Final report on State owned enterprise

REVIEW ON LEGAL AND INSTITUTIONAL FRAMEWORKON SOEs
AND SOE REFORM IN VIETNAM
FINAL REPORT
September 2012
Submitted by:
QUANG MINH INVESTMENT AND DEVELOPMENT CONSULTING JSC.

REVIEW ON LEGAL AND INSTITUTIONAL FRAMEWORK ON SOEs AND SOEs REFORM IN VIETNAM - JICA - 2012
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List of Abbreviation
BOC Board of Controllers
BOD Board of Directors
BOM Board of Management
CEO Chief Executive Officer
DATC Debt and Asset Trading Corporation
EG Economic Group
FSERR Fund for Supporting Enterprise Rearrangement and Renovation
GAS General Assembly of Shareholders
GOV Government of Vietnam
JSC Joint Stock Company
LLC Limited Liability Company
LOI 2005 Law on Investment 2005
MARD Ministry of Agricultural and Rural Development
MOC Ministry of Construction
MOF Ministry of Finance
MOIT Ministry of Industry and Trade
MOLISA Ministry of Labor, Invalid and Social Affairs
MONRE Ministry of Natural Resources and Environment
MPI Ministry of Planning and Investment
NPL Non-performing loan
PM Prime Minister
PPC Provincial People's Committee
SA State Audit
SBV State Bank of Vietnam
NNSCERD National Steering Committee of Enterprise Reform and Development

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SCIC State Capital Investment Corporation
SOCB State owned Commercial Banks
SOE State owned enterprise
DVB Vietnam Development Bank
VND Vietnam Dong
WTO World Trade Organization

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Table of content
List of Abbreviation..................................................................................................................1
List of Figures ...........................................................................................................................9
List of Tables...........................................................................................................................10
List of Boxes ............................................................................................................................11
EXECUTIVE SUMMARY....................................................................................................13
PART I: MAJOR MILESTONES IN REGULATIONS ON STATE OWNED
ENTERPRISES (SOEs) .........................................................................................................26
I. The period prior to the Law on SOEs 2003 ................................................................26
II. The Law on SOEs (2003 – 2010) ..................................................................................26
III.Application of the Law on Enterprises 2005...............................................................29
PART II: GENERALDESCRIPTION OF SOEs, GOVERNANCE OF SOEs AND
TWO TYPICAL SOEs (DATC & SCIC) .............................................................................31
I. Definition of SOEs and operating models of SOEs ....................................................31
II. SOE organization and governance under The Law on Enterprises.........................32
1. 100% state capital one-member LLC...................................................................32
2. State shareholding companies...............................................................................34
III.State Economic Groups (EGs) .....................................................................................38
1. The legal basis for the founding of state EGs ......................................................38
2. Basic features of legal framework for state EGs under Decree
101/2009/ND-CP.....................................................................................................40
2.1. Corporations under direct management of the PM........................................40
2.2. Business lines (Article 3).................................................................................41
2.3. Organization structure (Article 4)...................................................................42
2.4. Governance and organization model of the parent company (Item 2,
Decree 101/2009/ND-CP) ................................................................................43
2.5. Relation between the parent company and other members in the EG...........45
IV.Debt and Asset Trading Corporation (DATC)...........................................................47
1. General information...............................................................................................47
2. Objectives................................................................................................................47

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3. Tasks of DATC .......................................................................................................48
4. Organization structure ..........................................................................................49
5. Operation ................................................................................................................49
6. Development plan...................................................................................................50
7. Short-coming...........................................................................................................50
V. State Capital Investment Corporation (SCIC)...........................................................51
1. General information...............................................................................................51
2. Objectives................................................................................................................52
3. Functions and tasks of SCIC.................................................................................52
4. SCIC and management of Fund for Supporting Enterprise Reform and
Rearrangement (FSERR) ......................................................................................53
5. Organization structure ..........................................................................................53
6. SCIC activities ........................................................................................................53
6.1. Achievements of SCIC .....................................................................................53
6.2. Advantages of SCIC model..............................................................................54
7. Orientation for future development .....................................................................57
8. Short-coming...........................................................................................................57
PART III: RELATIONSHIP BETWEEN SOEs AND THE GOVERNMENT ...............59
I. State ownership and executing state ownership in SOE............................................59
1. Governmental entities as SOE owners .................................................................59
1.1. For 100% state capital LLCs...........................................................................59
1.2. For state JSCs and LLCs of two or more members ........................................59
2. The right of SOE owners .......................................................................................61
2.1. For one-member LLCs.....................................................................................61
2.2. For JSCs and LLCs of two or more members.................................................62
2.3. For State EGs...................................................................................................62
2.4. The inadequacies in regulations on rights of owner of SOEs........................63
II. Administrative relationship between SOE and governments at different level ......64
III.Key government agencies managing SOEs.................................................................64
1. The PM....................................................................................................................64
1.1. In terms of undertaking the owners’ duties on parent company of EGs.......65
1.2. In terms of reorganization and restructure of the SOEs................................67

