Outside investment of state companies will be more tightened under the finance ministry’s new proposal on supplementing regulations on financial management of state companies and management over state capital investment into other businesses.
A series of problems about financial management, outside investment of state owned companies are detailed in the above proposal that has recently been submitted to the government.
Firstly, the finance ministry said, there has not yet any close supervising mechanism for raising capital by state owned companies. Thus, many state-owned businesses have raised huge amount of capital, which are many times higher than their equity. This easily leads to liquidity risks as well as adversely impact efficiency of production and business.
Recent reports of 70 corporations showed that up to 30 cases have payable amounts that are over three times as much as their capital. Even, some corporations reported loans are over 20 times as much as their capital.
Some state-owned corporations have raised capital from financial companies, banks where they have contributed capital, hence, those state-owned corporations have been entitled to many incentives such as the lenders do not require secured assets for loans with simple borrowing procedures and so on.
In a bid to deal with those problems, the finance ministry proposed new financial mechanism should be supplemented in order to raise high sense of responsibility of ownership representatives and of state owned companies for raising capital, enhancing supervision of the government.
Secondly, according to the finance ministry, over the last time, many state owned corporations have contributed capital or acquired stake from many other businesses whose business activities are totally different from the state-owned corporations’. Particularly, some state corporations have spent relatively big sum of money investing into banking, insurance sectors or trading shares in the market.
The reports of 70 state corporations also demonstrated that 28 corporations have invested into or established securities companies, fund management companies, banks, and insurance companies. Their total investment has amounted up to 23.344 trillion dong, or 8.7% of total equity capital and 20% of total outside investment capital.
The finance ministry analysed that those are sensitive investment sectors, which will easily lead to risks, particularly for inexperienced state companies.
The finance ministry suggested that the new management mechanism should set the limit amount for financial investment activities of state companies in order to restrict risks and not adversely impact major business activities.
Additionally, the finance ministry proposed the government should clearly regulate usage of brand name, intellectual property to invest into other businesses.
The finance ministry also suggested that using the remaining incomes from state stake sales at holding companies, sharing profit and others should be promulgated more specifically.
Under current laws, outside investment of state owned companies are not restricted in terms of scopes of industries, sectors and scales. Thus, many state-owned companies have invested huge amount of money into such businesses that have different activities.
In order to direct state companies to focus on targeted investment strategies, plans, it is required to set a certain investment limit ratio.
The finance ministry suggested state owned companies should use at least 70% of total investment capital into other companies which have the same business activities. Total outside investment of state companies including short and long-term investment should not exceed chartered capital.
In order to ensure to be in line with the Law on Banking and Credit Organisations, Law on Insurance, Law on Securities, the finance ministry proposed that investment capital of state owned companies at commercial banks, insurance companies, securities companies should not exceed 20% of those organisations’ chartered capital.
In addition, state owned companies are not allowed to contribute capital or acquire stake from venture investment funds, securities investment funds or securities investment companies.