Current Status of Capital Management and Use Mechanism in State-regulated economic zones.

Quite often, if the form of capital increase or decrease is applied during the adjustment process, it is unreasonable and ineffective.

 In general, capital mobilization within the Group still has many cumbersome and rigid procedures; capital mobilization from foreign organizations and individuals, the Group does not sign directly but must go through the government, with the guarantee of the Ministry of Finance, increasing capital costs.

 Capital mobilization as regulated by the state has not promoted the strength of intermediary financial institutions such as venture capital funds (economic corporations are not allowed to mobilize venture capital funds), while research on the experience of other countries shows that this is an important capital mobilization channel to invest in R&D activities.

 Regulations on the loan limit according to the ratio of debt to charter capital not exceeding 3 times. However, the charter capital of the Corporation and the State-owned economic groups changes every year, so it is difficult to determine. On the other hand, currently, in general, the charter capital scale of the State-owned economic groups is not large. If the capital mobilization level is controlled as above, it will not ensure enough capital to invest in large projects and works that the State-owned economic groups are assigned to carry out.

Maybe you are interested!

2.2.3 Current status of capital management and use mechanism in State-owned economic groups as prescribed by the State.

2.2.3.1 State regulations

The content of the capital management and use mechanism in the Corporations and State-owned economic groups is shown in the financial management regulations according to Decree 09/2009/ND-CP, including the following main provisions:

About charter capital:

Charter capital is the amount of capital required to maintain production and business activities under normal conditions with the scale and development strategy stated in the charter of the Corporation or State-owned economic group. For Corporations,

For State-owned economic groups that are required by law to have legal capital, the charter capital must not be less than the legal capital. The principles for determining the charter capital are guided by the Ministry of Finance; the charter capital level is determined by the Owner's Representative in coordination with the Ministry of Finance. If using the State budget to provide charter capital, the Ministry of Finance shall synthesize and submit it to the Government and the National Assembly for decision; Based on the capital investment plan approved by the competent authority, the Ministry of Finance (for the Central Government), the Provincial People's Committee (for the Local Government) shall be responsible for investing sufficient charter capital for the Corporation and State-owned economic groups. In which:

- If a newly established Corporation or State-owned economic group has to carry out investment and construction, it must ensure that it has sufficient charter capital when it starts operating.

- If the Corporation or State-owned economic group has been operating, its charter capital will be supplemented according to the progress of performing the tasks assigned by the State.

- If the investment is not enough for the charter capital, the charter capital must be adjusted down but must not be lower than the legal capital; in case it cannot be adjusted, depending on the specific actual situation, the Owner's Representative has the right to decide on conversion, arrangement or equitization according to the prescribed regime; during the business operations of the Corporations and State-owned economic groups, the Owner's Representative has the right to adjust, increase or decrease the charter capital, and has the right to withdraw the State capital invested in the Corporation and State-owned economic groups when reorganizing the Corporation and State-owned economic groups or increasing or decreasing the charter capital. However, the withdrawal of the charter capital can only be done if the ability to pay the debts of the Corporation and State-owned economic groups is ensured. The source of capital provided or supplemented for the charter capital can come from the State budget or from the fund supporting the arrangement of State-owned enterprises. The allocation of State investment capital to the Corporation and State-owned economic groups must be completed within 60 days from the date the economic group receives the business registration certificate and within 60 days from the date the economic group starts operating for newly established economic groups.

capital:

 On the rights and obligations of the Corporation and the State-owned economic groups in the use of

- Corporations and State-owned economic groups have the right to take the initiative in using capital.

State-owned enterprises and other types of capital, funds managed by State-owned economic groups for production and business activities. In order to ensure the right to be proactive in using capital, General Corporations and State-owned economic groups must be responsible to the Representative of State capital owners for preserving, developing, and effectively using capital, and for ensuring the rights of participants such as creditors, customers, and employees according to signed contracts. If using funds managed by the Group for construction investment, it must comply with the provisions of law on construction investment management.

