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Are Vietnamese enterprises strong enough?
State-owned enterprises (SOEs) hold the lion’s share of State funding (up to VND402,800 billion) and their production and services make up about 40 percent of the country’s gross domestic products (GDP). The open question is whether or not their performance is really efficient.
Behind the debt lies the equity
The ratio of debt over equity of the SOEs and State corporations has reached an alarming level – US$28 billion, accounting for 34 percent of GDP. The official figures released by the Board for SOE Renovation and Development is about 1.36 percent on average. In fact, however, many large economic groups have owed big debts. For example, the ratio of debt on the capital investment of the Electricity of Vietnam Group (EVN) is VND80,000 billion on VND 155,000 billion.
According to the EVN leaders, this is normal for such a large economic group as EVN with a ratio of 60 percent debt and 40 percent of equity.
They argue that the Vietnam Machinery Installation Corporation (LILAMA)’s debt is much higher. But the Board for SOE Renovation and Development says the LILAMA’s possible return on investment is 14 percent and its revenue/expenditure ratio of projects is more than double - these two factors indicating a sound economic growth.
Everyone still remembers the Asian financial crisis 11 years ago. The main reason was attributed to the poor capital management of many large corporations, particularly those funded by the Republic of Korea. At that time, the debt and equity ratio of many economic groups was 20 percent against the safe benchmark of 3 percent.
Investing outside of the main business lines
Many State corporations and economic groups have spent large sums of money investing in businesses not within their capability like finance, banking, securities and real estate (estimated at VND7,370 billion or 2.16 percent of their equity). Though the figure is still within the acceptable margin, their performance efficiency is another thing. For example, 19 economic groups have invested more than VND4,400 billion in setting up their own banks, not in their main business lines.
Faced with such a situation, the Government has ordered State corporations and economic groups not to invest more than 30 percent of their equity in businesses beyond their sphere of operations.
In carrying out the Prime Minister’s instructions, the Vietnam National Textile and Garment Group (VINATEX) has recently withdrawn its decision to enter a partnership with other corporation to form a bank. The Vietnam Oil and Gas Corporation (PetroVietnam) has adjusted its shares in a new bank.
Economic groups incur huge losses
In the first six months of 2008, the 74 State corporations and economic groups nationwide possessed a total capital of VND403,000 billion. Pre-tax profit was VND76,000 billion, accounting for 53.5 percent of the plan. But not all of them were successful and many even suffered losses. The most serious ones were PetroVietnam (VND900 billion) and Vietnam Airlines (VND83.5 billion). The estimated losses incurred by the EVN were just as bad money.
Of course, for some SOEs, their operational losses were due to the Government’s order not to raise the prices of their products in order to help stabilise the market while input costs kept rising. Among such SOEs were PetroVietnam and the EVN.
The Government has made it clear that it only subsidises some essential material inputs while calling on all economic entities to improve their management skills and performance efficiency.
Deputy Minister of Finance Tran Xuan Ha says that rising input costs as a result of runaway inflation are making many enterprises worry about how to operate well in the long run.
The efficiency of major economic groups or State corporations can be evaluated through their investment profiles. After reviewing the current status of investment projects, some 609 projects expected to get underway in 2008 have been scaled down to save a total capital of VND34,190 billion, with the Vietnam Shipbuilding Industry Corporation (Vinashin) cutting VND6,500 billion; Maritime Corporation VND6,179 billion and the Vietnam Oil and Gas Corporation VND6,000 billion.
In reality, the equity of many enterprises comes from different sources, including credit with the Government playing the guarantor’s role. So they have to think about paying back high-interest loans. If their production efficiency is low, they will impose a heavy burden on the national economy in the future.
It is high time that Vietnamese economic groups, SOEs and State capital management bodies reviewed their performance, particularly project appraisals.
The Board for SOEs Renovation and Development has suggested that in the remaining months of 2008, in addition to canceling projects which are not on the priority list, enterprises must restructure their production lines in order to achieve higher productivity.
VOV
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