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New opportunities from state owned enterprises in Vietnam

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Moncrieff Adam
Adam Moncrieff

Partner

Ho Chi Minh City

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Wall Nick
Nick Wall

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Tokyo

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Duc Tran

Senior Partner, Vietnam

Ho Chi Minh City

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04 July 2014

​The government of Vietnam has recently introduced legislation which amends the minimum shareholding limits that the Vietnamese government is required to hold in State-owned enterprises (SOEs). We expect that this new legislation will open more opportunities for private investors to invest in equitised SOEs in Vietnam.

Decision 37 highlights

The government issued Decision 37/2014/QD-TTg on the criteria for the classification of SOEs (Decision 37) on 18 June 2014.  The main purpose of Decision 37 is to reduce the number of sectors where the State is required to be a majority or sole shareholder and to encourage private investment.  Decision 37 comes into force on 6 August 2014 and will replace Decision 14/2011/QD-TTg issued on 4 March 2011 (Decision 14).

Private investors may now invest in a number of other sectors in which they were not previously permitted to under Decision 14, including the management of airports and seaports, cigarette production, TV and radio broadcasting.

In relation to the sectors that were required to be wholly state-owned under Decision14, Decision 37 sets out four categories setting out the state ownership requirements, namely: (i) 100%; (ii) 75% or more; (iii) from 65% up to 75%; (iv) from 50% up to 65%.

The amount private investors can hold in SOEs in the sectors above will be decided on a case-by-case basis and may require government approval.  It is worth noting that Decision 37 allows the Prime Minister to approve a lower shareholding limit to be held by the Government in special circumstances – although what constitutes special circumstances is not yet clear.

  • First Group: 16 sectors in which the State is required to retain 100% ownership, including the manufacture and supply of toxic chemicals and industrial explosives; electricity transmission; the management of railway systems, irrigation systems and air terminals that are important to national defence and security; banknote and coin production; public postal services; and the national lottery.
  • Second Group: seven sectors in which the state must hold at least a 75% stake, including oil, gas and large-scale mineral exploitation; the provision of telecommunication infrastructure; the management of inland roads and waterway systems, sea ports and air terminals (which are not included in the first group).
  • Third Group: eight sectors in which the state must hold a greater than 65% but less than 75% stake, including petroleum and natural gas processing; cigarette production; coffee and rubber planting and processing in mountainous and strategic areas; petroleum, gas, food and medical drug wholesaling; finance and banking; electricity distribution; and aviation transportation.
  • Fourth Group: nine sectors in which the state will hold a more than 50% but less than 65% stake, including public services for urban lighting, water supply and drainage sewerage, environment protection and waste collection; international sea and railroad transportation; production of basic chemicals, chemical fertilizers and insecticides; and coffee and rubber planting and processing in areas other than those in the third group.

The issuance of Decision 37 is the latest in a series of efforts by the government to accelerate the privatisation of SOEs to take advantage of the current recovery in the stock market in Vietnam.  The VN Index rose by 22% in 2013 and then by a further 19% in the first quarter of 2014.  In February 2014, the government announced an ambitious plan to complete the IPOs of 432 SOEs by the end of 2015, including flagship SOEs such as Vietnam Airlines, Mobifone and the Vietnam Textile and Garment Group.  The government has also allowed, for the first time, the sale of shares in SOEs at below par value or below book value in certain circumstances – this means that the government will now be able to fully or partially privatise SOEs that are in financial difficulties.  It has also issued a warning that it will replace or dismiss any officers who are found to be responsible for delaying the privatisation process – a further indication of the government’s intention to speed up the privatisation of SOEs.