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SOEs’ non-core investment remains puzzled
The Ministry of Finance (MOF) is attempting to reduce the percentage of non-core investment that state owned enterprises (SOEs) can make from 30 percent to 15 percent. However, it has been warned that this is really a difficult task.
15 percent instead of 30 percent
MOF is drafting the decree on the state owned capital management and investment, attempting to reduce the percentage of capital SOEs can invest in non-core business fields to 15 percent from the current level of 30 percent.
SOEs’ non-core investment has become a hot topic recently, especially after many state owned conglomerates have been found as injecting too much money in the fields where they do not have business advantages and experiences, which may cause big risks to the enterprises.
The Government, in an effort to set a limitation on SOEs’ non-core investments, released the Decree No 09, stipulating that SOEs must not use more than 30 percent of their capital to make non-core investments.
However, the decree has become no longer valid since July 1, 2010, because the decree was based on the 2003 State owned Enterprise Law which has expired when the 2005 Enterprise Law took effect. Therefore, one can understand that there is no limitation on SOEs’ non-core investments.
Experts have warned about the lack of the legal framework on SOEs’ investments and urged government agencies to compile a legal document on the issue. However, to date, no such a document has been promulgated.
In order to quickly reduce the non-core investment percentage to 15 percent as planned by MOF, the government and the ministry are urging SOEs to cut down 50 percent of their non-core investments, especially the investment deals in the fields of banking and finance.
Pham Nguyen Hanh, Deputy General Director of the Vietnam Textile and Garment Group (Vinatex), on one hand, admitted that it is necessary to set a cap on SOEs’ investment, on the other hand, said that it is not easy to withdraw capital from investment projects in the current conditions, when the stock market keeps falling.
Hanh stressed that if SOEs still insist on selling stakes at this moment to withdraw capital; this will bring big losses to the state. Therefore, SOEs should be given more time and detailed roadmap for the capital withdrawal.
MOF has said that in case SOEs cannot withdraw capital from the investment projects, they must transfer the investment deals to the State Capital Investment Corporation SCIC, a powerful corporation, which specializes in making investment deals with state’s capital.
What does “state’s capital” mean?
According to Dr Doan Xuan Hoa, Deputy Director of the Economics Department under the Government Office, SOEs are now holding big national assets which include 70 percent of the total fixed assets, 20 percent of the total investment capital of the society, 60 percent of bank credit and 70 percent of ODA (official development assistance) capital.
However, though believing that SOEs are holding more than 50 percent of the state’s investment capital, it is still unclear what “state’s capital” means.
“We do not know if the loans from the development bank, the loans guaranteed by the government, and other types of assets, such as land, could be considered “the state’s capital”,” said Hanh from Vinatex.
With the current capital investment mechanism, when companies inject money in subsidiaries, this is considered a kind of investing state’s capital in enterprises. However, MOF thinks that the concept is unreasonable because the capital used in the investment deals could be the money borrowed by the holding companies.
Also according to MOF, there are still many existing problems in the state’s capital management. Regarding the capital investment mechanism, the Decree 132 stipulates that the State is the owner of state owned enterprises who has the right to make decisions on investing in other companies, in accordance with the Enterprise Law.
Meanwhile, the Investment Law said the investment with the state budget must be carried out through SCIC.
vietnamnet, SGTT
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