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1.3. In terms of approval of investment projects of the SOEs under the Law
on Investment (2005) .......................................................................................67
1.4. In terms of Decision for re-lending of Government’s foreign loans
without appraisal and guarantee procedures..................................................68
1.5. In terms of considering proposals, suggestions of SOEs with instruction
and managerial documents..............................................................................68
2. Steering Committee of Enterprise Reform and Development and the
support for the PM in SOE reform and restructure...........................................69
2.1. Procedures of SOE restructure and reform ....................................................69
2.2. Fund for rearrangement and development of enterprises..............................72
3. The Ministry of Planning and Investment (MPI)................................................72
3.1. Appraisal of SOE investment projects.............................................................73
3.2. Draft guiding documents for Law on Enterprises 2005 relating to SOEs.....73
4. Ministry of Finance (MOF) ...................................................................................74
4.1. Financial supervision over SOEs....................................................................74
4.2. Regulations on mechanism for investment capital management in SOEs
and management of state capital via SCIC.....................................................74
4.3. On-lending of Government’s foreign loans and Government guarantee......75
4.4. Handling SOEs in difficult situation...............................................................76
4.5. Performing State management functions prescribed in the Ordinance on
Prices and Law on Prices 2011 over goods and service exclusively
supplied or monopolized by the State..............................................................77
5. Line ministries ........................................................................................................78
5.1. Ownership.........................................................................................................79
5.2. The administrative relationship between SOEs and line ministries ..............83
5.3. The relationship between line ministries and SOEs via public investment
projects..............................................................................................................84
6. PPCs.........................................................................................................................84
6.1. Ownership representation................................................................................85
6.2. Management of land........................................................................................85
6.3. Management of budget regarding local investment project...........................86
I. Investment Management ..............................................................................................87
II. Investment procedures for the SOEs...........................................................................88
1. Capital sources and procedures for approval of State capital investment .......88
2. Investment projects and investment decision-making authority to SOEs........88

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2.1. Conditions for granting investment certificate to the SOEs under LoI
2005...................................................................................................................89
2.2. Specific regulations applicable to SOEs .........................................................90
III.Management of fund and loans of SOEs.....................................................................91
1. Borrowings from commercial banks ....................................................................91
2. Re-borrowing foreign loans of the Government according to Decree
78/2010/ND-CP.......................................................................................................92
3. Corporate bonds.....................................................................................................92
4. Foreign borrowing by SOEs..................................................................................96
5. Investment Credit and Export Credit through Vietnam Development
Bank.........................................................................................................................97
6. Government guarantee..........................................................................................99
PART V: FINANCIAL SUPERVISION ON STATE OWNED ENTERPRISES..........103
I. Financial supervision by the owners..........................................................................103
1. Regular supervision..............................................................................................103
1.1. Criteria for regular supervision.....................................................................103
1.2. Evaluation timeline and implementing agencies..........................................104
1.3. Rating SOEs by criteria.................................................................................104
1.4. Rating of SOEs by type..................................................................................106
2. Monitoring of SOEs with poor performance.....................................................108
2.1. SOEs subject to special supervision ..............................................................108
2.2. Subjects of special supervision ......................................................................108
2.3. Methods of special supervision......................................................................108
2.4. Post- supervision measures to apply to SOEs...............................................109
3. Shortcoming with supervision regulations over SOEs .....................................110
II. Financial supervision by elected bodies via State Audit of Vietnam......................110
III.Inspection by Government Inspectorate according to the Law on Inspection......111
PARTVI: REARRANGEMENT AND RESTRUCTURE OF SOEs ...............................113
I. Types of restructure and rearrangement of SOEs............................................113
II. SOE Restructure and Rearrangement policy in the period of 2012-2015 ......113
1. Principles for SOEs’ restructure and rearrangement ......................................113
1.1. Priorities in SOEs restructure.......................................................................113
1.2. Classification of SOE to be restructured.......................................................114

