ĐẠI HỌC MỞ TP. HỒ CHÍ MINH UNIVERSITE OUVERTE DE HCMV UNIVERSITÉ LIBRE DE BRUXELLES ECOLE DE COMMERCE SOLVAY MMVCFB PROGRAMME DE MAITRIES EN MANAGEMENT VIETNAM COMMUNAUTE FRANCAISE DE BELGIQUE NGUYỄN QUANG QUYỀN EQUITIZATION AND LISTING OF VINAMILK’S STOCK ON VIETNAMESE STOCK MARKET MASTER OF MANAGEMENT THESIS ADVISOR: DR. TRẦN ĐẮC SINH Ho Chi Minh City, Viet Nam 2007 2 TABLE OF CONTENT ABBREVIATION 4 LIST OF TABLES AND CHARTS 4 FOREWORDS 5 CHAPTER 1: VINAMILK’S EQUITIZATION 8 1.1 Fundamentals of equitization 8 1.1.1 Concept of SOE equitization 8 1.1.2 The necessity and indispensability of equitization 8 1.1.3 Role of equitization in the economic integration 9 1.2 Vinamilk’s Equitization 9 1.2.1 Vietnam Government’s policy of SOE equitization 9 1.2.2 Legal environment 10 1.2.3 Vinamilk’s Equitization 10 Conclusion 1 13 CHAPTER 2: VINAMILK’S LISTING IN THE SECURITIES MARKET 14 2.1 Vietnam Securities Market’s Overview 14 2.1.1 Vietnam Securities Market 14 2.1.2 Assessments of the securities market 16 2.2 Listing targets 17 2.3 Benefits from listing 18 2.3.1 State’s benifit 18 2.3.2 Benefits of employees and shareholders 18 2.4 Process of equitization and listing in the securities market 19 2.5 Company’s achievements after equitization and listing 20 2.5.1 Business activities 20 2.5.2 Vinamilk’s shares in the securities market 21 2.6 Vinamilk’s impacts to the securities market 22 2.6.1 Psychological effect to investors 22 2.6.2 Pioneer in share auction through the securities market 22 2.6.3 Double the market size 22 2.6.4 Positive impact on equitization process and listing of other businesses 23 2.7 Vinamilk’s experiences on equitization and listing 23 2.7.1 Setting up overall and detail plans for equitization and listing 23 2.7.2 Making presentation to employees and investors about the Company’s direction 23 3 2.7.3 Selecting the consultancy firm 23 2.7.4 Deciding the timing for equitization and listing 24 Conclusion 2 25 CHAPTER 3: VINAMILK’S DEVELOPMENT STRATEGIES AFTER LISTING AND SOME PROPOSALS 26 3.1 Government Strategies on SOE equitization and development of Vietnam Securities market 26 3.2 Vinamilk’s development strategies 26 3.2.1 Business 26 3.2.2 Finance 29 3.3 Policy proposals on equitization and business operation after listing 30 3.3.1 Solving the benefit conflicts between the Board and the shareholder 30 3.3.2 Reducing the State’s share ownership 31 3.3.3 Increasing the ownership of foreigners and strategic shareholders 31 3.3.4 Restructuring the company management model 32 3.3.5 Taxation policy 33 Final Conclusion 34 LIST OF REFERENCE 35 4 ABBREVIATION SOE(s): State-owned enterprise(s) STC(s): Securities Trading Center(s) SSC: State Securities Commission WTO: The World Trade Organization APEC: Asia-Pacific Economic Co-operation LIST OF TABLES AND CHARTS Chart 1: Chartered Capital Structure ………………………………… 13 Chart 2: Total Sales for period 1999 – 2007 20 Chart 3: Total Domestic Sales for period 1999 – 2007 20 Chart 4: Total Net incomes for period 1999 – 2007 20 Chart 5: VNIndex and trading volume for 18 months (Jul 05 – Dec 06) 21 Table 1: Securities market highlights for period 2000-2005 ……………………. 15 Table 2: Summary of state income from Vinamilk’s equitization 18 5 FOREWORDS Vietnam economic transformation to the market economy from the central planned economy has been conducted on various areas step-by-step and in a practical way in order to strike for the end of building up a State with “rich people, strong nation, democratic and civilized society”. The two decades of renovation has brought about to Vietnam a number of prominent achievements in policy-making as well as implementing right solutions relevant to the Vietnam’s specific economic characteristics. The restructuring in state-owned enterprise (SOE) sector during the last time has not only realized the objective that “SOE equitization must not become SOE privatization” but has created also a new vitality to the economy with an average growth rate of 7.5 percent per annum, streamlining the number of SOEs to 2,000 by August 2006 from previous 12,300, increasing the average size of an SOE from 3.3 billion VND to 22 billion VND etc… This proves that the Party and the government’s guidelines and polices are right and profound. In addition, the SOE equitization has made up a strong base for the establishment and development of Vietnam securities market. And in turn, in the securities market, Vietnam in general and enterprises in particular will be able to mobilize fund from the domestic and the foreign investors with the highest volume at quickest time and cheapest cost. In order to performing the policy of SOE renovation and restructuring, Vinamilk equitized itself at the end 2003. Though it faced a lot of difficulties during the equitization such as the legal procedures, the business revaluation etc…, the case was seen as a success and was set an example and basis for Vietnam to speed up the equitization in general corporations and big state-owned banks. This proclaims the SOE renovation and restructuring, with Vinamilk as a 6 typification, a lucid policy in the cause of national industrialization and modernization as well as integrating into the world’s economy. As such, with the purpose of giving more information to the public on the benefits of the equitzation and then listing in the securities market, I would like to choose the topic of “Vinamilk’s equitization and listing in the securities market” as my study for the final essay in a wish that this may somehow contribute to fostering those processes in Vietnam. Though having gone through a long road for more than 10 years, the equitization as well as the listing