2,893 billion VND (equal to 1.6%); Trade union organization holds 1,169 billion VND (equal to 0.7%); public sale 16,895 billion VND (equal to 9.4%).
As of 2016, there has been 1 economic group, 47 state-owned corporations and many large-scale state-owned enterprises with important business lines that have been equitized. Typical examples include: Bank for Investment and Development of Vietnam (state capital of VND 22,036 billion), Airports Corporation (state capital of VND 20,769 billion), Vietnam Gas Corporation (state capital of VND 18,640 billion), Vietnam Airlines Corporation (state capital of VND 10,576 billion), Vietnam Petroleum Corporation (state capital of VND 10,164 billion), Vietnam Steel Corporation (state capital of VND 6,524 billion), Vinacomin Electricity Corporation (state capital of VND 5,600 billion), Vietnam Textile and Garment Group (state capital of VND 4,300 billion), Bien Hoa Industrial Park Development Corporation (state capital of VND 3,764 billion), Mekong Delta Housing Development Bank (state capital of VND 3,074 billion), Viglacera Corporation (state capital of VND 2,227 billion). billion VND), Petex Corporation (state capital 2,600 billion VND)..
It can be seen that in the period of 2011-2015, equitization activities were promoted, the number of equitized enterprises as well as the scale of equitized enterprises shown through the average actual value of state capital in equitized enterprises increased annually (except in 2011, although the number of equitized enterprises was small, most of the enterprises had large capital values such as the Bank for Investment and Development of Vietnam, the Mekong Delta Housing Development Bank, the Vietnam National Petroleum Corporation, the Vietnam Steel Corporation, etc.).
500
450
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350
Number of businesses
300
250
200
150
100
50
0
2011 2012 2013 2014 2015
350
326
260
220
175
96
112
73
14
26
Average actual value of state capital/01 enterprise (billion VND)
300
250
200
150
100
50
0
Figure 3.4 Progress of CPH period 2011-2015
* Effectiveness of CPH work
Synthesizing reports of equitized SOEs in the period 2011-2015, the business performance of 2015 all increased compared to the year before equitization, specifically: charter capital increased by 72%; equity increased by 60%; total assets increased by 39%; revenue increased by 29%; pre-tax profit increased by 49%; budget contribution increased by 27%; average income of employees increased by 33% (Government, 2016). Assessing the effectiveness of equitization, the Government (2016) stated:
- The equitization has contributed to the restructuring of human resources for enterprises and society. Enterprises have restructured their entire human resources through the labor arrangement plan when equitizing, surplus labor in the units arranged and equitized continue to enjoy subsidy policies; are supported in training and retraining. Human resources of society have been restructured to be used more reasonably and effectively, while still maintaining and ensuring social security stability.
- The equitization process creates conditions for trade unions and employees in enterprises to buy shares, employees become shareholders and participate in the management, inspection and supervision of enterprise activities.
- The equitization work has contributed to promoting the development of the capital market and the stock market. The majority of companies listed on the stock market are joint stock companies converted from state-owned enterprises. By 2016, 411 equitized enterprises listed shares on the stock market (of which 263 enterprises were on the HNX exchange, 148 enterprises were on the HSX exchange), in addition, 207 enterprises registered to trade on the Upcom exchange. In the period 2011-2015 alone, 67 enterprises listed shares on the stock market (of which 43 enterprises were on the HNX exchange, 24 enterprises were on the HSX exchange), 128 enterprises registered to trade on the Upcom exchange. The equitization of state-owned enterprises associated with share auctions and listing on the stock market, especially those of economic groups, state-owned corporations and large-scale enterprises, has provided the stock market with quality goods, strongly impacted the development of the capital market, contributed to enhancing publicity, transparency and social control over business operations. According to the State Securities Commission, from 2011 to the end of 2015, 276 equitized enterprises had initial public offerings (IPOs) at the Stock Exchange and securities companies with a total number of shares offered for sale of over 3,068 million shares, worth
17,558 billion VND; the number of shares sold was 1,500 million shares, worth 20,547 billion VND, reaching 49% of the total number of shares offered but increasing 139% of the offering value if compared relatively.
