ABSTRACT State-owned enterprise SOE divestment in Vietnam is the process of converting state-owned enterprises into joint-stock enterprises, in which a part of state capital is sold to d
INTRODUCTION
Context
Since the early 1990s, the Vietnamese government has prioritized the reduction of state-owned enterprises (SOEs) through restructuring, mergers, closures, and divestment, mainly focusing on medium-sized and small SOEs This approach has yielded initial positive outcomes, with shareholding reform and privatization emerging as key policy directions for both the Party and the State These strategies are crucial for restructuring, fostering innovation, driving development, and enhancing the efficiency of these enterprises.
For almost thirty years, shareholding reform and divestment have transformed the ownership structures of state-owned enterprises (SOEs), drawing in both domestic and foreign investment This shift has enabled businesses to operate with greater autonomy, improve their competitiveness, and play a significant role in modernizing the economy.
Shareholding reform initially targeted smaller state-owned enterprises (SOEs) in non-core sectors, allowing the state to reduce its ownership These early initiatives were conducted through a closed internal process, with shares being sold at their face value.
The scope of shareholding reform has broadened to encompass vital economic sectors, including large-scale state-owned enterprises (SOEs) in banking, insurance, telecommunications, aviation, maritime, oil and gas, and food services This reform process has adopted a more transparent implementation strategy, featuring initial public offerings (IPOs) that are conducted through extensive auctions and public listings.
Despite advancements, the government's significant stake in various sectors restricts attention to critical areas The slow pace of state capital divestment hampers efforts to meet goals related to restructuring, innovation, development, and enhancing efficiency in state-owned enterprises (SOEs).
The shareholding reform and divestment process has faced serious legal violations and negative incidents, resulting in substantial economic losses, mismanagement of assets, and harm to the reputation of state-owned enterprises (SOEs).
Between 2011 and 2016, government inspections revealed five common violations in the Party-State's shareholding reform policy, including improper financial management, preferential share sales to officials and employees, incomplete asset valuations during initial public offerings (IPOs), inaccuracies in contributions to restructuring funds, and mismanagement of support funds related to shareholding reforms.
The challenges faced in shareholding reform and divestment have impeded progress and confidence, particularly for large-scale state-owned enterprises (SOEs) in Vietnam To advance this reform, it is crucial for researchers, managers, and relevant agencies to tackle both theoretical and practical issues As a developing country, Vietnam requires significant capital for socio-economic development and infrastructure improvements, making the divestment of SOEs a priority for the government As a public policy student, I have chosen to explore this important topic.
This thesis evaluates the divestment process at Saigon Beer Alcohol Beverage Corporation (Sabeco) and extracts valuable lessons for other state-owned enterprises (SOEs) By analyzing Sabeco's successful case, the research aims to propose strategic policy recommendations that can enhance the divestment outcomes for SOEs, ultimately enabling the State to generate increased capital for socio-economic development.
Purpose and requirement of SOEs divestment
State-owned enterprises (SOEs) are defined as businesses where the government holds substantial control, whether through full, majority, or significant minority ownership This classification encompasses SOEs owned by both central or federal governments and those owned by regional or local authorities.
Despite extensive privatization in recent decades, state-owned enterprises (SOEs) continue to play a crucial role in the economic growth of both developed and developing nations They are instrumental in producing and supplying essential public goods and services, generating profits, and contributing significantly to government revenues SOEs are also vital in areas such as security and defense, implementing social security policies, and ensuring national sovereignty Furthermore, they are key players in building and enhancing infrastructure systems necessary for socio-economic development, including agriculture, rural development, energy, and telecommunications In many cases, state-owned corporations also undertake socio-political responsibilities, reinforcing their importance in the economy.
3 regulation policies, macroeconomic stability, and price stabilization
According to [2], aggregated experience over the past 50 years shows that the process of equitization of SOEs, if implemented correctly, will bring long-term benefits to the national economy
State capital divestment is a strategy that allows the government to withdraw investment capital from non-essential businesses and industries, enabling a focus on key enterprises and sectors that require state investment.
In recent years, the state has actively enhanced the business environment by promoting solutions that empower the private sector as a key growth driver, while streamlining its own enterprise sector to become more efficient By divesting state capital and minimizing its role as an investor and operator, the government aims to concentrate its resources on fostering development and allowing the market to thrive independently.
Divestment in various enterprises generates capital that enables the government to enhance social security and public investment initiatives, including infrastructure development, poverty alleviation, health care, and education This strategic allocation of resources not only fosters economic growth but also creates a conducive environment for business expansion.
State divestment in enterprises leads to a diversification of shareholders and attracts capable strategic investors, which in turn enhances the company's access to capital, technology, and improves transparency in corporate governance.
The divestment of state capital should prioritize maximizing state benefits from investments in enterprises, while also ensuring the stability and growth of these businesses Additionally, it is crucial to align divestment strategies with the state's investment goals that support both economic and social development.
Research questions
This research examines the specific divestment case of SAB to address key questions regarding the reasons behind its successful divestment, the lessons that can be gleaned for other state-owned enterprises (SOEs), and the recommended policies that promote best practices in SOE divestment.
Methodology and structure of the thesis
The document research method is utilized to gather and synthesize secondary information, focusing on scientific articles published in specialized journals both domestically and internationally, as well as circulars, decrees, and legal documents pertinent to equitization issues.
Case study: To analyze in depth the aspects of success and limitations in the equitization of large-scale SOEs in the period 2015-2020, the thesis chose Saigon Beer
SABECO, the state-owned Alcohol - Beverage Joint Stock Company, successfully executed a divestment in 2017, generating $4.6 billion for the government This analysis utilizes financial statements from 2014 to 2022, along with official announcements, decisions, and valuations from state agencies involved in the equitization process.
This thesis conducts a comparative analysis and descriptive statistics on the legal regulations governing equitization in Vietnam, juxtaposed with OECD practice guidelines, specifically focusing on the case of Sabeco Based on this analysis, it offers targeted recommendations for the equitization of state-owned enterprises (SOEs) in Vietnam to enhance outcomes and ensure successful implementation.
Sample and data collection: The thesis collects and selects secondary information about Vietnam’s SOEs and from financial statement of SAB
This thesis employs quantitative analysis through statistical methods to assess the impact of various factors on the equitization process of large-scale state-owned enterprises (SOEs), utilizing data collected from financial statements.
Structure of the thesis
This thesis includes five chapters:
● Chapter 3:Overview of Vietnam SOEs and SOE equitization and divestment
● Chapter 4: of the divestment process at Sabeco
● Chapter 5: Lessons learned for other SOEs and policy recommendations
LITERATURE REVIEW
Rationale for SOE privatization
Research on the divestment/privatization of SOEs has been the object of a series of studies in economic literature
The public choice theory highlights that private enterprises can address the conflict of interest between managers and owners through various mechanisms These include external capital mobilization, internal control systems, owner participation in management, effective reward structures, and an active board of directors.
