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Tightening the reins on amateur investments
In an attempt to prevent state owned conglomerates and general corporations from making heavy investments in non-forte business fields, the Ministry of Finance has suggested applying a new regulation on state-owned enterprises’ financial management, under which their outward investments could not be higher than 30% of total investments.
In the report the Ministry of Finance (MOF) has submitted to the government, it identifies a lot of problems in the investments of state owned corporations and conglomerates.
In terms of capital mobilisation, MOF said that many enterprises have been ‘living beyond their means’ in mobilising capital from different sources. The debts the enterprises have to pay, in many cases, far exceed stockholder equity, which could lead to risks in payment and bad business performances.
The reports made by 70 conglomerates and general corporations show that 30 of them have debt to equity ratios higher than 3, while the figure is over 20 in some corporations.
A lot of economic groups and general corporations have borrowed capital from banks or financial companies to which they contribute capital; therefore, they have received preferences on the loans (no mortgaged asset required, simpler loan procedures).
The ministry has also pointed out that recently, a lot of general corporations and economic groups have made capital contributions to many other businesses and injected money in business fields in which they do not have advantages. Many of them have invested in banks, insurance companies or are trading stocks.
28 cases of making securities investments, setting up securities companies, buying stocks of investment funds, banks and insurance companies have been reported with the total investment of VND23,344bil, equal to 8.7% of stockholder equity and 20% of total outward investments of the corporations.
According to MOF, these prove to be ‘sensitive investment fields’ which may bring high risks to inexperienced companies.
In fact, many enterprises have been using their brand names and intellectual properties to make capital contributions. Meanwhile, there is no regulation about limiting capital contributions with intellectual property, and MOF thinks that it is necessary to put this item on the books.
A suggestion has been made that it is necessary to set up a cap on economic groups’ outward investments in order to minimise risks for the groups themselves and the national economy.
MOF thinks that state-owned conglomerates and general corporations’ investments in main business fields should account for 70% of total investments. Meanwhile, total outward investments, both short-term and long-term, should not be higher than chartered capital.
Additionally, MOF’s draft regulation on state-owned enterprises’ financial management also says that state-owned enterprises’ investment capital in commercial banks, insurance companies and securities companies must not exceed 20% of the chartered capital of the institutions. The provision, if approved, would come in line with the Law on Banks and Credit Institution, Insurance Law and Securities Law.
State-owned enterprises would not be allowed to make capital contributions to or buy stakes of venture funds, securities investment funds and securities investment companies.
State-owned enterprises which have financial investments in other enterprises exceeding the allowed levels would have to adjust their investments within two years after the day the new decree went into effect.
National Assembly’s Chairman Nguyen Phu Trong, in his speech before the National Assembly at the latest session, also emphasised the need to check the investment activities of economic groups.
VNN
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