Vietnam’s SEO Reform Efforts Get US$630 Million

12.15.09 – The Asian Development Bank (ADB) has approved US$630 million in financial support for Vietnam to further reform its state-owned enterprises (SEOs). The multi-tranche financing facility will help an effort to make SEOs more efficient, profitable and transparent in order to spur economic growth and open up opportunities for the private sector.

The government has been equitizing SOEs since 1992, but the process has been relatively slow and confined to smaller institutions. The financial support will make SEOs that are going concerns more attractive to strategic and other outside investors. The program will also provide training and other assistance to government bodies involved in the SOE reform process.

ADB’s announcement is timely in relation to a resolution recently approved by the National Assembly (NA), the lawmaking body of Vietnam, to dissolve poorly performing SEOs. The NA acknowledged that, although most SEOs had contributed to the economy and fulfilled assigned tasks, many failed to operate effectively despite government investments and preferential treatment.

The NA’s Standing Committee stated that 45 percent of 91 state-owned institutions posted equity returns of less than 10 percent while 25 percent had returns of less than 5 percent and others posted negative returns. Nearly 50 SEOs invested a total of VND21.16 trillion (or US$1.19 billion) into non-core sectors such as banking, insurance, real estate and stock, most of which were not profitable.

ADB’s financial support make up almost 36% of the estimated US$1.77 billion cost of SOE transformation that is expected to be incurred from 2009 to 2015. The remaining balance is to be financed from government contributions, internal resources of participating general corporations and strategic investors.