the second and third quarters of 2012 as the slowing economy eroded earnings and banking officials were arrested in a clampdown that undermined confidence in the country’s companies. The measure rebounded, rising more than 15 percent this year after the central bank cut interest rates and as improvement in developed economies bolstered prospects for exports. It fell 1 percent today.
“Restructuring state enterprises is the most important thing they need to do now to boost the economy,” said Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council. Overhauling the “state sector will help create more business opportunities for private and other sectors which are more efficient.”
The efforts may bring Vietnam more initial public offerings this year, Nghia said. The five biggest state-owned companies are Vietnam Oil & Gas Group or PetroVietnam, Vietnam National Petroleum Corp. or Petrolimex, Vietnam Electricity, Vietnam Post and Telecommunications Corp., and Vietnam National Coal-Mineral Industries, or Vinacomin. Petrolimex sold shares in 2011, while the government’s plans to sell stakes in Vietnam Mobile Telecom Services Co. and Vietnam Airlines Corp. were delayed.
The “process of divestment and privatization will create major opportunities for investors, both domestically and internationally,” Trung said, referring to the sale of assets.
State-owned enterprises in the Communist Party-ruled nation use up half of all government investment, 70 percent of official development assistance and account for about 53 percent of the banking system’s bad debt, according to the Finance Ministry.
Once Southeast Asia’s fastest-growing destination for foreign investment, Vietnam’s expansion has eased since the early boom from the 1986 economic opening as the country lost out to rivals such as Indonesia in recent years. Prime Minister Nguyen Tan Dung’s government has pledged to address the inefficiency that has festered through ties between banks and the state companies that receive much of their lending.
“It’s good that we have the June deadline,” said Hoang Thach Lan, head of the brokerage unit at Ho Chi Minh City-based MHB Securities Co., the equity investment arm of Mekong Housing Bank. “The market wants to see something specific from the government to restore confidence.”
A proposed revision to its constitution that’s due to be submitted to the National Assembly for approval following public consultation this year removes language stipulating that the state sector will “assume the leading role” in the economy.
Communist Party General Secretary Nguyen Phu Trong apologized in an October televised address to the nation for “big mistakes” made by the ruling party, including corruption and lax oversight of state-owned conglomerates. The same month, Deputy Finance Minister Vu Thi Mai said Vietnam was trying to speed up the restructuring of state companies to improve their operations and efficiency.
“Bad debt in state enterprises is one of the most important issues of Vietnam’s economy that we need to tackle now,” Trung said in written comments after the interview. “Our principle in resolving bad debt at state enterprises is that we will only resolve bad debt at those that have good restructuring plans, with development potential, and for the companies with no development prospect, we will let them go bankrupt.”
State enterprises’ non-core investments, such as property and stocks, account for as much as 12 percent of their registered capital, Deputy State Auditor Le Minh Khai said in July. Vietnam Electricity, known as EVN, and Vietnam National Shipping Lines, or Vinalines, have “large” investments in non-core businesses, Khai said.
EVN’s Chairman Dao Van Hung was fired in February last year after the power company lost 11.5 trillion dong ($552 million) over two years, according to the government’s website. The utility has been building a 93,351 square meter twin-tower headquarters since 2007.
Police in September arrested the former chairman of Vinalines for falsifying contracts, part of moves to hold executives accountable for mismanagement at state-owned companies. In August, they arrested Nguyen Duc Kien, who helped found Asia Commercial Bank, Vietnam’s largest non-government owned lender by assets.
The Communist Party’s Politburo has established a 16-member anti-corruption committee to accelerate efforts to curb graft, according to a statement posted on the government website late yesterday that cited General Secretary Trong. A tougher fight against corruption is needed to preserve the stability of the country’s Communist regime, Trong was cited as saying by Lao Dong newspaper in a report today.
The economy expanded 5.03 percent in 2012, the slowest pace since 1999. Growth has slowed due to falling productivity linked to inefficiencies in state-owned companies, banks and public investments, the World Bank said in December. The Communist Party has said that “unprofitable or even money-losing” companies had become a burden.
“After restructuring, we will retain 100 percent in very few state-owned enterprises,” Trung said in the interview. “They will be enterprises in some limited number of areas that others cannot do, such as public services, or national defense and security, and some very few companies in key areas which are the foundation of the economy. Other enterprises will be subjected to government ownership of between 50 to 75 percent.”
The government is also gathering public comments on a new draft decree on state enterprises which will require the companies to make public financial statements and business details including project lists, bank loans, employee wages and total debt.
The draft decree, due to be submitted to Prime Minister Dung by March 31, also states that chief executive officials of state-owned enterprises would be fired if their enterprises make losses for two consecutive years or fail to meet earning targets.
The Finance Ministry has requested state enterprises to “make clear the amount of their bad debt needed to be resolved,” Trung said in written comments after the interview. The government “will aim to have state companies focus on doing businesses, not assign them with political tasks,” he said.
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