Danger signals as state conglomerates wade into non-core industries
14-MAY-2008 Intellasia | 12/May/2008 Tien Phong
May 14, 2008 - 7:07:00 AM
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Twenty eight out of total 70 groups, investment corporations have already invested over 23.344 trillion dong into establishing securities companies, banks, insurance and real estate companies, according to the Ministry of Finance.
This is an alarming fact when large state owned corporations that have long been considered to be the backbone of the economy join into such fields related to their own industry.
According to incomplete statistics of the Enterprise Reform and Development Committee, by the end of last year, 16 state owned corporations invested 4.965 trillion dong into the banking sector, nine state owned corporations injected 316 billion dong into the securities sector, 12 state run corporations invested 6.518 trillion dong into the finance-insurance sector, 13 state owned corporations pumped 2.331 trillion dong into the real estate sector.
Overall, large-scaled state corporations invested over 15 trillion dong into the above sectors.
The statistics released by the finance ministry showed that by the end of 2007, state owned corporations made investments of nearly 117 trillion dong outside those corporations. Among total 70 state owned corporations, 28 corporations operate in securities, banking, insurance sectors and their investment amounted up to over 23.3 trillion dong.
Efficiency of capital usage of the corporations were also worrying. Some corporations reported too high loan on equity ratios.
According Decree 199 on finance management for state owned companies and management of state investment capital in businesses, executive boards are allowed to approve projects worth up to 50% of total assets.
For businesses owning small amount of assets, such investment is modest however for such large-scaled corporations as the Electricity of Vietnam Corp (EVN) that has total assets of up to 166 trillion dong, total investment is too high.
Therefore, without proper management mechanism, clear responsibility rules, we will surely see widespread investment, inefficiency of capital usage because much payment for interest of bank loans.
Additionally, expanding scopes of business pushed the number of subsidiaries of economic corporations. Compared to 2006, the number of subsidiaries increased by 10% or 68 subsidiaries and the number of associate companies rose by 39% or 184 companies.
This led to risks of not ensuring management capacity for investments at other businesses, creating unhealthy competition among businesses inside and outside corporations. This also resulted in risks of financial relations within corporations.
The finance ministry said that in the upcoming time the ministry will revise Decree 199 whereby executive boards are only allowed to decide loans equal to three times as much as chartered capital, state owned companies are allowed to use chartered capital to make outside investments. Furthermore, invested fields are required to support for main production and business activities of state owned companies and so on.
Commenting on this fact, many economists expressed their worries because those are sensitive fields with high risks, which makes human resources disperse, impacts major targets when businesses are established. Particularly, that corporations control some banks and then use banks to fund their own expansion plans can lead to abuse of loans and excessive investments by corporations if there is no good management system and good risk analysis capacity.
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