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2. Restructure and rearrangement solutions .........................................................115
3. Tasks of ministries and PPCs in SOE restructure scheme...............................116
3.1. The role of MOF in SOEs restructure scheme .............................................116
3.2. The role for other ministries and PPCs in SOE restructure scheme ...........116
III. Legal framework for SOE restructure...............................................................117
1. Transformation of SOEs into 100% State capital LLCs, under the Law for
Enterprise and Decree 25/2010/ND-CP..............................................................117
2. Equitization of SOEs............................................................................................118
2.1. SOE equitization situation.............................................................................118
2.2. SOE to be equitized in the period of 2011 - 2015..........................................121
2.3. SOE equitization procedure...........................................................................122
2.4. Handling of financial issues in SOEs equitization.......................................123
2.5. Initial Public Offering ...................................................................................125
2.6. Cost of Equitization........................................................................................125
2.7. Labor policy toward employees......................................................................126
2.8. Preparation of company charter after equitization ......................................127
3. Selling and assignment of SOEs..........................................................................127
3.1. Selling of SOEs..............................................................................................127
3.1.1 Definition of enterprise selling ..............................................................127
3.1.2 Types of 100% State owned enterprises selling and entities entitled to
purchase................................................................................................127
3.1.3 Condition for enterprise selling .............................................................128
3.1.4 Principles for enterprise selling.............................................................129
3.1.5 Authority to decide on enterprise selling ................................................129
3.1.6 Proceduresfor selling 100% State owned enterprises .............................130
3.1.7 Methods of selling 100% state owned enterprises ...................................131
3.1.8 Responsibilities of sold enterprises and purchasers.................................132
3.1.9 Policies toward sold enterprises and their purchasers.............................134
4. Assignment of SOEs .............................................................................................135
4.1. Definition of assignment of 100% State capital enterprises.........................135
4.2. Conditions for SOEs assignment...................................................................135
4.3. Principles for assignment of 100% state capital enterprises........................136
4.4. Principles for handling assets, finance, debts and labor of assigned
enterprise........................................................................................................136

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4.5. Authority for enterprise assignment..............................................................137
4.6. The process and procedure of transferring enterprises................................138
4.7. Enterprise ownership after the assignment...................................................139
5. Organizing selling and assignment of enterprises.............................................140
5.1. Responsibility of implementation ..................................................................140
5.2. Approval of selling and assignment plan......................................................140
5.3. Signing contract of selling and assignment of enterprises...........................140
6. Division, split and merging of SOEs ...................................................................140
6.1. Division, split and merging of SOEs before 01/07/2005...............................141
6.2. Enterprise division, split and merging under the Law on Enterprises
2005.................................................................................................................142
7. SOE dissolution and bankruptcy........................................................................143
7.1. SOE dissolution..............................................................................................143
7.1.1 Legal framework for SOE dissolution.....................................................143
7.1.2 SOE dissolution after 1/7/2010..............................................................144
7.2. Bankruptcy Law 2004 and its application to SOEs ......................................146
PART VII. CONCLUSION AND RECOMMENDATIONS............................................151
I. Conclusion....................................................................................................................151
1. Regarding the transformation of SOEs to enterprises working in
accordance with the Law on Enterprises 2005..................................................151
2. Regarding Investment Law application .............................................................153
II. Recommendations by the consultants .......................................................................153
1. Improving legal framework for management of SOEs.....................................153
2. Recommendations on capacity building for officers participating in SOEs’
management..........................................................................................................154
3. Recommendations on improving management structure of SOEs..................155

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List of Figures
Figure 1: Relationship between the PM and SOEs ...............................................................65
Figure 2: Implementation procedures for SOEs restructure plan..........................................70
Figure 3: Relationship between SOEs and Line Ministries ..................................................79
Figure 4: Relationship between SOEs and PPCs ..................................................................84
Figure 5: Government’s outstanding loans & Government’s guaranteed loans
2006-2010.............................................................................................................99
Figure 6: Procedures for SOEs transformation into 1 member LLCs under EL2005.........118
Figure 7: Situation of SOEs equitization in Vietnam from 1992 to 2012 ...........................119
Figure 8: Time frame for SOE equitization ........................................................................120
Figure 9: Types of equitization ...........................................................................................120
Figure 10: Flow-chart of SOEs equitazation procedures according to Decree
59/2011/ND-CP...................................................................................................123

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List of Tables
Table 1: List of EGs andcoresponding supervisory ministries.................................................81
Table 2: SOEs in some sectors with conditions for doing business .........................................83
Table 3: Maximum cost of equitization correlative to enterprise’s value ..............................125

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List of Boxes
Box 1: Too much debt by SOEs.............................................................................................27
Box 2: The vague legal status of State-owned EGs ...............................................................39
Box 3: Lack of an advising unit to assist the PM in direction and supervision of state-
owned corporations ....................................................................................................41
Box 4: Status of investment outside the main business .........................................................42
Box 5: The vague status of the governance model of state-owned corporations...................46
Box 6: Mistakes of DATC found by SA................................................................................51
Box 7: The compensation policy at SCIC ..............................................................................56
Box 8: Obstacles in the transfer of HABECO and SABECO to SCIC ..................................58
Box 9: An example on direct lending to SOEs ......................................................................68
Box 10: Reformation and reorganization plan of Vietnam Rubber Group ..............................71
Box 11: MOF fears to lose control over petroleum price ........................................................78
Box 12: Rights and obligations of MOIT (quoted from Vinacomin’s Charter).......................82
Box 13: Becamex IDC Binh Duong – example of an SOE owned by PPC.............................86
Box 14: Borrowing from commercial banks............................................................................92
Box 15: Song Da Group asks to have its foreign debt repaid ..................................................99
Box 16: Inspecting and handling violations at Vinacomin ....................................................112
Box 17: Split, consolidate enterprises of VINASHIN under Decision 926/TTg...................141
Box 18: Merging by administrative decisions........................................................................142
Box 19: Merger project of Vinaphone and Mobifone............................................................143

