New approach to management of state investments in enterprises
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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

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New approach to management of State investments in enterprises

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New approach to management of state investments in enterprises

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

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

Part IActual situation of State investments in enterprises management


Soe s figures

SOEs figures


Soe s restructuring outcome

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.


Soe s contributions

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 )


Soe s weakness

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 capability, outdated machines, equipments.


Regime for management of state investments in enterprises

Regime for management of State investments in enterprises

  • Ownership representative of State investment in enterprises:

    • The Government.

    • Ministries, line ministries, cities and provincial people committees.

    • Ministry of Finance.

    • Board of Management

  • 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

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

Part IIInternational experience in managing State investments in enterprises


China experience

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 enterprises’ performance and financial situation.


Singapore experience

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

SINGAPORE experience (cont.)

  • Operating capital:

    • Initial funds allocated by the State, added by State investments in enterprises.

    • 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

TEMASEK’s assets

Infrastructure and techniques

SGD 4 bil.

Energy and natural resources

SGD 6 bil.

Technology and other

SGD 12 bil.

Media and telecommunication

SGD 32 bil.

Temasek’s investment portfolio

  • Transportation and logistic

  • SGD 12 bil.

Real estate

SGD 5 bil.

Financial services

SGD 19 bil.


New approach to management of state investments in enterprises

SOEs

8.7%

Other sectors (including SMEs and enterprises in promising sections)

33.5%

Enterprises in alignment with government

2.4%

Enterprises invested by Temasek

10.3%

MNC

45.1%

Contribution of enterprises invested by TEMASEK to GDP

Contribution to Singapore GDP = 10.3%


Part iii new approach to management of state investments in enterprises

Part IIINew approach to management of State investments in enterprises


New approach

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

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 to sustainably bring value to shareholders.


Establishment direction

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

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 cont1

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

Governance/Supervision

Sectorial

analysis

Macro-

economic

analysis

Detail

Examination

Corporate

Analysis

Investment

decision

Investment procedure and decision making


Risk analysis

Main risks

Credit

risk

Market

risk

Liquidity

risk

Operational

risk

Other

risk

Risk analysis


Thank you for your attention

Thank you for your attention!


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