Through the equitization process, the management and organization of production and business activities at enterprises have been innovated; listing on the stock market requires enterprises to improve publicity, transparency, autonomy, self-responsibility, and strengthen social supervision of enterprise activities, thereby creating trust among domestic and foreign investors, increasing the ability to mobilize capital to help enterprises expand production and business development.
- The equitization of state-owned enterprises has changed corporate governance, thereby improving production and business efficiency. Equitization has made an important contribution to the innovation of enterprise arrangement, the formation of enterprises with multiple owners, creating motivation for development and improving enterprise efficiency; the inspection and supervision inside and outside the enterprise have been enhanced in conjunction with the interests of shareholders, which has had practical significance in innovating management methods, saving costs, and improving enterprise efficiency. Strong innovations in policies and the business law system have created a legal corridor and a favorable and equal business environment for enterprises of all economic sectors to operate, enhancing transparency in business activities of enterprises.
- Equitization of state-owned enterprises operating in the field of production, supply of public products and services: By 2016, out of a total of 131 enterprises operating in the field of environment, urban services and water supply and drainage nationwide, 77 enterprises and business units were equitized, in which the State held controlling shares (from 51 to 65% of charter capital) in 65 enterprises and did not hold controlling shares in 12 enterprises. The initial equitization brought about positive results: For water supply and drainage enterprises, the average water loss rate of enterprises decreased significantly (about 15%), the water supply time per day increased (about 8.5%), labor productivity increased (from 8 people/1000 connections/customer to 4.5 people/1000 connections/customer), the average profit of enterprises increased (about 1.67 times), the average income of workers increased 1.7 times. Some SOEs that no longer hold controlling shares have invested heavily in upgrading facilities, technology and water supply and drainage networks.
- Most of the SOEs after equitization have produced and operated effectively, paid to the budget and the income of workers has increased. The summary of the operating results of 350 enterprises after equitization in 2015 shows that: compared to the year before equitization, the average pre-tax profit increased by 49%, the budget payment increased by 27%, the charter capital increased by 72%, the total assets increased by 39%, the revenue increased by 29%, the average income of workers increased by 33%. Typically, the Central Seed Joint Stock Company had a revenue increase of 20 times, profit increased by 40 times, total assets increased by 22 times, and equity increased by 40 times.
Vietnam Dairy Products Joint Stock Company's revenue increased 10 times, budget contribution increased 6 times, and equity increased 13 times. Vietnam National Petroleum Group suffered a loss of 1,461 billion VND before equitization, and a profit of 2,021 billion VND after equitization.
Besides the positive results achieved above, the equitization of state-owned enterprises has not changed
fundamental changes in equity structure; specifically:
Statistics on the results of the initial share sale of 414 enterprises out of 508 enterprises approved for equitization plans in the period 2011-2015 show that only about 60% of enterprises sold shares according to the approved plan, the rest could not sell all shares according to the equitization plan. Figure 2.5 shows the charter capital structure after the initial share sale: The State continues to hold 81.7% of charter capital, Strategic investors hold 6.6% of charter capital, Employees hold 1.6% of charter capital, Trade Unions hold 0.7% of charter capital, and other investors hold through public auctions about 9.4% of charter capital; Compared with the approved equitization plan: the State holds 65% of charter capital, strategic investors hold 15.8% of charter capital, employees hold 2% of charter capital, trade unions hold 0.5% of charter capital, and public sale of 16.7% of charter capital. Thus, in general, the ownership structure of enterprises after equitization does not change significantly when the State continues to hold 81.7% of charter capital; if considering the equitization goal of changing corporate governance thereby improving production and business efficiency, the results achieved are still limited.
81.7
65
15.8
6.6
16.7
9.4
2 1.6
0.50.7
90
80
70
Percentage of charter capital
60
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40
30
20
10
0
State Investor
Labor sale
Equitization plan
Stock sale results
Organization
strategic
declare
dynamic
labour
group
Ownership structure
Figure 3.5 Charter capital structure of equitized enterprises in the period 2011-2015
To better assess this statement, we can look at the data on the state capital holding ratio at 414 enterprises that sold shares for the first time in the period 2011-2015 as follows:
- According to the results of the initial share sale, 69 State-owned enterprises hold over 90% of charter capital, including 15 Groups and Corporations such as: Vietnam National Petroleum Group, Vietnam Steel Corporation, Vietnam Airlines Corporation, Vietnam Airports Corporation, Lilama Corporation, Viglacera Corporation. 79 State-owned enterprises hold over 65% of charter capital; 95 State-owned enterprises hold over 50% of charter capital; 156 State-owned enterprises hold less than 50% of charter capital; 15 equitized enterprises with the same parent company.