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DEFINITION AND NOTES
1. The State and the Government are used interchangeably.
2. PPC(s) mean Provincial People’s Committee(s) or an equivalent governmental bodies of
centrally-run cities including Hanoi, Ho Chi Minh City (HCMC) and Da Nang.
3. State capital and state investment are used interchangeably in some contexts in this
report
4. 100% state capital LLC means one-member limited liability company owned by the
State and operating under thw Enterprise Law 2005.
5. SOE owners (sometimes “the Owners”) means the governmental agencies (Prime
Minister, line ministries, PPCs, parent companies in economic groups, parents companies in
general corporations, SCIC) which are assigned to execute state ownership in SOEs.
6. State enterprises/share-holding companies refers to enterprises/companies in which the
State holds at least 50% of the shares or charter capital.
7. “Assignment of SOE(s)” means .....
8. Company(ies) and enterprise(s) are used interchangeable in this report.
9. Economic groups (EGs) refer to economic groups established under Decree
101/2009/ND-CP on piloting state EGs.
10. Parent companies refer to parent companies in State EGs or genenal corporations.

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EXECUTIVE SUMMARY
Legal framework for SOEs and forms of SOEs
The legal framework for SOEs in Vietnam has changed a lot during the restructure of
economy. Before the effectiveness of The Law on Enterprises 2005, SOEs conduct their
business activities in accordance with the amendment of Law on SOEs 1995 and later Law on
SOEs 2003. The appearance of The Law on Enterprises 2005 remarks an important milestone
in SOE’s rearrangement and renovation in Vietnam as well as the government’s effort to
fulfill commitments with WTO by letting enterprises of all economic sectors perform in one
play ground.
According to the Law on Enterprises 2005, State-owned Enterprise (SOE) is defined “the
enterprise in which the State owns more than 50% of registered capital and acts under the
Law on Enterprises”. Thus, SOEs in the Law for Enterprise 2005 include 3 forms: one
member LLCs (state-owned), 2-member and more LLCs which the state holds more than 50%
of registered capital, Joint Stock Company with more than 50% state shares.
Despite The Law on Enterprises 2005 is in force, some SOEs are still organized and
performed in accordance with Law on SOEs 2003. That is why The Law on Enterprises 2005
allows a term of 4 years (before 1st July 2010) to let these enterprises transform into LLCs or
JSCs acting under Enterprise 2005. Besides, because SOEs play the key role in the economy,
especially in focal sectors, the government enacted Decree 101/2009/ND-CP on the
Experimental Establishment, Organization and Activities of SOEs. As a result, there are 13
existing EGs directly under PM’s management and control with typical characteristics such as
industrial EGs, SOCBs, state-owned insurance company, SCIC, DATC, etc…
This is the reason why before 1st July 2010, each group of enterprises was regulated by
different legal framework. The first is Law on SOEs 2003 and decrees covering SOEs, limited
companies or JSCs. The second is legal instructional documents of Law on SOEs 2003
regulating SOEs in the transformation process, though it is ineffective in theory, but it has not
been replaced by new legal documents. The third is specialized laws and other legal
documents regulating typical SOEs.
SOEs’ organization and management under The Law on Enterprises 2005
According to The Law on Enterprises 2005, one member 100% state capital LLCs can be set
in one of 3 following forms: Board of members – Manager (General Manager) – Supervisor,
President – Manager (General Manager) – Supervisor, and BOD – Manager (General
Manager) – BOC. EGs and state corporations are compelled to organize in the mode of Board
of members or BOD. For other SOEs, the owner has the right to select the enterprise’s
management form that is suitable with its scale and business nature.
Management in state JSCs with more than 50% registered capital held by the state are
organized in the form of: Shareholder Congress – BOD – Board of Supervisors – General
Manager. Maximum 3 state representatives are allowed to participate in shareholder congress

