VIETNAM Capital preservation regulations slows down capital withdrawal process

Capital preservation regulations slows down capital withdrawal process

While the government has forced state owned economic groups to withdraw capital from other companies to gather their strength on forte business fields, worries have been raised that the process may go slowly because of the current regulations.

State owned conglomerates all have shown their determination to withdraw capital from other business fields, especially finance and securities, to focus on their main business fields.


Vinachem, a chemicals manufacturer, for example, has sent a dispatch to its subsidiaries, telling them not to make investment in non-core business fields and withdraw the distributed capital from other companies as soon as possible.


The big corporation plans to withdraw all of its capital from the Vietnam Trade and Industry Securities Company, Bao Minh insurance and Vinachem finance company.


However, analysts have warned that the state owned conglomerates have just made a vain business, saying that the capital withdrawal process would meet big obstacles due to the currently applied mechanism.


Deputy General Director of the Electricity of Vietnam EVN Dinh Quang Tri also said EVN has kicked off the plan to withdraw capital, but no progress has been made.


Under the current regulations, the state’s capital to be put for sale must not be lower than the value in books. Meanwhile, the stock prices have been decreasing dramatically, which makes it nearly impossible to find the buyers who accept to buy shares at high prices.


“Some investors want to buy the capital contributed by EVN to other enterprises. However, they only accept the prices which were lower than the capital invested before by EVN. Therefore, we still cannot transfer our stakes,” Tri said.


A businessman, who asks to be anonymous, has also commented that no state owned enterprise (SOE) manager would dare to sell stakes at this moment to take back capital, because the stocks are now dirt cheap.


“Selling stocks right now means that SOEs would incur loss with the financial investment deals, which means that they violate the current regulations on financial management,” he said.


“SOEs’ managers themselves do not want to sell stakes now, because they fear they would have to take responsibility for the sales,” he continued. “If the managers sell stocks today at low prices, and the prices unexpectedly increase sharply tomorrow, they would be disciplined for the loss of state’s assets.”



As such, the “supreme principle” in the SOEs’ financial management mechanism is that it’s necessary to ensure that the state’s capital can be preserved in all cases.


However, economists have pointed out that the principle proves to be unreasonable in a market economy. All investment deals bear risks, and it would be a quite normal thing if the State has to sell stakes at a loss.


Former Minister of Trade Truong Dinh Tuyen, who was once the Secretary of the Nghe An provincial Communist Party’s Committee, recalled that the same situation was seen in Nghe An.


“The enterprise incurred big losses. Therefore, I decided to sell it at a loss of 22 billion dong,” Tuyen recalled one of the cases.


“This was a right decision. If it had not been sold immediately, the State would have incurred even biggest loss, or would have lost all of its capital. Meanwhile, the enterprise, after the ownership transfer, has been profitable,” he concluded.


In fact, the phrase of “preserving state’s capital” has been interpreted in different ways. “When the stock market gets bustling, an SOE makes profit when selling stakes at 13-14 dong, higher than the purchase price at 11 dong. Does this mean that the capital is preserved in this case?” questioned Deputy Minister of Finance Tran Van Hieu.


“Vice versa, the SOE can sell stakes for 8 dong only. Does this mean that the SOE has lost the state’s capital?” he continued.

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