The stakeholder theory of [4]states that, when the interests of stakeholders are considered appropriately and the goals of each stakeholder agree, businesses will perform better
Stakeholders in an organization and its projects can be understood through various perspectives According to Milton Friedman's "shareholder theory," a company primarily owes its responsibilities to its shareholders.
- that is, the company must make a profit for its shareholders
Phase theory provides a framework for understanding the stages of privatization, emphasizing the process over its benefits This theory, which has been developed over time, categorizes the privatization journey into three key stages: the traditional stage, the transition phase, and the transformation phase.
Privatizing SOEs: An Overview of Policies and Practices in OECD Countries – 2003
This report offers valuable insights from OECD countries to assist governments in future privatization initiatives It highlights the main drivers and objectives of privatization programs over the last twenty years, examining their scale, structure, and impacts The primary emphasis is on the methods, techniques, implementation, and management challenges associated with privatization in OECD nations, taking into account the diverse political, economic, and historical contexts of each country.
7 differing policy objectives and relationships among stakeholders, there is no single
“right” approach to privatization However, the report clarifies the possible implications and tradeoffs entailed in different choices and draws key lessons from OECD privatization experience
The Asian Development Bank's analysis of the privatization of state-owned enterprises (SOEs) over the past 40 years highlights key lessons learned and offers a framework for successful future government sales This summary emphasizes the importance of strategic planning and implementation to enhance the effectiveness of privatization efforts globally.
Methods of privatization and divestment: pros and cons
Divestment, the process of selling assets or entire enterprises, involves two main parties: the seller and the buyer For sellers, successfully navigating divestment requires careful attention to two critical factors: determining a fair transfer price and identifying suitable investors Establishing a transfer price that benefits both parties is challenging, as sellers often possess insider knowledge about the enterprise's assets and performance Additionally, valuation must consider not only current data but also future forecasts, competitive landscape, and the quality of management Furthermore, understanding the buyer's profile, including the number of interested investors, their investment methods, and access to relevant information, is essential for a successful divestment process.
However, there are some questions that arise: (1) What divestment methods are there?
To effectively apply divestment methods, it is essential to understand the necessary conditions for their implementation This article will systematically outline the primary divestment methods, explore their practical applications, and identify the conditions that contribute to their successful execution.
According to this method, the divesting party and the capital transferee conduct the capital purchase and sale through an agreement in the form of a contract The purchase
The price in this context represents the agreement between the seller and the buyer, allowing the seller to select an appropriate investor for the business This method enables the seller to require the transferee to meet specific obligations post-purchase, ensuring the ongoing maintenance and development of the enterprise However, a notable drawback is that the transaction prices may not align with market mechanisms This approach is particularly suitable when the seller intends to sell a small-scale enterprise.
The auction method for capital transfer involves the seller setting an initial price, followed by bids from investors, with the highest bidder securing the shares This approach promotes transparency and allows multiple investors to participate, maximizing benefits for the seller However, it also has drawbacks, such as the seller's lack of assessment regarding market demand and buyers' capabilities Additionally, issues like unclear starting prices and insufficient information disclosure can hinder buyers' understanding of the business, leading to potential inadequacies in the process.
Book building is a price determination mechanism used in the stock market for initial public offerings (IPOs) to value securities Rather than setting a fixed price for shares, companies can establish a price range when uncertainty exists about the optimal selling price This method allows investors to bid within the specified range, offering greater flexibility compared to a fixed price If the price is set too low, the company risks losing potential benefits, while a price set too high may result in an unsuccessful issuance In the context of divestment, the book building process involves collaboration between the underwriting organization and the issuing organization to manage investor receipts and record bids effectively.
To effectively gauge the demand for shares and establish an appropriate divestment price, it is crucial to survey market demand and set a reasonable price that allows for the full absorption of the offered shares This approach ensures a successful divestment The book building method is utilized to facilitate this process.
Step 1: Choose an underwriting organization The underwriting organization researches the company and proposes the size of the issuance and proposes a price range for the shares to be sold After that, the enterprise issues a prospectus with the proposed price Business leaders will directly present to investors the production and business situation, business strategies to receive appropriate evaluation from investors
Step 2: Investors in the market are asked to offer to buy shares They were asked to bid on the shares they were willing to buy at different prices Enterprises build books by collecting and aggregating investors' demands corresponding to each different price level in the price range
Step 3: Determine the public offering price From the information collected from investors, businesses and underwriting organizations synthesize book building results, market conditions, and decide on the offering price Enterprises sell capital at the offering price determined above
The book building method offers sellers greater control over buyer information compared to the auction method, allowing for optimized pricing and more accurate valuations This approach reduces risks related to the number of participating buyers, as underwriters can selectively engage investors, ensuring they receive a fair price for their efforts In contrast, the auction method often leads to uncertainties for both sellers and buyers, as decisions are made without clear insight into investor participation, which can result in either insufficient competition or overwhelming bidding, complicating the cost recovery for investors seeking information.
The book building method has notable disadvantages, primarily requiring the involvement of an underwriting organization, which must be sufficiently large for significant divestments Additionally, there is a risk that institutional investors may collude to manipulate prices during the book building process, potentially jeopardizing the interests of the divesting party.
* Method through trading on the stock market
This method is utilized for public companies traded on the stock market, where the price is established through direct order matching The divesting party has the flexibility to choose the timing of their divestment based on the stock reaching their expected price Compliance with securities laws and transparent public disclosure is essential for listed companies However, challenges arise when shares lack liquidity, leading to infrequent trading and making it difficult to adhere to market principles during divestment Additionally, similar to the auction method, sellers may struggle to gauge the market's capacity to absorb the shares, increasing the risk of not selling all intended shares.
In addition to the above methods, divestment can be done through the competitive offering method, divestment through selling to managers and employees directly at the enterprise.
International experiences in OECD countries
This article provides an overview of the equitization of State-Owned Enterprises (SOEs) globally, utilizing survey data from the Organization for Economic Cooperation and Development (OECD) collected in 2018 across 18 member countries The OECD survey highlights various forms of equitization and divestment implemented by countries worldwide.
Equitized enterprises can be categorized based on the level of state ownership into two forms: partial equitization and complete equitization Partial equitization occurs when the State retains a controlling number of shares after the equitization process.
Full equitization refers to a process where the State retains minimal shares, either holding a non-controlling stake or completely divesting from the enterprise Among the 14 countries surveyed, 10 have opted for complete equitization, while only two of the remaining four have pursued partial equitization, with the approach varying based on individual enterprises Overall, State control is primarily maintained over strategic enterprises.