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as regulated in Decree 139/2007/ND-CP guiding the implementation of The Law on
Enterprises 2005; in particular, organizational shareholder holding at least 10% of shares has
the right to authorization of 3 people as maximum to participate in the shareholder congress.
The number of state members in BOD is always a majority, normally 3 among 5 members or
4 among 7 members.
Economic groups (EGs)
Legal framework for EGs is indicated in the Law on Enterprises 2005 as follow: “EGs are
group of big scale companies. The government regulates the criteria, organizes the
management and activities of EGs”. Thus, the government issued legal documents covering
organization and activities of EGs. This means that, in practice, the highest level in legal
framework applying for EGs is Government’s decree, not the law. In fulfillment of Decree
101/2009/ND-CP on pilot establishment, organization, operation and management of state
EGs, up to now there are 13 EGs performing in key and strategic sectors of the economy
which are hardly done by private sector or other economic sectors due to the limitation of
financial ability and management experience. These sectors are post, telecommunication and
informatics, vessel manufacture, electricity, petrol, coal and mineral, textile, rubber, chemical
fertilizer, real estate, finance, bank, insurance, etc… (Names of those EGs are mentioned in
section III, Part II of the Report.)
The organization structure of EGs includes: (1) parent company (level 1 enterprise) is 100%
state registered capital enterprise or under PM’s influence and decisions; (2) subsidiary
company (subsidiary enterprise, level 2) partially held by level 1 enterprise is organized in the
form of JSCs, LLCs, parent – subsidiary corporations, subsidiary company abroad; (3)
subsidiary company of level 2 enterprise and lower levels; and (4) enterprises in cooperation
with EGs.
Inadequate regulations in the legal framework for the activities of state EGs
Firstly, EGs concentrate too much of their resources to non-core business rather than their
main business. This happens not only with EGs but also State corporations.
Secondly, there are vague and inconsistent regulations on legal status and administrative
mode of EGs. About legal status, the idea whether EGs having legal entity or not has not been
agreed in related regulations (such as Decree 09/2009/ND-CP, Decree 101/2009/ND-CP and
other decisions of PM on the transformation of EGs’ parent companies into one member
State-owned LLC. Therefore, EGs’ parents companies are sometimes regarded as a part of
EGs, which are understood as having no legal status, while sometimes they are defined as the
EGs themselves. This means EGs and their parent companies are the same legal entities.
Regarding administrative mode, Decree 101/2009/ND-CP specifies the organization mode of
the EGs, which is EG’s Board of Management – General Manager – BOC while Decree
25/2010/ND-CP stipulates that a EGs shall be organized in the mode of Board of members –
General Manager – Controllers.
The third is the lack of a supporting system to PM in managing, controlling state EGs. PM has
full competence to decide all important issues of EGs, from business vision, activity direction,

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establishment, senior personnel appointment and etc. without any involvement of concerned
ministries, sectors under PM for consultancy on management and supervision of EGs. This is
one of the main reasons for long lasting mistakes causing huge and non-stop losses in some
EGs in the last years.
Debt and Asset Trading Corporation (DATC)
DATC is a special state enterprise established by the Decision 109/2003/QD-TTg on 5th June
2003 by the PM based on a proposal of MOF. DATC plays an important role in SOE
equitization, pre-equitization stage because bad debt and doubtful debt clearance is the most
difficult pre-condition for these SOE’s equitization. The organization of DATC is a one
member LLC 100% state capital (Decree 1494/QD-BTC dated 30th June 2010) and the
registered capital in 2010 was 2,481 billion VND. MOF requires DATC to use 70% of its
investment capital to buy debts and assets of enterprises 100% state registered capital which
are in the scheme of enterprise rearrangement, ownership transferring and financial clarity
process.
DATC’s report as of 30th April 2012 shows that 114 bad debt purchase plans have been
completed by DATC in negotiation with commercial banks with the value of approximate
VND8,000 billion. More than 90% of this bad debt’s value is from SOCBs. In the period of 5
years from 2007 to 2011, DATC bought debts for restructuring of 72 enterprise creditors with
the record booking value of VND6,256.1 billion, land cost of debt purchase is VND1,640.3
billion VND (debt purchase rate is 26.6% on average), debt collected value is VND1,486.4
billion, collecting rate is 90.6%. At the moment, DATC is focusing on debt purchase and asset
treatment in EGs and corporations such as Visericorporation, COMA Corporation, Buon Ma
Thuot coffee company, VINASHIN’s subsidiaries. Based on estimation until 2015, DATC
will become a corporation by founding new debt trading member companies and its registered
capital will increase to VND 5,000 billion and its customers are expanded to non-state
enterprises.
However, 8-year operation of DATC shows some weakness and limitation. The legal
framework regulating debt trading (Decision 59/2006/QD-TTg by the SBV on 21st December
2006 on the Regulation of debt sale of credit organizations) has been no longer suitable with
current context, lack of synchronous cooperation and conflicted with other rules. Besides, the
officers’ expertise is still limited and the volume of registered capital is too little in
comparison with total bad debts in SOEs which is estimated to reach VND100,000 billion by
the SBV as of the end of 2011.
State Capital and Investment Corporation (SCIC)
Similar to DATC, SCIC is a special SOE which was established by the decision of PM in
2005 on the proposal of MOF. The purpose of SCIC establishment is to reduce the state’s
intervention into enterprises’ business routine via SCIC’s management of state capital
remaining in equitized SOE. Therefore, while DATC take a big role in pre-equitization,
SCIC’s role is more in post-equitization. SCIC was transformed into one member LLC 100%
state capital by Decision 992/QD-TTg dated 30th June 2010 of which organization includes
Board of Members, Board of Management, Supervisor, supporting departments, etc…

