State company equitisation plan flounders
14-JUL-2008 Intellasia | Thanhniennews
Jul 14, 2008 - 7:00:00 AM
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The government will speed up the process of converting state-owned companies into shareholding entities but a previous target of completing the task by 2010 is no longer "practical," an official said Thursday.
Only 30 state-owned companies were equitized in the first half of this year, Pham Viet Muon, deputy head of the government's Steering Committee for Enterprise Reform and Development, told a press briefing in Hanoi.
Equitization is the term Vietnam uses to refer to the process of issuing shares to partly privatize state-owned businesses, in which the government will still hold the major stake.
In 2006, the government planned to equitize more than 1,500 state owned enterprises (SOEs) by 2010.
Slow equitization was "suitable" in the current economic climate, Muon said.
"The stock market slowed and purchasing power weakened," he said.
"Even if we had [issued shares] no one would have bought them."
The government would adopt measures to accelerate the process, he said, warning that "trying to pursue the [original] target is impractical."
Joint stock companies, with their more efficient management model, would be more effective and dynamic, he said.
Yet Muon also admitted that most of the nearly 3,800 state-owned-turned-shareholding companies still retained their old management.
It would take foreign shareholder participation to change the management, he said.
The press briefing, which reported the operation of SOEs in the first half of this year, showed rosy profits for most major state conglomerates.
The 74 biggest SOEs, considered the "locomotives" for the economy, including seven economic groups, posted a turnover of 510.8 trillion dong (US$30.3 billion), a 51% increase over the same period last year.
Their combined pre-tax profit rose by 72% year on year to 76.3 trillion dong (US$4.5 billion).
Some conglomerates, including Vietnam's flagship carrier Vietnam Airlines and oil and gas trader Petrolimex, incurred losses, mostly due to the government's ban on the companies increasing prices to cover higher fuel costs.
The government's price freeze was part of its anti-inflation package announced earlier this year.
The government's intervention "may have distorted the market but it has ensured social welfare," Muon said.
"We must think about the whole economy."
"The electricity sector has incurred losses but other sectors could benefit [from lower power prices]," he said.
A Finance Ministry representative said the government only subsidized fuel businesses.
In efforts to contain double-digit inflation, major SOEs suspended 609 projects worth nearly 34.2 trillion dong (US$2 billion), the press briefing was told.
Economists have warned of ineffective investments by major SOEs, many of which were financed by borrowing.
Recent research by Harvard University said such investments, combined with the fact that major SOEs had taken out loans in excess of their capital, could endanger the economy.
However, Deputy Finance Minister Tran Xuan Ha rejected the Harvard research.
The 76 major state conglomerates had borrowed nearly 514.5 trillion dong (US$30.5 billion), which was 1.36 times larger than their combined capital.
"We don't think that loan over capital ratio is big," Ha said.
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