Equitization can occur in two primary forms: one-time and multi-phase equitization Countries like Japan and the United Kingdom have adopted a multi-stage approach for equitization across most enterprises In contrast, one-time divestment allows investors to proactively restructure their business operations.
Because most of the enterprises implementing equitization in Japan are large enterprises, conducting equitization in many stages will help the market absorb a large number of shares more easily
Normally, divestment is done through offering on the stock market Meanwhile, the
UK conducts divestment in many stages because it can maximize the value of state capital when share prices can increase after restructuring
Investors in equitization can be categorized into four types: public auction, strategic shareholder offerings, public issuance, and issuance to managers and employees The equitization process via an initial public offering (IPO) may occur concurrently with stock market listing or follow it.
Public auctions and public offerings are the two most prevalent methods for raising capital, as illustrated in Table 1 Typically, public auctions are utilized by small businesses, whereas larger enterprises tend to favor public offerings for their fundraising needs.
Offerings to strategic shareholders are less commonly used This form of issuance to managers and employees is only used in one country out of eighteen surveyed countries, Latvia.
Table 2.3: Survey report of SOE privatization in OECD countries in 2018
No Country The state retains control
Issued to the public (with listing - IPO)
Issued to the public (after listing)
Issued to managers and employees
2 Czech Rep No Only for strategic SOEs Yes Yes
Only for strategic SOEs Yes Yes Yes
5 France Only for strategic SOEs Yes Yes Yes
6 Germany No Only for large SOEs Yes Yes
8 Italy - If found, it is possible to increase the value of state capital recovery
9 Japan - Yes, because most are large businesses
10 Kazakhstan Depends on the situation
12 Lithuania Only for certain energy companies
Only for large public service companies
15 Norway Depending on the benefits obtained
Depending on the benefits obtained
16 Sweden No No Yes Yes
Yes Yes Yes Yes Yes Yes
Selecting strategic shareholders, particularly foreign ones within the same industry, is crucial before a public share issuance Establishing agreements with these shareholders, along with their commitments to support the business prior to the IPO, can enhance the company’s value, benefiting both the strategic investors and the State Additionally, a combination of selling shares to strategic shareholders and conducting an IPO can be an effective strategy.
The negotiated selling price for strategic shareholders is based on the re-evaluated enterprise value, which also serves as the starting price for auctions In the case of large-scale enterprises, the state typically retains more than 51% of the shares during the equitization process.
International experiences: A successful case in China
In 2005, the Chinese government initiated the equitization of China Construction Bank (CCB) and Bank of China (BOC), focusing on banks with lower debt and higher efficiency compared to other state-owned institutions The government allocated approximately $45 billion through Central Huijin Investments to address bad debt, allowing CCB and BOC to utilize their charter capital effectively CCB was converted into a limited joint stock bank, with Huijin holding over 85% of shares, while BOC became a limited liability company fully owned by Huijin This strategic move aimed to enhance the banks' independence and operational mechanisms In June 2005, CCB sold 9% of its shares for $3 billion to Bank of America, which retained the option to acquire up to 19.9% within five years, adhering to existing Chinese regulations on foreign investment.
15 promote transparency and enhance corporate value, both banks have listed shares on the Hong Kong stock market
The Chinese Government places significant importance on the selection of strategic shareholders for CCB Bank and BOC Bank, emphasizing modern management skills and diversification Share sales to these shareholders are negotiated, involving qualified staff proficient in foreign languages to facilitate the process Post-equitization, these strategic shareholders will enhance the banks' international image, aiding in their successful listing on global markets Thus, the approach to selecting strategic shareholders for CCB and BOC is critical for their international positioning.
CCB has adopted a limited shareholding mechanism, enabling strategic partnerships with key players in the steel and electricity sectors, specifically Baosteel Iron and Steel Co and Yangtze Power, to participate in share ownership.
CCB has officially invited esteemed international financial corporations, including Citigroup, JP Morgan, UBS, several Japanese banks, and Temasek, the Singapore Government Financial Investment Company, to participate in capital investment opportunities.
Criteria for evaluation of the successful divestment
Successful divestment of large-scale state-owned enterprises hinges on key criteria: first, shares should be publicly listed to boost transparency and corporate value; second, selecting strategic shareholders, particularly foreign ones in the same industry, is crucial; and third, a significant portion of shares must be sold to ensure that the buyer gains management rights post-divestment.
16 d) It is necessary to have a systematic preparation process for divestment and organize a roadshow to widely introduce SOEs to domestic and foreign financial institutions.
Overview SOE equitization and divestment in Vietnam
SOEs in Vietnam: trends, current situation
a SOEs roles and positions in Vietnam
According to Report No 399/BC-CP and the Vietnam Business White Paper 2022, State-Owned Enterprises (SOEs) represent only 0.4% of active enterprises with production and business results; however, they control significant economic resources, accounting for approximately 25.78% of total production and business capital and 23.4% of the value of fixed assets and long-term financial investments among operating enterprises.
State-owned enterprises (SOEs) are crucial for maintaining national energy security in Vietnam, with significant contributions from major players like Electricity of Vietnam (EVN), Petro Vietnam (PVN), and the Vietnam National Coal and Mineral Industries Group (TKV) According to the Electricity Regulatory Authority under the Ministry of Industry and Trade, these state-owned power plants represent approximately 87% of the country's electricity generation capacity.
State-Owned Enterprises (SOEs) are crucial in producing and supplying public goods and services, directly contributing to national defense and security while implementing social security policies They play a vital role in integrating economic development with the safeguarding of national sovereignty Recently, SOEs have significantly contributed to building essential infrastructure for socio-economic growth, including transport, agriculture, rural development, energy, and telecommunications Additionally, these enterprises often undertake socio-political responsibilities, aiding in economic regulation and macroeconomic stability However, there are limitations to the effectiveness and efficiency of SOEs in Vietnam.
In recent years, the situation of production and business activities of SOEs in Vietnam still reveals many limitations as show in ADBI Working Paper Series [12] The
As of 2015, state-owned enterprises (SOEs) in Vietnam represented a significant portion of the economy, accounting for 70% of total social investment, 50% of state capital, 60% of credit, and 70% of Official Development Assistance capital Despite this substantial involvement, their contribution to GDP growth was only about 30%, highlighting concerns regarding the overall performance and efficiency of SOEs in the country.
Many state-owned enterprises (SOEs) struggle with low labor productivity and operational efficiency, failing to meet expectations and becoming a burden on the state budget Several factors contribute to the limitations in their production and business activities.