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Minister of Finance Vuong Dinh Hue, was appointed to be President of SCIC’s Board of
Members since September 2011.
In comparison with other SOEs, SCIC is built in a modern mode of organization and
management with special mechanisms approved by the government. Firstly, SCIC’s business
is not multi-industrial and only focuses on one field: investment and management of state
capital and related services, its activities are similar to a “fund” belonging to the government
and business enterprises. Secondly, SCIC is very independent in business activities, as
specified in its operational charter. Most of SCIC decisions are made by itself without any
intervention from ministries or sectors except in some special tasks. Thirdly, SCIC pays high
attention to human resource with good benefits compared to the average benefit of SOEs.
Lastly, the management staff of SCIC has sound expertise in enterprise management.
In the period 2006 – 2011, SCIC had taken the state ownership representative’s right in nearly
1,000 enterprises and then undertaken the restructure of state capital by selling capital of
SOEs that the state does not need to hold or keep influence. Up to now, SCIC divest in 520
enterprises, among them, SCIC fully divest in 466 enterprises with book value of VND 1,280
billion and attained the market value of VND 2,770 billion. At present, SCIC still holds shares
in about 500 enterprises. SOEs that SCIC represents the state capital include giant SOEs such
as Vinamilk, Jetstar Pacific Airlines, Constrexim, Vinaconex, VINARE, HauGiang Pharmacy,
Binh Minh Plastics and FPT. Through divestment activities, the portfolio of SCIC has
decreased in number but total state capital managed by SCIC continuously increased. The
total book value of state capital managed by SCIC has increased from VND7.5 trillion to
VND15 trillion. It is estimated that the capital volume that SCIC collected through divestment
by the end of 2012 is VND 8,000 billion.
In spite of its remarkable contribution to SOE innovation in Vietnam in the last few years,
SCIC displays some weaknesses and impasses, for example, dependence on the government’s
policies, unclear separation between state management role and business role, many SCIC’s
investment projects are led or decided by the government, political tasks beside business
function, lack of transparent information, limited ability of managers in investment
management.
Relationship between SOEs and the government
Ownership and executing state ownership in SOEs
Previously, SOEs Law 2003 only stipulates generally that state is the owner of SOEs and
there are no specific regulations on who will represent state ownership at enterprises.
However, The Law on Enterprises 2005 and its guiding documents have clearly pointed out
the organizations or individuals to be state ownership representatives who, on behalf of the
state, represent state ownership in SOEs.
Accordingly, for SOEs transformed into one member LLCs 100% state capital, the state
ownership representatives are either the organization/individual who previously made
decision to establish the enterprise or SCIC, depending on scale and the sector of business of
the enterprises. Specifically, for enterprises transformed from the parent companies of state
EGs or corporations that the PM had established, the ownership representatives will be the
PM or specialized organization assigned by the PM. For enterprises transformed from SOEs

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that directly serve national defense, security, public tasks, or are parent companies in
corporations, and state holding companies (operating in the form of parent-subsidiary
companies) or agricultural, forestry, farming and forest farms established under decisions of a
ministry or a PPC, the ownership representatives will be that ministry or PPC. SCIC will be
the owner of one member LLCs that were transformed from independent SOEs founded by
ministries and PPCs which do not belong to the above mentioned categories.
With regards to JSCs, as mentioned in The Law on Enterprises 2005, the appointment of state
representatives in a JSC is made by the organization/individual that has authority to do so.
Accordingly, EGs, corporations and parent companies take responsibility to appoint their
representatives of state capital in their subsidiary equitized enterprises. Meanwhile, the PM
decides on appointment of state ownership representatives of fully-equitized EGs and
corporations based on reports from ministries, ministerial-level agencies, other government
agencies or PPCs. For equitized enterprises of corporations and SOEs of ministries or PPCs,
SCIC will take the responsibility to represent and manage the state capital at these enterprises as
specified in the Decision 151/2005/QD-TTg of the PM dated 20th June 2005 on the
establishment of SCIC). However, regulations of this decision have not been totally complied in
practice, firstly because ministries and PPCs are unwilling to transfer or try to delay the transfer
of state capital management in SOEs to SCIC due to big benefit those enterprises may bring in
to them (for example, FAHASA, HABECO and SABECO cases). Secondly, in some other
cases, SCIC, after having taken the right of state ownership representatives in some JSCs, has to
hand over it to other organizations due to limitation in their management capacity and lack of
expertise in business operation (the case of Jestar Pacific is an example).
In one member LLCs with 100% state capital, the ownership representatives have the right to
appoint the company’s BoM or the company’s President, therefore, performance of these
positions normally reflects willing of the representatives. Concurrently, the representative also
has the right to directly approve the decisions prepared by BoM, President of enterprise. That
means the representative will directly involve in approval of decisions related to plan, business
strategy, finance, personnel appointment, investment, loan, asset sale and purchase… In JSCs
and 2-member and more LLCs, the ownership is executed via performance of members in BOD
and BoM. Because of having majority share, the state ownership representative can assign their
representatives to Shareholder Congress, BOD to execute voting right by which affect
enterprise’s business activities. When The Law on Enterprises 2005 become effective, the
government still have no instruction on the operation of ownership of State EGs, State
corporations, hence, the Decree 132/2005/ND-CP on “The implementation of right and
obligation of the owner to SOEs” has been applied though Law on SOEs 2003 has expired. The
Decree also stipulates management levels in EGs, State corporations in compliance with the
founder’s level. Accordingly, the PM approves charter, registered capital, appoints members of
the BOD, GM and projects of EGs established by the PM. And ministries, PPCs decide same
issues of EGs founded by ministries and PPCs.
The biggest inadequate point in regulations on the owner’s authority in SOEs is the lack of a
mechanism allowing owners to supervise. No detailed instruction, forms and reports, criteria
and benchmark has been made for SOEs and the state representatives implement their