- While according to the approved equitization plan, out of 508 equitized SOEs, only 05 State-owned enterprises hold over 90% of charter capital; 108 State-owned enterprises hold over 65% of charter capital; 154 State-owned enterprises hold over 50% of charter capital; 221 State-owned enterprises hold less than 50% of charter capital; 20 equitized enterprises with the same parent company.
Figure 3.6 shows that the results of the first sale of shares show that only 38% of enterprises after equitization are no longer SOEs, but enterprises (according to the criteria for defining SOEs as enterprises in which the State owns more than 50% of the charter capital in the 2003 Law on State-owned Enterprises, the 2005 Law on Enterprises; from July 1, 2015, SOEs are enterprises in which the State owns 100% of the charter capital); compared to the desired rate of 44% of enterprises according to the approved equitization plan for the period 2011-2015.
50%
45%
40%
35%
Business Rate
30%
25%
20%
15%
10%
5%
0%
44%
38%
30%
23%
Equitization plan
Initial Public Offering Results
1 2 9 1 % % 18 %
01%
Below 50% 50%-65% 65%-90% Above 90%
Percentage of charter capital held by the State
Figure 3.6 Percentage of equitized enterprises according to criteria of charter capital held by the State
hold period 2011-2015
Thus, the number of state-owned enterprises holding controlling shares after equitization is still large; especially corporations and general companies. Applying the theory of signal hypothesis to explain that, right from the approved equitization plan, the proportion of state-owned charter capital is still as high as 65%, it is possible to identify a main reason that reduces the attractiveness of participation of investors, especially large and professional investors, leading to the equitization rate not reaching the target and being a barrier to the process of corporate governance innovation. According to the theory of signal hypothesis, the appearance of the state as a major shareholder will create a negative signal to investors; some investors believe that enterprises in which the state holds a controlling stake will have low business results, so investors do not like the role of the state as a major or largest shareholder in the enterprise (Paudyal et al., 1998).
(2) Period 2016 to 2018
Based on the results of restructuring, arranging and equitizing SOEs in the period of 2011-2015, the Government continued to approve the Project "Restructuring SOEs, focusing on economic groups and state-owned corporations in the period of 2016-2020" with the task of completing the equitization of 137 enterprises, by 2020 the State will only hold 100% of capital in 103 enterprises. Regarding the equity structure of the 137 enterprises to be equitized according to the plan, there will be 106 State-owned enterprises holding less than 50% of charter capital, only 27 State-owned enterprises holding from 50% to under 65% of charter capital and 4 State-owned enterprises holding more than 65% of charter capital. In addition to the equitization task, the Government has also approved the plan to divest state capital in the 2017-2020 period at enterprises that the State does not need to hold with 406 enterprises, specifically in 2017, it is necessary to divest capital in 135 enterprises, in 2018, it is necessary to divest capital in 181 enterprises, in 2019, it is necessary to divest capital in 62 enterprises and in 2020, it is necessary to divest capital in 28 enterprises; in 406 enterprises, divest capital according to the plan, up to 135 enterprises will divest over 50% of charter capital, 22 enterprises will divest over 90% of charter capital.
The above plan shows that the Government has expected to fundamentally change the structure of equity capital. However, a detailed study of the criteria for classifying enterprises shows that determining the percentage of charter capital held by the State when equitizing enterprises depends on the fields and industries of operation of the enterprises; specifically: The State continues to hold 100% of the charter capital of enterprises operating in the fields of national defense and security; providing essential public products and services; holding 65% or more of the total shares for enterprises operating in industries and fields such as aviation infrastructure exploitation management, navigation information services, surveillance, aviation meteorological services; large-scale oil and gas and minerals, finance, banking; holding over
50% to less than 65% of total shares, operating in important industries and fields, ensuring the major balance of the economy such as basic chemical production, telecommunications services with network infrastructure; food; gasoline; ensuring essential needs for production activities and material and spiritual life of ethnic minorities in mountainous, remote and isolated areas, associated with national defense and security... The remaining group of enterprises other than those in the three groups above, when reorganizing and equitizing, based on the specific situation and market capacity, the State will hold less than 50% of charter capital to no shares or apply other suitable forms of arrangement such as converting into a multi-member limited liability company, selling, dissolving, bankruptcy.