State-Owned Enterprises (SOEs) have yet to achieve true financial and operational autonomy, often remaining passive in capital raising and asset management Only a handful of these enterprises have developed specific strategies for mobilizing capital As the State is the owner, SOEs frequently rely on governmental decisions, which can hinder timely and effective decision-making Consequently, financial and operational decisions may be delayed or misaligned with the actual needs of the business, as they depend heavily on state directives rather than the insights of business managers who understand the enterprise's situation best.
Managers of State-Owned Enterprises (SOEs) often lack strong management skills, resulting in ineffective operational mechanisms These managers, appointed by the State to represent equity interests, do not possess ownership stakes, leading to a diminished sense of responsibility for the enterprise's performance Furthermore, the term-based nature of their roles hinders their ability to gain the necessary knowledge and experience required for effective management Consequently, the lack of in-depth understanding among state representatives impairs their ability to direct and supervise SOE activities, ultimately diminishing the efficiency of production and business operations.
Equitization of State-Owned Enterprises (SOEs) is essential as it enhances entrepreneurial initiative and ensures timely, accurate decision-making on critical issues By transitioning to a multi-owner model, these enterprises reduce their reliance on the State, fostering a more dynamic and responsive business environment.
The transition of state-owned enterprises (SOEs) into joint-stock companies in Vietnam significantly alters their management structure In a joint-stock company, the manager may either be a shareholder or a hired professional, necessitating a high level of expertise and a strong sense of responsibility This transformation is part of the broader method of divestment of SOEs in Vietnam.
The divestment of state capital in enterprises is executed through various methods, including the transfer of state shares in listed companies on the stock exchange, public auctions for unlisted joint-stock companies, and competitive bidding if public auctions are not feasible Should competitive bidding fail, negotiations are employed for capital transfer This process must comply with the principles outlined in Clause 15, Article 1 of Decree No 32/2018/ND-CP, which amends Decree No 91/2015/ND-CP regarding state capital investment and management in enterprises Currently, the state capital invested in enterprises holds significant value.
A government report (No 399/BC-CP) dated October 12, 2021, reveals that enterprises with state capital possess total assets worth 3,674,627 billion VND and owner's equity of 1,717,379 billion VND Given this substantial financial foundation, it is crucial to implement strict controls over the divestment of state capital, alongside effective planning and achievement in the privatization of state-owned enterprises (SOEs).
The equitization of SOEs was piloted from 1990 - 1991 and officially implemented in
In 1992, a strategy was established to be completed by 2020, focusing on the restructuring of the economy This included the transformation of state-owned enterprises (SOEs), economic groups, and state-owned corporations during the periods of 2011-2015 and 2016-2020, aiming to ensure the effective operation of market mechanisms.
From 2011 to present, the total number of enterprises that have been equitized is 631 enterprises, with a total actual enterprise value of 1,040,244 billion VND, actual state capital of 317,739 billion VND
State-Owned Enterprises (SOEs) have significantly reduced in number, concentrating on essential industries and sectors They are effectively fulfilling their designated roles and responsibilities, serving as the backbone for the state's economic regulation and contributing to macroeconomic stability.
The operational efficiency of State-Owned Enterprises (SOEs) and enterprises post-equitization has significantly improved, with many SOEs experiencing robust growth and enhanced operational effectiveness The formation of joint stock companies through equitization is fostering increased competition within the economy, facilitating the restructuring of the stock market, and bolstering public confidence in the development of a market economy This shift is driving innovation in awareness, thought processes, production relationships, and the role of SOEs in a socially oriented market economy.
Figure 3.1: Number of SOEs with 100% state capital over the years
Source: SOEs data - Ministry of Planning and Investment – 2020
Equitization and divestment: policies over time and implementation results
a The pilot phase and pilot expansion of equitization were from 1992 to mid-
During this period, the Government issued the following legal documents (Decisions, Decrees):
On June 8, 1992, the Chairman of the Council of Ministers issued Directive No 202/CT, which focuses on the ongoing pilot program for transforming several State-Owned Enterprises (SOEs) into Joint Stock Companies, aiming to enhance efficiency and promote private investment in the economy.
Decree No 28/CP, issued on May 7, 1996, outlines the process of converting several State-Owned Enterprises (SOEs) into Joint Stock Companies, effectively replacing Decision 202/CT from the Chairman of the Council of Ministers, now known as the Prime Minister.
Directive No 202/CT issued in 1992 by the Chairperson of the Council of Ministers, now known as the Prime Minister, lacked a clear definition of the objectives of equitization The initiative to promote equitization was actively pursued from 1998 to 2011.
During this period, the Government issued the following legal documents (Decisions, Decrees):
+ Decree No 44/1998/ND-CP dated June 29, 1998 on converting SOEs into Joint Stock Companies
+ Decree 64/2002/ND-CP, dated June 19, 2002 of the Government on converting SOEs into Joint Stock Companies
+ Decree 187/2004/ND-CP dated November 16, 2004 of the Government on converting state companies into joint stock companies
+ Decree 109/2007/ND-CP dated June 26, 2007 of the Government on converting 100% SOEs into joint stock companies
+ Decree No 59/2011/ND-CP dated July 18, 2011 of the Government on converting 100% SOEs into joint stock companies
During the equitization expansion period, the government prioritized not only capital mobilization but also the efficiency of enterprises post-equitization, aiming to balance the interests of the State, businesses, investors, and employees The emphasis on aligning business operations with market mechanisms is highlighted, particularly in Decree No 87/2015/ND-CP Additionally, the methods of implementing equitization have become more diverse, adapting to the economic context and requirements of each period.
Thus, the speed of equitization of SOEs has accelerated after Decree 64/2002/ND-CP
The trend of large-scale enterprises undergoing equitization is on the rise, with significant growth observed over the years Prior to 2003, only 7.9% of equitized enterprises had capital exceeding 10 billion VND, but this figure rose to 15% in 2003, indicating a notable increase in the scale of equitization within the business sector.
Between 2003 and 2005, Decree No 184/2004/ND-CP ended the "closed" equitization approach, facilitating market-driven equitization and public share auctions This shift led to significant progress in the equitization process, with the number of equitized enterprises rising to 2,039—more than double the previous years These developments reflect a commitment to refining equitization strategies through practical experience and ongoing improvement.
As of December 31, 2005, a total of 2,242 state-owned enterprises (SOEs) in Vietnam had been equitized, representing 8.2% of the total state capital in enterprises, amounting to 17,700 billion VND In joint stock companies, the state holds an average of 46.5% of charter capital, while officials and employees own 38.1%, and outside investors account for 15.4% This equitization process has mobilized approximately 12,411 billion VND from individuals and organizations, with the state recovering about 10,169 billion VND As of the end of 2004, state capital in non-stock SOEs was around 200,000 billion VND Effectively utilizing these capital sources is essential for accelerating Vietnam's industrialization and modernization efforts.