On investment outside the State-owned economic groups

The Corporation and the State-owned Economic Group have the right to use assets and capital under their management for external investment. However, if the investment outside the Corporation and the State-owned Economic Group involves land, it must comply with the law on land; the investment outside must comply with the law, be consistent with the strategy, planning and development plan of the Corporation and the State-owned Economic Group, and not affect the main production and business tasks, and ensure the preservation, development of capital, efficiency and increased income. The level of external investment (short-term and long-term) must not exceed the charter capital, and must allocate at least 70% of the total investment capital to activities in the main business areas of the Corporation and the State-owned Economic Group. Particularly for capital investment activities in the banking, insurance and securities sectors, each sector can only invest in one enterprise and not exceed 20% of the charter capital of the capital receiving organization, but must ensure that the capital contribution of the parent company and subsidiaries in the Corporation and the State-owned economic groups does not exceed 30% of the charter capital of the capital receiving organization. If it exceeds, it must be submitted to the Prime Minister for consideration.

On adding business lines, or investing capital in member companies and enterprises operating outside the main business fields

Corporations and State-owned economic groups are only allowed to do so after obtaining the agreement of the State Capital Owner's Representative.

2.2.3.2 Review and evaluation of capital management and usage mechanisms

Thus, in general, the regulations on capital use in corporations and state-owned economic groups are quite strict, both creating conditions to enhance the autonomy and self-responsibility of corporations and state-owned economic groups and strengthening the inspection and supervision of the State Capital Owners' Representative. Financial regulations on capital management and use in state-owned economic groups have many positive effects:

Through studying the above regulations with the actual application at the Corporations and State-owned economic groups, it can be seen that this is a regulation that has a positive effect in removing difficulties in financial management at the Corporations and State-owned economic groups, helping these units handle internal financial issues with a solid legal basis, contributing to promoting the production and business activities of the Corporations and State-owned economic groups.

The report of the National Assembly Standing Committee's Supervisory Delegation implementing the National Assembly's supervisory program affirmed that in the context of an unstable economy with fluctuations in supply and demand of goods and prices; many economic groups have played the role of regulating the market, stabilizing prices, contributing to curbing inflation and stabilizing the market.

However, the report also affirmed that with the initial limited State capital, it could not meet the requirements for expanding production and business development, and the charter capital was almost not adjusted or supplemented in a timely manner. Corporations and General Corporations proactively mobilized capital, diversified ownership forms in member companies to take advantage of development resources, creating motivation.

force for other economic sectors to participate in investing and implementing important investment projects. An example is that the total equity of corporations and general companies in the agricultural group all tend to increase, and equity increased quite rapidly in the two years 2009-2010. The ratio of total liabilities to equity of corporations in the agricultural group is basically within the safe threshold. Specifically, in 2009, this ratio was 2.74 times, in 2010 it was 2.33 times. Some recent studies show that this ratio of economic corporations in the world is 1-3 times. Besides the corporations and general companies in the agricultural group developing in a positive direction, the report also points out some limitations of some corporations and economic groups operating in the construction sector and in the production and business sector. The report stated that these corporations and economic groups operate thanks to bank loans, unreasonable financial structures, easy to create risks in cash flow balance, liabilities are many times higher than equity, so the ability to pay is not guaranteed, affecting the stability and development of corporations and state economic groups. Some corporations and economic groups have losses in member units, which have negatively affected the overall efficiency of production and business activities, such as in 2009, the General Corporation for Machine Installation incurred a loss of 68.75 billion VND, the General Corporation for Traffic Construction 4 incurred a loss of 52.52 billion VND... These are the general features of the implementation of financial management regulations in corporations and state economic groups issued under Decree 09/2009/ND-CP in terms of capital management and use. In-depth research and analysis of the content of the management and use mechanism of state capital at state-owned economic groups in recent times has revealed the following issues:

On capital management mechanism:

The existence of state-owned enterprises in general and state-owned economic groups in particular with the subsidy mechanism existing for too long through policies makes the management role of state-owned enterprises in particular difficult.

The State's management of state-owned enterprises and state-owned economic groups is understood in a "distorted" way, not in accordance with its true nature. According to the Enterprise Law from July 1, 2010, all enterprises operate in an equal legal environment, but for state-owned enterprises and state-owned economic groups, the management mechanism still exists as a separate law. The management mechanism, often called the "request-grant" mechanism, has invalidated legal regulations for state-owned enterprises. Thanks to this mechanism, state-owned enterprises and state-owned economic groups, following the "management law", develop enterprises and multi-sector and multi-sector economic groups, increase their scale, establish subsidiaries, request land, and request loans freely. The management agency even guarantees foreign loans for enterprises and groups regardless of strict regulations on credit and financial safety. And it is this mechanism that confuses the implementation of the ownership function for state capital and the state administrative management function in state-owned enterprises and state-owned economic groups. The sector management ministry both contributes capital to enterprises and state-owned economic groups for business purposes, manages and supervises the activities of enterprises and state-owned economic groups, and develops policies in that field, so it cannot ensure transparency and the ability to fight corruption in management.

