Equalization and Private Investors

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Asia Pacific: Trading and Thriving

Grant Thornton Vietnam, Chairman’s Insight

The first project I was involved in as project director to assist the Vietnamese Government to speed up equitisation or privatization as we know it in the west, was funded by the Asian Development Bank in the year 2000. At that time there were over 12,000 State Owned Enterprises (SOE) in Vietnam.

At last, some of the so called SOE “gems” are surfacing as the Government wrestles with the fiscal deficit and shortages in some sectors, which require urgent and significant investment.

After several years of discussion, Vietnam is now liberalizing the power sector as power shortages are forecasted to become a reality. Massive additional investment is required in order to meet future demand. The Government of Vietnam expects electricity consumption to grow between 10-12% per annum from now until 2020. This is due to an increase in manufacturing and foreign investment into manufacturing, which has doubled over the last 4 years, accounting for 50% of the total demand. Additionally, installed capacity is expected to grow 4.6-10% per annum over the same period.

As a result of this and limited funding from the State Budget we are starting to see a liberalization of the power sector with IPO’s scheduled for major players including PV Power, EVN Generation Corporation Number 3, and Binh Son Refining and Petrochemical company Limited. The Government however still plans to hold a minimum of 51% in these entities.

The beer sector has long been of interest to foreign investors, as Vietnam represents the largest Southeast Asian beer market. Recently, plans have been announced for the sale of shares in Saigon Alcohol Beer and Beverages Corporation (“Sabeco”). Hanoi Alcohol Beer and Beverages Corporation (Habeco) is also waiting in the wings. It appears in the case of Sabeco a majority of the shares will be an IPO offering, even though shares are considered to be at an inflated price.

Overall, the equitization of State Owned Enterprises in non-strategic sectors must be seen as positive and long overdue. These will generate funds to assist the Government in managing the fiscal deficit and bring private sector expertise, and hopefully best international practices to these SOE companies.

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