Following the implementation of Decree No 184/2004/ND-CP, the previous "closed" equitization process was transformed into a share auction system, where the number of shares allocated to internal company members is based on a predetermined price ratio compared to external selling prices As per the government's approved plan for State-Owned Enterprises (SOEs), over 1,500 SOEs are slated for restructuring between 2007 and 2010, with more than 900 expected to undergo equitization.
Equitization subjects involve selecting State-Owned Enterprises (SOEs) for the equitization process In the expansion phase, there has been a notable inclusion of large-scale enterprises, in contrast to the pilot phase, which focused on a narrower range of SOEs.
As of now, there are 23 state-owned corporations, but prior to Decree 109/2007/ND-CP, a significant 77% of equitized enterprises had a capital size of less than 10 billion VND Notably, equitized enterprises without any state ownership are predominantly small businesses, each with state capital of less than 1 billion VND and often operating inefficiently These small enterprises represent nearly 30% of all businesses that have undergone state equitization.
The charter capital structure of equitized enterprises reveals that the State holds controlling shares of over 50% in 33% of these businesses, while in 37% of enterprises, State capital constitutes less than 50% Notably, nearly 30% of enterprises retain no State capital at all.
The equitization of State capital reveals that only 12% has been privatized, with the State retaining approximately 40% of this capital Consequently, the actual percentage of State capital sold during the equitization process is a mere 3.6%.
The current equitized capital structure of state-owned enterprises (SOEs) in our country highlights the ongoing process of equitization and clarifies the significance of "dominant" shares held by the State.
The current equitized state capital structure reveals the status of State-Owned Enterprises (SOEs) in our country, highlighting the significance of "dominant" shares held by the State.
The shareholder structure of equitized enterprises consists of officers and employees owning 29.6% of the shares, while external shareholders hold 24.1% Additionally, the State is a significant shareholder, possessing 46.3% of the total shares.
Limitations and existence of divestment process
Despite some progress, the pace of equitization and divestment among enterprises remains slow and inconsistent with planned targets This lag can be attributed to various objective and subjective factors The Department of Corporate Finance highlights that many equitized and divested enterprises are large, operate across multiple sectors, and possess specialized assets, making it challenging to accurately assess their value Consequently, the financial management of assets and debts, enterprise valuation, and the preparation of necessary documentation are time-consuming processes Additionally, some businesses face unresolved financial issues, and certain units are under investigation for violations related to capital and asset management.
Equitization and divestment processes are progressing slowly due to subjective factors and the implementation of legal documents Despite amendments to the regulatory framework, it still falls short of practical needs, particularly concerning the valuation of land use rights, brand value, development potential, and the management of specialized assets Additionally, the development and approval of comprehensive land use plans require submission to relevant authorities for consideration, further complicating the situation.
The slow decision-making process is hindering the progress of equitization, as some regions have yet to effectively reclaim and address land misused by enterprises The determination of land prices, essential for valuing these enterprises, is also lagging Additionally, many companies are managing land use poorly, failing to complete legal documentation as required, and maintaining an outdated mentality of retaining land areas that do not align with local planning or their business objectives.
The Ministry of Finance highlights that the awareness and responsibility of business leaders in innovating operations and ensuring transparency and legal compliance remain insufficient Additionally, various ministries, localities, and state corporations have not adequately prioritized the management and allocation of housing and land resources.
State-Owned Enterprises (SOEs) are inherently slow to innovate and have struggled to adapt to the evolving demands of a market economy Their plans for equitization and divestment often lack practicality and fail to align with real-world conditions The reluctance to divest from profitable industries contributes to the sluggish pace of divestment Additionally, the collaboration between owner representative agencies and local government bodies in planning and approving the rearrangement and disposal of public assets remains inadequate, leading to delays in consultation and approval processes.
Equitization and divestment processes often lack quality assurance, as many enterprises still retain a significant proportion of State capital post-equitization, which diminishes their appeal to investors, particularly strategic ones Furthermore, several State-Owned Enterprises (SOEs) have not demonstrated effective operational improvements, and there has been minimal governance change due to the continued high levels of State ownership.
In fact, despite equitization, state shareholders still hold the right to decide, so there is not much innovation and business activities after equitization are increasingly down
While some State-Owned Enterprises (SOEs) have undergone divestment, the process has not been fully realized The equitization and divestment efforts by various ministries, branches, and localities face significant challenges, particularly concerning land issues, which ultimately result in the loss of state capital and assets.
Third, divestment with companies invested by SOEs only in accordance with the
The potential for abuse of Enterprise Law and company charters can result in significant losses during the divestment process, particularly when state-owned enterprises (SOEs) transfer prime land use rights to subsidiaries for capital contributions This practice may enable the subsequent transfer of these rights to private entities during divestment Additionally, some SOEs opt to bypass the stock exchange, hiring intermediary financial institutions to conduct auctions, which can limit transparency and create opportunities for manipulation The law's broad delegation of price appraisal authority to enterprises, coupled with insufficient oversight, has resulted in vulnerabilities in the pricing process during divestment.
Post-privatization challenges persist as some state-owned enterprises (SOEs) fail to retain their trained workforce or adapt their operational models to leverage land advantages In certain cases, strategic investors acquire shares in SOEs primarily for access to valuable real estate rather than for the enterprise's brand or core business Once in control, these investors often prioritize land transfer and changing land use for profit, neglecting the investment and development of the SOEs' primary production activities Additionally, capital management in state-owned enterprises struggles, particularly in loss-making businesses that face financial oversight or are hindered by uncooperative major shareholders.
The registration of transactions and the subsequent listing of joint-stock companies on the stock market post-equitization encounter significant challenges, failing to fulfill the necessary standards of transparency and public disclosure in the post-equitization process.
The lack of effective supervision over equitized enterprises has hindered the implementation of equitization settlements, resulting in operational challenges for joint-stock companies and complicating the divestment process.
Analysis of the divestment process at Saigon Beer Alcohol Beverage
Introduction of Sabeco
Saigon Brewery, established in 1875 by Frenchman Mr Victor Larue in Saigon, has evolved into a prominent brewery located in the heart of Vietnam's most developed city Following the country's unification, the brewery was renamed Saigon Brewery, reflecting its rich history and cultural significance.
With over 148 years of experience in the beverage industry, Saigon Beer - Alcohol - Beverage Joint Stock Corporation (SABECO) has solidified its status as a leading corporation in Vietnam.
SABECO boasts a vast nationwide network comprising 26 factories, 11 member trading companies, and hundreds of thousands of sales points across Vietnam The company takes pride in offering a diverse portfolio of popular beer brands that resonate with Vietnamese consumers, including Beer Lac Viet, Beer Saigon Chill, Beer 333, Beer Saigon Special, Beer Saigon Export, Beer Saigon Lager, and Beer Saigon Gold.