In practice, in the period 2016-2018, 159 enterprises were approved by competent authorities for equitization plans with a total enterprise value of VND 442,275 billion, of which the value of state capital was VND 206,024 billion. The total charter capital according to the plan approved by competent authorities was VND 210,915 billion, of which the State held
112,500 billion VND (53%); sold to strategic shareholders 62,206 billion VND (29%); public auction 34,464 billion VND (16%), the remaining sold to employees is 1,695 billion VND (1%) and trade union organizations 47 billion VND (0.02%).
Comparing the ownership structure in the approved equitization plan for the period 2016-2018 with that of the period 2011-2015, it can be seen that there have been adjustments: the proportion of State holding has decreased (53% in the period 2016-2018 compared to 65% in the period 2011-2015); sales to strategic shareholders have increased (29% in the period 2016-2018 compared to 15.8% in the period 2011-2015); the proportion of public auctions, sales to employees and trade unions has not changed much. Although there have been certain adjustments in the ownership structure in the equitization plan, it has not really attracted investors. According to the report of the Ministry of Finance (2019), the proportion of shares successfully offered for sale in the period 2016-2018 was only 54%.
3.2.2. Operational efficiency of state-invested enterprises
Through reform and innovation of state-invested enterprises in Vietnam in recent times, especially through equitization of state-owned enterprises, the operational efficiency of state-invested enterprises has been improved.
Through studying statistical data according to the "White Book of Vietnamese Enterprises 2020" (Ministry of Planning and Investment, 2020), the performance of enterprises with state capital investment is reflected through a number of performance indicators of the state enterprise sector (including SOEs and enterprises with state capital of over 50% of charter capital) in Table 3.4 as follows:
Table 3.4 Performance of state-owned enterprise sector in the period 2011-2018
Average 2011-2015 | Average 2016-2018 | Development index development % | |
Labor efficiency (times) | |||
Nationwide | 15.5 | 14.9 | 96.1% |
State-owned enterprise sector | 17.8 | 18 | 101.1% |
- Including 100% state-owned enterprises | 17.1 | 20.1 | 117.5% |
Non-state enterprise sector | 16.1 | 15.8 | 98.1% |
FDI enterprise sector | 13.0 | 12.3 | 94.6% |
Employee income (1,000 VND/month) | |||
Nationwide | 5,882 | 8,217 | 139.7% |
State-owned enterprise sector | 8,898 | 11,923 | 134.0% |
- Including 100% state-owned enterprises | 9.311 | 11,536 | 123.9% |
Non-state enterprise sector | 4,928 | 7,234 | 146.8% |
FDI enterprise sector | 6,560 | 9.111 | 138.9% |
Debt ratio (times) | |||
Nationwide | 2.2 | 2.3 | |
State-owned enterprise sector | 3.0 | 3.6 | |
- Including 100% state-owned enterprises | 2.8 | 2.6 | |
Non-state enterprise sector | 2.0 | 2.1 | |
FDI enterprise sector | 1.6 | 1.6 | |
Capital turnover ratio (times) | |||
Nationwide | 0.7 | 0.7 | |
State-owned enterprise sector | 0.5 | 0.4 | |
- Including 100% state-owned enterprises | 0.5 | 0.5 | |
Non-state enterprise sector | 0.8 | 0.7 | |
FDI enterprise sector | 0.9 | 1.0 | |
Profitability (%) | |||
ROE | |||
Nationwide | 8.2 | 8.7 | |
State-owned enterprise sector | 12.1 | 10.3 | |
- Including 100% state-owned enterprises | 10.1 | 9.1 | |
Non-state enterprise sector | 3.4 | 4.9 | |
FDI enterprise sector | 15.1 | 16.9 |
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