Vietnam making room for private sector

Recent moves by bureaucrats and politicians have local financiers hopeful that the government will limit state involvement in key sectors.
Nguyen Tan Dung's remarks have generated some buzz in Hanoi and Ho Chi Minh City.
Nguyen Tan Dung's remarks have generated some buzz in Hanoi and Ho Chi Minh City.

Nguyen Tan Dung, Vietnam’s prime minister, during a late-September visit to New York said the government would move ahead with plans to sell stakes in the country’s top state-owned enterprises.

This followed a meeting on September 17 in Hanoi, in which the State Securities Commission formally recommended to the Ministry of Finance that foreign ownership limits be raised on many listed companies and banks. It is now up to the finance ministry to agree and pass on the recommendation to the state council.

Although many bankers are benchmarking progress around the pipeline of mooted privatisations among state-owned enterprises, the longer-term story is that Vietnam’s growing private sector will find increasing opportunities to expand into new areas of business.

Given the opaque nature of Vietnamese politics, and the government’s poor track record at privatisation, it is difficult to know where policy decisions and deal opportunities will head. But Dung’s remarks have generated some buzz in Hanoi and Ho Chi Minh City.

They come on top of a formal review of the country’s constitution, which was adopted in 1992. The review process began last year and the state council is now hammering out the final draft. From the get-go, the most contentious idea has been to remove the clause saying the state sector must play the “leading role” in the economy.

In New York, Dung renewed the commitment to SOE privatisation, without giving deadlines or details but, more importantly, he called for SOEs to act in a market economy and be treated the same as private companies.

This has led to hopes in Vietnam that this means the constitutional review will indeed change the official stance toward state activity. While privatisation is one aspect of this, the more significant development could be for Vietnam’s top private conglomerates to become more involved in areas where the state limits its reach.

“That’s a more exciting prospect than whether they sell shares in Vietnam Airlines, which nobody really wants to buy anyway,” says Dominic Scriven, chief executive officer at Ho Chi Minh City-based investment firm Dragon Capital Group.

The signal that investors and financiers are looking for is raising restrictions on foreign ownership of banks and listed companies. Prime Minister Dung has affirmed the need to do this for banks, and the State Securities Commission (SSC) is pushing for new rules.

Kevin Snowball, director of HCMC-based PXP Asset Management, said the regulator proposes foreigners in aggregate be allowed to own up to 49% of Vietnamese banks, up from the current 30%. (There is also today a maximum of 20% that any one foreign institution may own in a local bank.)

That would help, although investment bankers do not see much interest by international banks to own one in Vietnam, and the big Japanese players have already bought stakes. Moreover, to entice new foreign buyers into local banks will require a more transparent restructuring of their dud assets, such as real estate projects that went on the balance sheet during Vietnam’s bubble years in the mid-2000s.

The SSC is also calling for the creation of a new tier of “sensitive” stocks, which would include sectors such as telecoms. This would make it easier to allow foreigners to increase their holdings in other, non-sensitive stocks. The SSC is proposing that limit go from 49% today to 60%, enabling control of listed companies. (Foreigners can already own 100% of privately held companies that are not in sensitive sectors.)

This is likely to generate more excitement. Prime Minister Dung has gone part way in acknowledging the need for more robust liberalisation. The ball remains in his court.

¬ Haymarket Media Limited. All rights reserved.
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