Business Beat
(14-04-2008)
State-owned corporations fight to survive
by Pham Hoang Nam
What once seemed like sound financial decisions is turning out to be potentially disastrous for the national economy as State-owned corporations try to maintain solvency despite having invested 37 per cent (US$8 billion) of their capital into real estate, banking and the stock market.
At last month’s meeting with officials from the national government, representatives from the International Monetary Fund (IMF) said State-owned corporations and groups need to focus on their major businesses, and warned that the local financial market is being hurt by small banks.
With high inflation, this investment scheme will leave corporations short on capital for their own needs.
That’s what has happened to the Southern Riverway Corporation, which invested 50.2 per cent of its capital elsewhere, and Ha Noi Transportation Corporation, which channelled 27.5 per cent of its capital into other industries.
Now, both corporations are having difficulties seeking new loans. On top of bad capital allocation, they have to deal with the tightening of monetary and credit policies by the State Bank.
Corporations in the coal, electricity and petroleum industries have made huge profits in telecommunications, finance and banking, but are facing sharp reductions in their own productivity. This could have major repercussions for the national economy and security.
According to estimates, the average corporation makes a profit of 15 to 18 per cent annually. If it invests outside its core business too much, the modest profits would not be enough to compensate for losses from those investments.
To head off a potential disaster that could affect the national economy, Prime Minister Nguyen Tan Dung has asked all state-owned corporations and groups to cap their outside investments at under 30 per cent. Banking groups cannot allocate more than 15 per cent of their capital elsewhere.
The Ministry of Finance will review investments for all state-owned corporations and groups later this month.
Securities competition
The downturn in the Vietnamese stock market will force some of the 100 securities companies to drop out this year.
A bullish stock market in late 2006 and early 2007 led to a mushrooming of securities companies. Many ended the year 2007 with huge profits.
The tide is turning as stock and finance experts predict a wave of sales and mergers this year.
Companies with a registered capital base of VND50 to 300 billion (US$3-20 million) will face fierce competition in attracting customers from stronger companies or companies that have the backing of powerful foreign investors.
These weak companies are looking good for the picking.
In the last two months, there were eight buy-outs by foreign investors who acquired up to 49 per cent of the controlling stake.
If they don’t get bought out, financially troubled companies could face bankruptcy.
Despite the dire circumstances, the State Securities Commission has received more than 20 applications to open new companies.
Big corporations and groups are still investing in the stock market, which is expected to grow 50 per cent annually.
The Dragon Capital Fund predicts that by 2010, the Vietnamese stock market will attract $100 billion with 1 million accounts and 500 securities companies.
Trade deficit
In the first quarter of this year, the trade deficit stood at a shocking $7.36 billion, already 50 per cent of last year’s total trade deficit .
At that rate, the trade deficit could reach a record $28 billion by the end of the year.
On top of that, WTO requirements will force Viet Nam to cut taxes on lots of goods this year and next.
The increased trade deficit means that Viet Nam is importing inflation. Too high a trade deficit will exact a huge cost, causing instability for the national economy.
To prevent that from happening, the government has organised a special meeting with ministry officials to reduce imports and increase exports.
But that’s easier said than done. Export companies are facing a weak dollar and an unbelievably high export target from the government of $59.25 billion.
The Ministry of Trade will submit soon a list of what kind of goods should be imported, limited or banned.
The trade deficit has become a "chronic disease" for a weak economy like Viet Nam.
Airline protests
The Association of Airlines in
Viet Nam has submitted a complaint to the government about the significant increase in airport service and fuel prices.
Starting April 1, all airports increased their service costs four- to nine-fold.
A few days before that, Viet Nam Aviation Petrol Company (Vinapco) announced higher petrol prices. It refused to fill up 30 Pacific Airlines aircrafts because of a dispute between the two parties over the price hike until the government stepped in.
The higher prices dealt a blow to the budget airline, which has been fiercely competing with Viet Nam Airlines by offering lower fares.
The kicker is that the national carrier owns Vinapco and has close relations with all of the airports.
Therefore, the increase expenditures slapped on Pacific Airlines and other airlines have not affected Vietnam Airlines. The carrier could actually gain a competitive edge.
Deputy Prime Minister Hoang Trung Hai on Friday asked the Ministry of Transport not to let the Viet Nam Aviation Petrol Company (Vinapco) interrupt any flight.
Hai asked the ministry to find out who was responsible and submit the findings to Prime Minister Nguyen Tan Dung within this month. — VNS