Page 18
supervision. Moreover, in the organization of the government, ministries, PPCs, there are
neither departments nor specialized officer assisting the representative in supervising and
monitoring SOEs. The above matters lead to other consequences, including (i) the
responsibility of the representative in business activities and business result of EGs have not
been clearly defined; (ii) the mechanism of appointment of key persons is not transparent so
that capable people are not recruited or promoted; (iii) the government is always in the
passive status in catching up with business activities and trouble raised in EGs because of a
lack of management and supervision of professional ministries such as MPI, MOF in terms of
investment and finance.
Relationship between SOEs and authorities at all levels
The ownership and administration relationship between SOEs and other administrative bodies
performs in 2 levels: national level (PM and ministries, sector belonging to the government)
and provincial level (PPCs).
PM and SOEs
Legal documents related to SOE management display an outstanding role and authority of the
PM, including:
Firstly, the PM directly represents state ownership to parent company of EGs, State
corporations, big scale and important SOEs which are founded by the PM.
Secondly, in the enterprise rearrangement and renovation, the PM is the decision maker in (i)
SOE classification: selecting criteria form and business line of SOEs with 100%, more than
50% or fewer than 100% state capital, selling or withdrawing capital; (ii) approval of
enterprise rearrangement and renovation plans submitted by ministries, EGs, and PPCs. In
order to support SOEs rearrangement and renovation, the PM has set up the National Steering
Committee of Enterprise Reform and Development (NSCERD) with the major task of helping
the PM in building programs, plans of SOE rearrangement and enterprise development
nationwide, monitoring the fulfillment of these programs and plan after approval. At the same
time, this NSCERD cooperates with line ministries to undertake researches on organization
mode, mechanism, policy for SOE rearrangement and enterprise development under The Law
on Enterprises 2005, summaries, reports to the PM about the progress. Accordingly,
ministries, sectors and PPCs establish SOE rearrangement and development committees at
their level with the same functions of territorial level.
Thirdly, the PM has the authority to decide the use of Fund for Supporting Enterprise
Rearrangement and Renovation (FSERR), which is now managed by SCIC. The source of the
Fund is from divestment activities in SOEs of 100% state capital or other rearrangement and
other receivable sources after the equitization, division of profit, equity earnings of state
shares in equitized enterprises. Beside the purpose of support for 100% state capital SOEs,
state agricultural and forestry farms in rearrangement, ownership transfer, compensation
policy for redundant labors and other financial treatments as regulated, this fund is also used
for (i) capital injection to parent company of EGs, State corporations, 100% state capital
SOEs, (ii) investment in important projects or other expenses accepted by the PM.

