Transcript New approach to management of State investments in enterprises Pham Phan Dzung Director General Banking and Financial Institutions Department Ministry of Finance.

New approach to management
of State investments in enterprises
Pham Phan Dzung
Director General
Banking and Financial Institutions Department
Ministry of Finance
content
Actual situation
of State investments in enterprises management
International experience
in State investments in enterprises management
New approach to management
of State investments in enterprises
Part I
Actual situation of State investments in
enterprises management
SOEs figures
6.000
5.435
5.450
5.530
5.175
4.800
5.000
4.258
4.000
3.805
3.815
4.036
3.696
Pr o f it abl e SOEs
3.000
To t al SOEs
2.000
1.000
0
1999
2000
2001
2002
2003
SOEs restructuring outcome

By end of July 2004, 2.224 SOEs completed restructuring.
Of which:
• Equitization:

1.412
• Allotment, sale, lease:
199
• Merger, consolidation:
362
• Liquidation, bankruptcy:
102
• Other:
149
Restructuring outcome:
• Additional funds mobilized: VND 3.300 billions (USD 2 bill).
• Annual dividend: 10-15% on average.
• Provide instruments for capital market.
SOEs’ contributions

Play a key role in many important economic sectors:
infrastructure, oil, cement etc.

Contribute considerably to export revenues (SOEs
exports account for more than 50% total export
revenues).

Modernize technology, expand market shares.

Promote economic development.

Contribute principally to the State Budget ( 40% of total
Budget revenues )
SOEs weakness

Moderate growth rate, inefficient use of capital.

Small in size ( 60% of SOEs with less than VND 5 bil ~
USD 300.000 in capital), inappropriate capital structure.

Weak competition capability.

Failure of many SOEs to preserve State investments,
sometimes loss of State owned assets.

Bad debt reduced but still remain high (about VND 4.900
bill. ~ USD 300 mil).

Low technological
equipments.
capability,
outdated
machines,
Regime for management of State investments in
enterprises

Ownership representative
enterprises:
• The Government.
• Ministries, line ministries,
committees.
• Ministry of Finance.
• Board of Management

of
State
investment
in
cities and provincial people
Some limitations:
• Ownership and management not separated.
• Discouragement
of
enterprise’s
independence
and
responsibility.
• Inconsistent management, involvement by various authorities
in investment decision
• Inefficient, overlapping and stretching investments.
Principles of corporate governance





Promote transparent and efficient markets, consistent
with the rule of law
Clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement
authorities .
Protect and facilitate the exercise of shareholders’ rights,
encourage active co-operation between corporations and
stakeholders .
Disclose timely and accurately all corporate matters.
Ensure the strategic guidance of the company, the
effective monitoring of management and
board’s
accountability to the company and the shareholders.
Part II
International experience in managing
State investments in enterprises
China experience

Establish a State owned assets investment enterprise.

Functions:
• Act, on behalf of the Government, as the owner of State
investments in enterprises
• Appointment and removal of enterprise’s key leaders
• Participation in enterprises’ important solutions.
• Management of revenues generated by the investment to
reinvest into the same enterprise or invest elsewhere.
• Supervision of
situation.
enterprises’ performance and financial
SINGAPORE experience






Temasek was created in 1974 to manage State investments
in enterprises.
Directly under control of Singaporean Ministry of Finance
and not influenced by line ministries except State
Administration.
Management through appointment of removal of
enterprises’ director.
Approval of business plan, evaluation of business and
financial reports.
Investment in 21 enterprises (called first layer enterprises)
of which 7 have already been listed in the Stock Market.
Enterprises invested by Temasek account for 10.3% of
Singapore GDP.
SINGAPORE experience (cont.)

Operating capital:
• Initial funds allocated by
investments in enterprises.
the
State,
added
by
State
• Reception and management of State shares in equitized
enterprises.

Investment fields:
• Group A: important sectors or sections (infrastructure,
electricity, airport, seaport): 100% State owned or controlling
shareholding by the State.
• Group B: domestic and foreign enterprises with promising
perspectives.
TEMASEK’s assets
Infrastructure and
techniques
SGD 4 bil.
Technology and
other
SGD 12 bil.
Transportation
and logistic
SGD 12 bil.
Real estate
SGD 5 bil.
Energy and natural
resources
SGD 6 bil.
Temasek’s
investment
portfolio
Media and
telecommunic
ation
SGD 32 bil.
Financial
services
SGD 19 bil.
Contribution of enterprises invested by
TEMASEK to GDP
Contribution to Singapore GDP = 10.3%
Other sectors (including SMEs
and enterprises in promising
sections)
33.5%
Enterprises in alignment
with government Enterprises invested by
Temasek
2.4%
10.3%
SOEs
8.7%
MNC
45.1%
Part III
New approach to management
of State investments in enterprises
New approach



Establish a State Financial Investment Corporation (SFIC)
to exercise ownership representative of State
investments in enterprises.
Legal base: Law on State Enterprises.
Objectives:
• To switch over from administration based regime to
investment based regime,
• To collectively manage State investments in enterprises,
hence improve capital use efficiency, preserve and increase
State investments in value term,
• To separate State Administration from business management,
• To speed up SOEs restructuring process,
• To facilitate stock market as well capital market development.
SfiC's Role

As an investor, maximize State investments value.

Active shareholder of enterprises partly or wholly
invested by SFIC

Facilitation of a sound corporate management
sustainably bring value to shareholders.
to
Establishment direction

Organizational structure :
• SOE with Board of Management, regulated by Law on State
Enterprises.
• Establishment upon Prime Minister’s decision.

Investment principles:
• To develop strategically important sectors of the economy
which have great impact on economic development.
• To develop highly efficient and profitable economic sectors.
• To modernize enterprises’ technology and enhance its
competition capability.
Establishment direction (Cont.)

Investment form:
• Direct investment: investment into restructured SOEs or
capital contribution to create new enterprises.
• Indirect investment: purchasing of stocks or bonds in Stock
market.

Investment methods:
• Maintain State ownership in enterprises operating in important
sectors.
• Disinvest from enterprises no longer appropriate or no longer
of strategic importance through sale or assignment of shares.
• Sell out all of its shares or liquidate unprofitable enterprises.
Establishment direction (Cont.)

Capital management procedure:
• Investment list construction
• Investment management decentralization (between board of
Management and General Director)
• Risk analysis
• Investment decision
• Disinvestment decision
Investment procedure and decision
making
Macroeconomic
analysis
Sectorial
analysis
Corporate
Analysis
Detail
Investment
Examination decision
Governance/
Supervision
Risk analysis
Main risks
Credit
risk
Market
risk
Liquidity
risk
Operational
risk
Other
risk
Thank you
for your attention!