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Vietnam: State Companies to Limit Their Investments in Some Businesses

(Aug. 11, 2011) Vietnam's Ministry of Finance has drafted a decree that will change the maximum level of investment by state-owned enterprises in businesses outside of their core areas of responsibility. The draft is already being circulated to various state agencies for review and, if adopted, will replace the February 5, 2009, Decree No. 09/2009/ND-CP, Regulations on Financial Administration of State-Owned Enterprises and Administration of State Capital Invested in Other Enterprises. (State Companies to Cut Investment, VIETNAM BUSINESS NEWS (Aug. 5, 2011); Luat Viet Advocates & Solicitors, Financial Administration of State-Owned-Enterprises and Administration of State Capital Invested in Other Enterprises, NEWSLETTER: LEGAL UPDATES (Feb. 2009).)

The present 30% ownership ceiling will be reduced to 15%. The impetus for the change is reportedly the problems resulting from state-owned companies taking on risky investments in banking, securities, and real estate development. According to Deputy Minister of Finance Tran Van Hieu, regulations to improve corporate responsibility in managing government capital and assets will also be drafted. State-owned enterprises are already being required to declare their fixed and liquid assets. The goal is to aid business people and state agencies in seeing where their operations are vulnerable. (VIETNAM BUSINESS NEWS, supra.)

At present both Electricity of Viet Nam (EVN) and PetroVietnam are state-run businesses that have extensive investments outside their basic areas of operation. EVN, for instance, has about three percent of its equity invested in enterprises not related to electricity, an amount equivalent to about US$145.6 million. PetroVietnam has subsidiaries that have invested in real estate projects and financial institutions. Firms like these are being urged to reduce their shares in outside companies. (Id.)

Pham Nguyen Hanh, the Deputy General Director of the Viet Nam National Textile & Garment Group, has expressed the view that divesting from non-core business investments would have to take place slowly, given the current economic climate and that enterprises want to avoid losing government capital. To meet such concerns, the Ministry of Finance has suggested that the problematic investments could be transferred to the State Capital Investment Corporation (SCIC). (Id.; SCIC website [in Vietnamese] (last visited Aug. 20, 2011).)