Vietnam Economic Times, October 2004 — Determining the full and real value of SOEs prior to equitisation remains a challenge. VET reports with cooporation from MPDF and VCCI.
Although Vietnam's state owned enterprise (SOE) reform program began almost a decade ago, only in the last few years, as the country moves towards WTO accession, has the pace of reform picked up. The Vietnamese Government has recently outlined bolder policy measure for SOE reform, but the process is still behind schedule. A major and ongoing reason for the delay has been the challenge that SOE managers and government officials alike face in valuing the assets of SOEs earmarked for equitisation - a Vietanmese Government term for partial privatisation which allows investors to purchase equity shares of these companies from the State.
Limitations of Existing Valuation Methods
While several standard valuation methods exist, only two valuation methods are currently allowed in Vietnam: 1) Net Tangible Assets (NTA) and 2) Discounted Cash Flow (DCF). A fixed set of formulars are stipulated for these two valuation methods, which some observers suggest can hinder the application of more appropriate methods.
Including Land Use Right (LUR) in valuing SOEs
Managers of SOEs earmarked for equitisation are against the policy of including the value of the LUR in the asset valuation, because doing so pushes up the value of the SOEs and thus the share price. SOE managers say they are at a disadvantage in attracting investors when competing with private companies that lease land, because the private companies are not legally required to include the LUR value when calculating the price of their shares.
Difficulties in Valuing Intangible Assets
Although the Ministry of Finance has established regulations and a formular for valuing an SOEs intangible assets (based on the net book assets and average profit ratio), these formulas are not considered appropriate by experts and SOE managers. This issue is especially relevant for service sector SOEs such as banks, and finance, insurance, and consulting companies.
Valuing an SOE's Capital Contribution in a Joint Venture
Many SOEs have made capital contributions to joint venture (JV) projects with foreign partners, and now face difficulties in putting a value on it. In many cases, the SOE's contribution was the LUR, and some SOEs would now concede that the LUR was valued too high at the time of establishing the JV.
Other Regulations That Can Cause Problems for SOE Valuation
Numberous SOEs claim that the stipulations on non-recoverable depts are too rigid. For example, bad depts can only be written off if an SOE can prove that the deptor has either died or been formally declared bankcrupt. As a result, at the time of valuation, SOEs are obliged to include what are effectively non-recoverable receivables as assets. In the meantime, their owned depts to state-owned commercial banks cannot be written off. Such problems, which can make the value of some SOEs too high, make it difficult for them to attract investors.