In addition, the current decentralization mechanism in the implementation of the rights and obligations of the state owner makes enterprises and state-owned economic groups have many owners: the Prime Minister, the Ministry of Industry Management, the Provincial People's Committee. In addition, there are ministries managing and allocating capital such as the Ministry of Finance, the Ministry of Planning and Investment, ministries managing human resources and labor such as the Ministry of Home Affairs, the Ministry of Labor, War Invalids and Social Affairs, that is, there is no specialized agency responsible for managing, monitoring, synthesizing the situation of capital management, use of state capital, accurately analyzing the efficiency of capital use in enterprises and state-owned economic groups.

With this capital management mechanism, the inefficiency will certainly not be improved much because the number of state-owned enterprises,

The number of state-owned economic groups using state capital is still too large (by the end of 2010, there were about 4,000 equitized enterprises with state capital) and the owners cannot control all the specific activities of the enterprises and economic groups. In reality, each owner manages hundreds of state-owned enterprises, including state-owned economic groups, and each enterprise and state-owned economic group has thousands of large and small projects. Therefore, with this management method, it is difficult to avoid the consequence of not being able to control the state capital business situation in enterprises and economic groups (Vinashin is a typical example of capital management).

The current capital management mechanism also does not clearly show sanctions for organizations and individuals assigned to exercise ownership rights, but only sanctions for enterprises and state-owned economic groups. The owners are representatives of the management agency working periodically, so after the end of their term, will they be responsible for their decisions? This is not clearly stated in the capital management mechanism.

About investment decision

According to the parent company - economic group model currently applied in Vietnam, economic groups in general have the following authorities:

- 100% new investment in companies 100% owned by the Group, or companies that have or will have controlling capital of the Group.

- Invest in production and business development in the above companies.

- Investment in affiliated companies as well as future capital increases or decreases.

Thus, according to the current financial management charter and through reality, the State-owned economic groups, with the title of 100% state-owned, have been granted very broad powers. The huge assets of many State-owned economic groups are land, natural resources along with privileges in power (currently 11 economic groups hold up to 30% of total asset value, 51% of total equity and nearly 40% of labor).

State-owned economic groups are often in an advantageous position because they have assets, which is the basis for investing in different projects according to the authority prescribed in the management charter of the State-owned economic group.

As an independent accounting unit, but almost all large and small investment decisions of companies in the State-owned economic groups depend on the decisions of the State-owned economic groups' management board. There is still an ambiguity between the role of the investment owner and the role of state management, leading to the possibility of subsidiaries being "interfered with", while subsidiaries always have the idea that asking for "subsidies" in policy is more secure. With the trend of establishing subsidiaries under the State-owned economic groups, the possibility of overlapping investment among affiliated companies is likely to happen - overlapping investment is the fundamental cause of conflicts of interest within a group itself. In addition, each time a corporation is widely established, the possibility of decentralization in the State-owned economic groups is inevitable. Therefore, it is difficult for State-owned economic groups to control centrally.

On project funding within and outside the industry

From the perspective of the parent company with the assigned authority, the State-owned economic groups can freely decide on the initial investment capital for the projects of the 100% subsidiary, the company in which the State-owned economic group has a controlling stake. Even in the case of borrowing capital with size and prestige, the State-owned economic group can still easily find large sources of capital, long term, low interest rate. Here, if considering the case of borrowing capital from subsidiaries, most of the authorized subsidiaries have certain authority in signing loan contracts with financial institutions.

Currently, for investment projects, it is still quite common for capital participation to take place within the State-owned economic groups: State-owned economic groups invest in subsidiaries, companies contribute capital to each other, and subsidiaries contribute capital together with the parent company. Subsidiaries also have full authority in borrowing capital from central and local banks.

Comment