in the securities market are still practical and topical questions and are being studied by various authors. The essay was prepared in the context of economic renovation when Vietnam has just achieved important economic and diplomatic success in domestic as well as in international arena. Vietnam has officially admitted as the WTO’s 150 th member, hosted successfully APEC 14 Summit and is the only Asia’s candidate for the non permanent member at the United Nation. By choosing this topic, I would like to assess the effectiveness of the equitization and listing in the securities market by the SOEs through the typical case of Vinamilk. Then, I would like to propose proper solutions to promote those processes in SOEs in the coming years. Due to the short time of studying while this topic is quite extensive and new to Vietnam’s economy, I would like to focus on analyzing the effectiveness from Vinamilk’s equitization and listing in the securities market in a effort to give an unbiased view over the company’s success when implementing the Party and the government’s policy. To reach the end goal of the essay, I have used different methodologies for studying and collecting the data such as synthetization, comparison, statistics, assessment and analysis etc… As one of the members responsible for the 7 equitization and listing for Vinamilk, I used all the data practically, adequately and correctly. Moreover, the secondary data were also gathered in order to make the essay more vivid. Beside the forewords, conclusion, table of contents, list of reference, the main content in the essay are as following: Chapter 1: Vinamilk’s Equitization Chapter 2: Vinamilk’s listing in the securities market Chapter 3: Vinamilk’s development Strategies after listing and some Proposals 8 CHAPTER 1 VINAMILK EQUITIZATION 1.1 Fundamentals of equitization 1.1.1 Concept of SOE equitization The transfer of ownership in SOEs to the business individuals and private entities is defined as the privatization in other countries, however, it is called the equitization in Vietnam. Practically, the concept of equitization still implies the state’s role because even when the SOEs are equitized, the state is still holding a certain part, and in some case, a crucial part in the equitized companies. Thus, the state-owned capital is not absolutely withdrawn and the investment role played by the government is still there. After more than 10 years of implementation of both pilot program as well as expanding the equitization on a large scale, that concept has gradually been elaborated in order to correctly capture the practices in Vietnam. Recently, the Central Party’s 3 rd Resolution of the IXth Session has reviewed it as follows: The SOE equitization is a process of changing a business from one stakeholder which is the government into a multi-shareholder business with the majority of shareholders are the employees and private individuals. Obviously, this definition is more generalized and reflects correctly and adequately the nature of the SOE equitization process during the last time. 1.1.2 The necessity and indispensability of equitization The orientation of building a socialist economy in Vietnam based on the state-owned and the co-operative ownership in the 80s and earlier had created a huge number of SOEs (more than 12,300 SOEs), most of which were small size, technologically backward and even lack of capital for operation. This situation 9 put the Party and the State under a pressure to find out a solution to restructure the SOE system and enhance the competitiveness of the SOEs as well as strengthen the public sector’s role in the economy. In this circumstance, the policy of SOE equitization was enacted and implemented in Vietnam. 1.1.3 Role of equitization in the economic integration Firstly, SOE equitization helps to foster the development of the multi- sector economy and to socialize production. It not only reduces the state subsidy of capital in the enterprises but also pays the way for the state to concentrate to invest and manage in the SOEs in key sectors. Equitization will bring income to the state budget as the number of tax payers are not cut down but increase. Equitization will minimize the administration apparatus, avoid waste if investment, create the transparency in the ownership, balance benefits and play as the driven to promote social development. Secondly, equitization helps the companies in solving the capital problem, improving their financial capability in order to expand their production and business. Moreover, equitization will create multi-ownership businesses which include the state, the employees, and outside individuals and institutions. Thirdly, the equitized companies are more dynamic and easily adapted to the market economy, so that their production and business effectiveness are improved. Fourthly, equitization will bring more products to the securities market. 1.2 Vinamilk’s Equitization 1.2.1 Vietnam Government’s policy of SOE equitization Based on the result of pilot program of equitization between 1992 and 1996, the Government promulgated the Decree No.28/ CP dated on May 7, 1996 on transferring some SOEs into the equitized companies. 2 years later, it was 10 replaced by Decree 44/CP dated on 29 June, 1998 which gave more advantages to the equitized business as well as its employees. However, as the equitization progress was still low and in an effort to accelerate the number of equitized SOEs, the Prime Minister enforced the Decree 64/ND-CP dated on 19 June, 2002 on transferring the SOE into the joint stock company which replaced the Decree 44/CP. Up to date, the latest documents on equitization is the Decree 187/2004/NÑ-CP dated on 16 November, 2004 on transferring the SOEs into the joint stock companies and its instruction document which is the Circular 126/2004/TT-BTC dated on 16 November, 2004. Those documents basically solves the weak points remainning in Decree 64. 