Between 2020 and 2022, despite the unprecedented challenges posed by the Covid-19 pandemic, Sabeco made a significant contribution of over VND 31,865, as reported by the General Department of Taxation and Sabeco's financial statements.
SABECO, a leading beverage producer in Vietnam, boasts a revenue of 31 billion VND (approximately 1.3 billion USD) and employs around 13,000 direct workers, along with thousands of indirect jobs throughout its operations.
Table 4.1: Key financial indicators 2015-2022 Indicator/ Year 2015 2016 2017 2018 2019 2020 2021 2022 BUSINESS RESULTS (VND billion)
Profit after corporate income tax
Total corporate income tax payment from
31,865 billion VNĐ equal to 1,3 billion US dollars
How successful of divestment deals
The success of Sabeco case can be seen through aspect: It was sold at 4.5 time higher compared to original plan
In August 2016, under the guidance of the Government and the Ministry of Industry and Trade, Sabeco's divestment strategy was outlined in two phases The first phase involves listing on the stock market and divesting 53.59% of its charter capital, amounting to 24,500 billion VND (approximately 1.2 billion USD) during 2016-2017 The second phase will focus on divesting the remaining 36%, which is valued at 16,000 billion VND, scheduled for after 2018.
On 06/12/2016, Saigon Beer - Alcohol - Beverage Corporation (SABECO) officially listed 641,281,186 shares on the Ho Chi Minh Stock Exchange
On December 18, 2017, the Ministry of Industry and Trade successfully executed Sabeco's divestment deal, selling 53.59% of the company's charter capital to ThaiBev for approximately VND 109.972 trillion, or about $4.8 billion This transaction was 4.5 times greater than the divestment plan set in 2016, marking it as the largest state capital sale in Vietnam's history and the most significant capital sale in Southeast Asia in the past decade.
The sale to foreign partners significantly boosted foreign currency inflow, aiding in the rapid consolidation of the state budget and providing capital for vital infrastructure development and government programs The Sabeco divestment deal is poised to be a historical milestone, serving as a catalyst for the success of future state-owned enterprise (SOE) divestment initiatives.
The reasons of successful divestment deal
The Sabeco deal was successful due to the following factors:
Sabeco is a good company in the mergers and acquisitions (M&A) market
A high-quality divestment plans a Good company in mergers and acquisitions market
Vietnam is the largest beer consumption market in Southeast Asia and ranks third in Asia, following China and Japan Sabeco, a leading national beer brand, holds a dominant position in the southern beer market with a 46% market share in Vietnam (EBVN, 2016) The acquisition of Sabeco by ThaiBev has positioned the company as the largest beer producer in Southeast Asia, allowing it to tap into Vietnam's lucrative beer market, valued at approximately $6.48 billion, driven by a youthful population and a dynamic economy.
Regarding business ranking order: Sabeco entered the top fifty most effective business
In 2017, 33 companies in Vietnam were ranked based on their business results and management capabilities over the previous three years (2015-2017) Among these, Sabeco distinguished itself as one of the "billion-dollar companies," defined as those with a market capitalization exceeding 1 billion USD Specifically, Sabeco secured the 16th position with a capitalization value of 6.72 billion USD on the stock market, according to Vietstock 2017.
Between 2014 and 2016, prior to state divestment, Sabeco experienced a consistent increase in net revenue from sales and services, achieving an average growth rate of 11.71% This rise in revenue was accompanied by a substantial improvement in the company's profit after tax, which grew at an impressive average annual rate of 28.75%.
Figure 4.3-a: Sabeco's revenue and profit for the period 2014-2017
Source: Sabeco financial statements 2014-2017 b Listing on stock market
Sabeco has been equitizing since 2008 In the equitization project of Sabeco in the period before 2008, it was clearly stated that equitization is associated with listing
Since 2016, despite eight years of equitization, Sabeco has struggled to list on the stock market due to various challenges identified by both the company and the Ministry of Industry and Trade This situation has hindered the state's ability to further divest its capital in Sabeco, impacting corporate governance and the quality of goods in the market.
The process of selling state capital in Sabeco has received a lot of attention and remarkably close guidance from the Prime Minister of Vietnam - Nguyen Xuan Phuc
On August 29, 2016, shortly after assuming office, the Prime Minister led a Standing Government meeting with various ministries and agencies to discuss the ongoing policy of divesting state capital in Sabeco and other major enterprises.
Before Sabeco was listed, the Prime Minister mandated that to ensure transparency and protect state interests, the company must be publicly listed on the stock market prior to any sale of state capital This approach aims to prevent inaccurate share valuations that could result in state capital losses, with valuations determined by legal regulations, market principles, and expert opinions The government's divestment of Sabeco is supported by Resolution 118/NQ-CP, dated November 9, 2017.
Under the close guidance of the Government, the methodical sale of state capital in Sabeco culminated on December 6, 2016, when the Saigon Beer – Alcohol – Beverage Joint Stock Corporation (SABECO) was officially listed on the Ho Chi Minh Stock Exchange (HOSE) with 641,281,186 shares under the stock code SAB The initial reference price was set at VND 110,000 per share, but within minutes of trading, SAB shares surged by 20% to VND 132,000, resulting in a market capitalization of VND 84,649 billion on its first trading day This marked a significant success in the state divestment process for Sabeco, setting a positive precedent for future transactions.
A "control premium" refers to the additional amount a buyer pays above the market price to acquire control of a business during a merger or acquisition (M&A) This premium is typically elevated when the buyer anticipates that their control will positively influence the company's strategy, team, management structure, market positioning, and product offerings, ultimately leading to cash flows substantial enough to justify the higher purchase cost.
The "control premium," which reflects the additional amount a buyer is willing to pay to acquire a controlling interest in a company, typically ranges from 20% to 30% of the purchase price, according to statistics from the US market.
Sabeco's consultants previously estimated the fair value of SAB shares at approximately 187,000 VND per share, reflecting a Price to Earnings (P/E) ratio of around 22.5 However, following the divestment deal, where the government sold a substantial 53.6% of its shares, it is projected that Sabeco shares could be sold at a price nearly 40% higher than the fair value Notably, during this period, the average P/E ratio for the regional beer industry was about half of Sabeco's valuation.
Control Premium Value Fair Market Value x (20%-30%) of secures ownership
Figure 4.3-c1: P/E of Beverage company with market capital above $5 billions
Figure 4.3-c2: Sabeco share price from first IPO in Dec 20216 to Sep 2017 d Foreign strategic investors
In the 2017 divestment of Sabeco, no Vietnamese enterprises participated, despite significant interest from local investors who recognized the opportunity However, none had the financial capacity to invest nearly $5 billion in cash and complete the payment within 10 days of winning the bid As a result, only foreign strategic investors with substantial financial resources were able to engage in the acquisition.
