As Vietnam is in the process of developing its economy by more than 6% this year, thanks to foreign investment in manufacturing for export, it’s easy to forget that a Communist Party still heads this country from Southeast Asia and, in fact, many of its larger companies. But the government has also sought to restructure the economy, which involves the privatization of many state-owned enterprises. Vietnamese officials hope companies such as Vietnam Airlines, Sabeco brewer (Saigon Alcohol Beer and Beverages Corp.) and many others will become more efficient and make more money.
The government can then use these funds to finance infrastructure projects to attract more foreign investment. In addition, through the Trans-Pacific Partnership’s trade agreement with 11 countries, Vietnamese domestic firms will soon be subject to a new set of international rules as well as increased competition from abroad as a result of tariff reduction and customs. The government is seeking to equitize 127 SOEs between 2017 and 2020, more than half of which are expected to materialize next year through other initial public offerings. The government’s divestment campaign has already brought in about $ 7 billion over the past three years. The trend of divestments is likely to continue in five to ten years.
Half of the largest companies in the Ho Chi Minh City stock market, in terms of market capitalization are still controlled by the state. Among the most heavily supervised Crown corporations are the subsidiaries of oil and gas company PetroVietnam, which raised the modest and promising $ 320 million earlier this year through an IPO. The attractiveness of the company for investors includes its scale and the constant demand of consumers for its main products. In the same sector, Binh Son Refining and Petrochemical Joint Stock Co. totaled $ 244.5 million at an IPO in January. The opening of domestic Vinamilk dairy companies to foreign investments since 2016 has also catalyzed the interest of private shareholders in previously public companies.
The total proceedings from IPOs and divestments of state-owned enterprises generated $ 6.3 billion in 2017. When telecoms start selling government interest and banks allow more foreign investors to buy shares, investors are expected to increase their interest. The number of state-owned companies has grown from 10,000 after their creation in the 1980s to less than 1,000 in 2015. Another 3,000 enterprises belonged in part to the state. State-owned enterprises accounted for about one-third of the Vietnamese economy.
The benefits of investing in transition-oriented Crown corporations, however, require some talent. SOEs sometimes publish too little information, sell their shares only to their friends or ban foreign investors despite the legal lifting of these bans. As it stands, investors may only have a few minutes to decide whether to buy shares rather than a chance to gauge the valuation of a share offering. The lack of transparency, the lack of advertising, the lack of information makes it a bit confusing at the moment. The state agenda is also changing at times more slowly than private investors expect. The government has forecast 135 disinvestment cases in 2017 and 181 in 2018.
Pressure for Privatization
Vietnam’s ratification of the Global and Progressive Trans-Pacific Partnership, a free trade agreement with 11 countries, forces the country to liberalize the public sector. A forthcoming trade deal with the European Union could increase pressure for these reforms. Over the next decade, a gradual transformation, greater competition in the public sector is expected because they must abide by the terms of the trade agreement. The state needs money to sell its shares in companies and buy new roads and railways, helping to attract more foreign exporters to Vietnam. The government finally wants the private sector to take the lead in some industries, like those in South Korea and other developed Asian economies such as Japan and Taiwan.