1.2.2 Legal environment Legal basis for Vinamilk’s equitization are included as follows: - Government’s Decree 64/2002/NÑ-CP dated on 19 June, 2002 on transferring the SOEs into joint stock companies. - Circular 79/2002/TT-BTC dated on 12 September, 2002 by the Ministry of Finance on guiding the revaluation of business when transferring from SOEs into the joint stock company. - Government’s Decree 187/2004/NÑ-CP dated on 16 November, 2004 on transferring the SOEs into the joint stock company. - Circular 126/2004/TT-BTC by the Ministry of Finance on guiding the Decree 187/2004/NÑ-CP. 1.2.3 Vinamilk’s Equitization 1.2.3.1 Overview of Vinamilk The establishment and development (before equitization) [...]... to their rights and benefits Vinamilk s success commenced the public offering activity in the stock market which in turn drives up the equitization in remaining SOEs After listing, the company now is implementing and deploying production and business strategies in an effort to ensure its commitments to shareholders and investors, maintaining it as a “blue chip” in the stock market Vinamilk always wants... packs/bags; pack printing, - Producing, buying and selling plastic products, - Polyclinics Products and Market Vinamilk produces more than 200 kind of products of milk and from milk In the domestic, Vinamilk s market share is in the lead, occupying about 35% 75%, based on the kind of products However, 90% of Vinamilk revenue come from Middle East and the rest are Cambodia, American and Australia… The... equitization and development of Vietnam Securities market During Central Party’s 9th Conference (Session IX), the strategy of combining the equitization and listing in the stock market was highlighted as follows: a) Strongly speeding up equitization progress and increasing the number of SOEs which must be subjected to equitization, including the big businesses and some general corporations b) Combining... founded in 1976 with the orginal name as Southern Coffee-Dairy Company (a subsidiary of General Food Directorate) and was renamed as Vinamilk in 1992 Before equitization, Vinamilk was upon the Ministry of Industry, specializing in dairy and dairy products processing Principal business activities - Producing and trading canned milk, milk powder, cereal, pastries, fresh milk, Soya milk, soft drinks and other... implementing timing was seen as key factors to its success Vinamilk is always among the “blue-chips” and occupies a large proportion in the market trading turnover For the company, the production and business activities have been maintained and improved after equitization and listing Business strategies were formed and have been executed in an effort to prove to investors and shareholders of a good and profitable... corporations b) Combining the equitization with initial public offering (IPO) and listing in the securities market c) The SOEs on equitization, including the land use, must, in principle, be valued by the market d) Transparency must be maintained, avoiding the closed internal equitization Besides, the Prime Minister issued Decision No 163/2003/QĐ-TTg dated on August 5, 2003 ratifying the Development... expertise for the company and at the same time to expand its domestic as well as international market 3.2.1.2 Marketing strategy Vinamilk has been investing for this strategy in order to maintain and strengthen its position in the market, including: - Concentrating to professionalize every division, from marketing, trade name management to distributing strategy - Consistent in trade name policy as well... encouraged the equitization in other SOEs There have been more and more companies conducting the open auctions at the securities trading centers The listing companies at the end of 2006 were triples than the previous year 2.7 Vinamilk s experiences on equitization and listing 2.7.1 Setting up overall and detail plans for equitization and listing The success of Vinamilk is partly attributed to the planning phrase... the pioneer in implementing the Party and Government policy and direction, setting the bright example for other businesses Finally, it can be said that Vinamilk has put itself in the prestige of a vanguard as it is targeting to list and raise fund in foreign stock market 35 LIST OF REFERENCE 1 Doan Thanh Ha, (2001)ø, “Increasing the listing company – solutions for stabilizing and developing Vietnam... in the new context of economic integration Moreover, Vietnam securities market has come into operation stably and businesses become aware of benefits from listing, such as the opportunity of fund mobilizing, cost reduction, tax preferences and the improved images in the market etc… In addition, the policy of equitization and listing are more and more welcomed by the employees as it goes well with and . process and listing of other businesses 23 2.7 Vinamilk s experiences on equitization and listing 23 2.7.1 Setting up overall and detail plans for equitization and listing 23 2.7.2 Making presentation. printing, - Producing, buying and selling plastic products, - Polyclinics. Products and Market Vinamilk produces more than 200 kind of products of milk and from milk. In the domestic, Vinamilk s. table of contents, list of reference, the main content in the essay are as following: Chapter 1: Vinamilk s Equitization Chapter 2: Vinamilk s listing in the securities market Chapter 3: Vinamilk s