37 management, and willingness to hold shares in the long term can participate in this deal
Under Vietnamese law, foreign investors are limited to a 49% ownership stake in companies engaged in conditional business activities Sabeco has registered multiple business lines, including "rice" and "cane sugar," which are subject to these regulations.
"beet sugar", so foreign investors cannot own more than 49% Therefore, ThaiBev cannot directly participate in this divestment deal
To acquire a controlling stake of over 50%, ThaiBev engaged in an auction through the domestic company Vietnam Beverage, which was established in October 2017 with a charter capital of VND681.66 billion and is fully owned by F&B Alliance Vietnam Investment JSC ThaiBev, led by billionaire Charoen Sirivadhanabhakdi, holds a 49% share in F&B Alliance Vietnam via Beerco Limited, a legal entity based in Hong Kong.
Figure 4.3-d: Legal structure in Sabeco divestment case
At the end of the divestment deal, Vietnam Beverage becomes a major shareholder holding 53.59% of Sabeco shares, while the Government will still control 36% of
Sabeco shares - just enough to maintain the veto power in the enterprise e A high-quality divestment plans
For a deal to be successful and efficient, it is essential for both the supply and demand sides to gain experience and find common ground that aligns with their interests In a diverse and dynamic market, sellers must implement effective marketing strategies, enhance brand visibility, and provide comprehensive information about their products to ensure that buyers can easily access and understand what is being offered.
Before the competitive offering, the Ministry of Industry and Trade has public Information disclosure on the divestment to all parties and social media by Oct 2017
In November 2017, the Ministry of Industry and Trade, alongside Sabeco, conducted a series of roadshows in Singapore and the United Kingdom to promote the state share offering in Sabeco These events attracted over 80 organizations, including major global investment funds and leading beverage manufacturers Sabeco showcased its organizational structure, strengths, production processes, and strategic business plans, highlighting its dominance in Vietnam's beer market, where it holds over 40% market share, and the presence of its beer products in 30 countries worldwide The roadshows also facilitated the exchange of crucial information sought by potential investors.
Assessing Sabeco's financial position before and after the divestment deal
Indicators/ Year 2015 2016 2017 2018 2019 2020 2021 2022 BUSINESS RESULTS (VND billion)
10,771 Profit after corporate income tax
Source: Sabeco Financial statements from 2015 to 2022
Between 2018 and 2020, Sabeco experienced a consistent growth in asset size, which led to improved financial autonomy The company's production and business results showed steady annual increases, ensuring strong solvency throughout this period.
Sabeco experienced significant growth in net revenue during the years 2018-2019, with figures reaching VND 35,949 billion in 2018 and VND 37,889 billion in 2019, marking increases of 17% and 24% compared to the average from 2015-2017 Although profits after tax saw a slight decline in 2018, they rebounded strongly in 2019, achieving VND 5,370 billion, a 22% rise compared to the 2015-2017 average This growth also led to an increase in earnings per share (EPS), which rose from VND 6,514 in 2018 to VND 7,880 in 2019.
In 2019, Sabeco achieved a net profit of 14.2%, reflecting a 1% increase from 2015 and a 2% rise compared to the previous year This profit growth momentum enhanced the company's asset profitability and return on equity However, the Covid pandemic negatively impacted net revenue and profit after tax during 2020-2021 By 2022, Sabeco began to recover, with net revenue reaching VND 34,979 billion, matching levels from 2017, while profit after tax also showed improvement.
VND 5,500 billion, the highest ever until 2022
From 2018 to 2022, Sabeco experienced a consistent increase in total assets, reaching VND 26,962 billion in 2019, which marked a 21% rise compared to 2018 The growth continued with increases of 11% in 2021 and 13% in 2022 Notably, the growth in current assets outpaced that of long-term assets during this period.
In 2019, Sabeco's short-term assets reached VND 19,165 billion, marking a 30% increase from 2018 This upward trend continued in 2021 and 2022, with short-term assets rising by 17% each year Alongside asset growth, Sabeco's capital has also seen a consistent increase; however, the proportion of liabilities within its capital structure has declined The liabilities-to-equity ratio fell from 28% in 2018, a 7% decrease compared to the average from 2015 to 2017, to 22.5% in 2019, reflecting a 10% drop from the same average Additionally, the company's solvency ratio improved significantly, with the payment ratio remaining above 1 during the 2015-2017 period.
2018 the payment ratio was evenly above 2 and the highest was 2020 the payment ratio was 3.77, which shows the company's abundant financial capabilities
The assessment of profitability indicators reveals that the Return on Sales (ROS) was 12.3% in 2018, a decrease from the 2015-2017 period, but it improved to 14.2% in 2019 and reached an impressive 15.7% by 2022, marking the highest profit after tax year Additionally, Earnings Per Share (EPS) peaked in 2022 at VND 8,146 However, the Price-to-Earnings (P/E) ratio, which hit a high of 41.06 in 2018, has since declined due to challenges such as changes in the excise tax rate on beer and the implementation of Decree No 100/ND-CP regarding administrative sanctions in transportation, compounded by the impact of the Covid-19 pandemic in 2020.
2022 affected by the decline of the world economy, Sabeco's share price has not been able to increase
In conclusion, key indicators of asset performance and Sabeco's profitability have shown significant improvement since the state capital offering, with enhanced asset utilization and increased returns on both investment and equity capital in the stock market During the 2023 annual meeting in Bangkok, Thailand, CEO of ThaiBev Group, Mr Thapana Sirivadhanabhakdi, emphasized these positive developments.
"Sabeco is our precious gem - a rare asset among all assets related to the manufacturing industry" beer production in Southeast Asia.
Negative issue
a Legal risk of Sabeco divestment deal to buyer
The agreement raises significant legal concerns regarding the extent to which a foreign legal entity can control a Vietnamese company, particularly in sectors where foreign ownership is restricted.
In this transaction, the Seller is the State, represented by the Ministry of Industry and Trade, while the Buyer targets Sabeco By the end of 2017, the State owned 90% of Sabeco's shares The divestment from Sabeco aligns with the government's equitization policy, indicating that the Seller's objective is driven by legal requirements rather than Sabeco's operational performance.
Buyer: In this deal, ThaiBev does not directly hold shares in Sabeco, but this is the actual buyer, who poured capital to conduct the transaction
Founded in 2003 through the merger of fifty-eight companies, ThaiBev Holding is Thailand's largest beverage company, boasting a market capitalization of approximately US$16 billion as of September 2022 With its beer business contributing about 30% of total revenue, the acquisition of Sabeco is poised to enhance ThaiBev's beer segment and support its ambition to become the leading beverage group in Southeast Asia.
ThaiBev, via its Hong Kong subsidiary Int'l Beverage Holding, has acquired full ownership of Beerco, a Hong Kong-registered entity Beerco subsequently invested 49% in Vietnam F&B Alliance Investment, which, on October 6, 2017, achieved 100% ownership of Vietnam Beverage (VietBev).
ThaiBev has successfully navigated legal challenges to indirectly acquire 53.59% of Sabeco's shares by implementing a strategy that involves creating multiple classes of companies and setting initiative-taking ownership limits A crucial aspect of this transaction is the establishment of a trusted authorized entity, which aids the buyer in overcoming legal obstacles while minimizing associated risks.
Overview of transaction structure ThaiBev indirectly holds Sabeco
The core purpose of the legal structure discussed is to establish a trustee entity that navigates legal barriers and control restrictions The primary legal risks arise from the capacity to manage trust entities effectively.
In ThaiBev's acquisition of Sabeco, the weakest "link" is that ThaiBev only owns 49% of Vietnam F&B, the remaining 51% is owned by 2 Vietnamese individuals
Indirectly owning only 49% of VietnamF&B exposes ThaiBev to the following legal risks:
+ Inability to control and dominate the company
+ The possibility of Vietnamese shareholders selling shares
+ Dividend payment to Vietnamese shareholders
Risk point: How to control Company with only own 49% of the shares!
ThaiBev employs a strategy of creating multiple classes of companies and self-limiting ownership to navigate regulatory challenges effectively Key considerations for ThaiBev include determining the types of companies to establish, ownership percentages, and capital structure to mitigate legal risks The company's acquisition of Sabeco serves as a valuable case study for future mergers and acquisitions Additionally, there is ongoing controversy regarding Sabeco's tax arrears from 2018 to 2020 following the divestment deal.
Evaluating the worth of state-owned enterprises during their equitization is a crucial yet intricate task that significantly impacts the successful transformation into joint-stock companies This process must be carried out with honesty and precision to ensure accurate outcomes.
Under Decree 126/2017/ND-CP, equitized enterprises are required to assess and confirm all liabilities, including both due and undue debts, prior to valuing the enterprise It is essential for these enterprises to secure lawful capital sources to settle due debts before determining their value or to reach written agreements with creditors for debt resolution, which may include converting liabilities into contributed capital Additionally, equitized enterprises must ensure that all taxes and state budget debts are paid before the conversion process.
In the 2017 divestment prospectus for Sabeco, the Ministry of Industry and Trade confirmed that the company had fulfilled all tax obligations for the year 2016 and prior.
In February 2018, two months post-divestment, the State Audit released the 2016 Audit Report for Saigon Beer-Alcohol-Beverage Joint Stock Corporation (SABECO), recommending that the company submit over VND 2,495 billion to the state budget This amount represents the profit allocated to state shareholders from earnings generated in 2016 and prior years.
In a recent letter addressed to the State Audit, Mr Vo Thanh Ha, Chairperson of Sabeco's Board of Directors, expressed disagreement with the audit's conclusions.
The State Audit has proposed a profit of VND 2,495 billion to be submitted to the budget Sabeco noted that the State divested 53.59% of its shares to its largest shareholder, Thai Bev, represented by Vietnam Beverage Co., Ltd., for nearly 5 billion USD on December 18, 2017 Consequently, the State's ownership rate in Sabeco as of that date was just over 36%.
Sabeco clarified that the distribution of profits is governed by the general meeting of shareholders, in line with the Law on Enterprises and the company's charter While the company intends to distribute profits, it must first finalize the shareholder list and determine the dividend payment schedule Once this list is complete, Sabeco will either hold a general meeting or seek written opinions regarding the timing and ratio of dividends Following shareholder approval, the company will issue a resolution detailing the dividends and payment timeline.
Sabeco argues that the demand to pay VND 2,495 billion to the state budget, as stated by the State Audit, is inconsistent with the Law on Enterprises, its own charter, and other relevant legal regulations.
Other similar case study: Vinamilk’s divestment in 2016
Established in 1976, Vietnam Dairy Joint Stock Company (Vinamilk) has grown to become a major player in the dairy processing industry, ranking as the 15th largest company in Vietnam by 2007 Currently, Vinamilk leads the market with over 54.5% share in liquid milk, 40.6% in powdered milk, 33.6% in drinking yogurt, 84.5% in edible yogurt, and 79.7% in condensed milk nationwide, according to the United Nations Development Program.
Vinamilk boasts a robust distribution network with over 220,000 points of sale across 63 provinces and cities in Vietnam Additionally, its products are exported to 43 countries, including the US, France, Canada, Poland, Germany, Japan, and regions in the Middle East and Southeast Asia By the end of 2019, Vinamilk had successfully entered more than 40 markets, establishing itself as the largest value-added company of the year with a brand value of $2.2 billion This achievement earned it the top position in Forbes Vietnam's list of the fifty leading brands in 2019.
Vinamilk holds significant market advantages and growth potential compared to its regional competitors, driven by Vietnam's youthful population, favorable economic conditions, and increasing consumer spending on dairy products With its strong intangible assets and dominant position in the Vietnamese dairy market, Vinamilk presents a valuable opportunity for companies and organizations aiming to expand their market share in Vietnam.
Vinamilk (VNM) was officially converted into a joint stock company on October 1,
2003, and listed its shares for the first time on January 19, 2006, on HOSE
By the end of November 2016, Vinamilk's market capitalization exceeded VND 201 trillion SCIC held a 44.73% stake in Vinamilk, valued at over VND 96.5 trillion On December 2, 2016, the company offered 9% of its shares, amounting to nearly VND 18.4 trillion based on market value.
In December 2016, an auction resulted in the sale of only 9% of the state shares in Vinamilk Vietnam Dairy JSC, with two organizations purchasing 5.4% while 3.6% remained unsold Notably, F&N Dairy Investment was the sole participant, utilizing two legal entities to acquire the shares; had they registered with only one entity, the auction would have nearly failed.
Vinamilk stands out as a unique and ambitious Vietnamese enterprise aiming to expand its reach both regionally and globally However, its recent sluggish performance, with over a third of its potential untapped, raises concerns It's crucial for the company to reassess its ineffective strategies to enhance sales and capitalize on its strengths.
The selling method is not attractive to strategic investors
The State Capital Investment Corporation (SCIC) currently holds a 45% stake in Vinamilk, with plans to sell these shares under the policy of "not selling beer, selling milk," aiming to generate billions for the state Initially, SCIC will auction 9% of the shares, imposing a limit of 2.7% per legal entity, which may deter strategic investors seeking significant control Major shareholders like F&N, who currently own 11% of Vinamilk, are more likely to pursue larger stakes for long-term business involvement.