Page 19
The forth is that the PM has the authority to decide to provide SOEs a loan from the
government’s ODA loan without verification and guarantee.
Fifthly, some SOE’s investment projects related to airports, seaports, petrol, mineral,
television and radio broadcast, casino, tobacco, college establishment, or projects with more
than VND1,500 billion in scale in the fields of electricity, mineral processing and metallurgy,
railway infrastructure construction, road, waterway or brewery, have to be approved by the
PM.
Sixthly, the PM can issue guiding documents to allow special and particular policies,
solutions in order to solve SOEs’ request and proposal, especially for EGs and sometimes
those policies are not in line with laws (for example VINASHIN is lent a loan that exceeds
15% its capital, and this conflicted with Law of Credit Organizations). This is also a reason of
inequality in legal frameworks for enterprises.
MPI and SOEs
MPI is the functional agency, which fulfills state management of planning and investment,
including: consultancy and summary for strategy, planning, social economic development in
general of the country, mechanism, economic management policies and other particular areas.
In relation to SOEs’ activities, the MPI plays some roles; which are (i) the window agency for
SOE rearrangement and renovation, (ii) verification of SOEs’ investment projects, (ii)
drafting guiding documents for the implementation of The Law on Enterprises 2005. Besides,
MPI is assigned to study, draft a number of legal documents (for instance, the decree on
management and supervision of SOEs, important corporations) or regulations (for instance,
the regulation on publicizing information and activities of one member LLC 100% state
capital, regulations of these enterprises’ management…)
MOF and SOEs
MOF is the functional agency who fulfills state management of finance, including: state
budget, tax, fees and surcharges and other state budget’s revenue, state reservation, state
assets, state financial funds, financial investment, enterprise finance, co-operative finance,
collective finance, customs, accounting, independent auditing, price, stock, insurance,
financial service activities and other services in its management’s scope. In relation to SOEs,
besides the function of state ownership representative in SOEs as regulated by laws, the MOF
also has tasks: (i) financial supervision of SOEs, (ii) regulating the mechanism of investment
capital management in SOEs, fulfilling investment capital management via SCIC, (iii) lending
foreign loan of the government and issuing the government’s guarantee, (iv) handling with
enterprises facing business difficulties, (v) fulfilling functions of state management of price
following the Ordinance and Law of Price 2011 for the commodity and service’s prices which
are monopoly supplied or influenced by the state.
Other ministries and SOEs
The relationship between ministries and SOE is divided into two types: state ownership and
state management.

Page 20
The ownership relationship is the right and obligation’s fulfillment of ministries as the state
ownership representative in accordance with the government’s assignment and hierarchical
for one member LLCs 100% state capital and for the state capital invested in other enterprises
under the Law on Enterprises 2005. Besides presenting ownership to enterprises under the
ministry, line ministries also consult and assist the PM to manage state EGs as stipulated in
the Decree 101/2009/ND-CP on the experimental establishment of EGs. Specifically, 7
ministries implement this function: MOC, MOT, MOIT, MARD, Ministry of Defense, MIC,
MOF correlative to 13 state EGs.
State management on SOEs includes guiding and checking the implementation of regulations
in sectors, business and services which requires conditions for establishment and doing
business as regulated and listed by the government as well as dealing with SOEs’ violation.
There is a hidden ask-give mechanism in this relationship between SOEs and related
ministries in activities of sector planning, conditions and criteria for sector entry, business
operation, etc. which lead to the monopoly position or influence of some SOEs.
Annually ministries decide public investment projects (type B and C) or are assigned by the
PM to be the investor of type A investment project from development investment capital,
ODA, state credit, etc. There is a trend that ministries give priority to their SOEs so that these
SOEs can be the vendors of the projects.
PPCs and SOEs
The relationship between PPCs and SOEs mainly focus on 3 issues: (1) implementing
ownership functions to SOEs, (2) land-use management to SOEs in the territory, and (3)
oversight of budget and investment in the province. PPCs have authority to hand over the
land-use, provide land-use right to SOEs for investment projects in compliance with Law on
Land 2003 and other related legal documents. Despite there is no different regulation about
procedures, conditions for land-use assignment between SOEs and other types of enterprises,
SOEs especially SOEs under PPCs have more advantage of land-use assignment because of
this ownership relationship.
Management on investment and capital mobilization of SOEs
Investment management
The legal framework on SOEs’ investment is same as for other enterprises of different
economic entities in general. Investment activities of enterprises in general and SOEs in
particular are regulated by Law on Investment 2005 and its instructional documents.
Accordingly, definition of investment activity of an enterprise is that the investor puts its
capital in form of visible assets or invisible assets in investment activities to create new assets
in compliance with laws. Investment activities can be divided into 2 types: direct investment
(the investor puts capital into and are involved in investment management), indirect
investment (investment via the buying of share, stock, bond, valuable papers, securities funds
and other indirect financial institutions without direct management of the investor). In order to
undertake investment activities, SOEs can found an economic entity with 100% investor

Page 21
capital, a joint-venture or invest in developing business, purchasing equities or capitalizing
investment activities, and invest in mergers and acquisitions of enterprise.
SOEs are allowed to use the following kind of capital for investment: (1) state budget, (2)
state credit for development investment, (3) government-guaranteed credit, (4) SOEs’ capital
for development investment, (5) SCIC’s capital. Generally, SOEs having investment projects
usually abide by the regulations on appraisal and registration for their projects like other
investors in accordance with the Law on Investment 2005. However, there is one procedure
only applied for SOEs’ investment projects, which is the procedure of verifying and
approving the use of state capital for SOEs’ investment. In correlative to the above mentioned
types of capital, the respective concerned agencies have authority to verify and approve the
use of state capital for investment. Specifically, the project using state budget capital will be
appraised and approved by the agency which has authority to use that budget. Similarly, the
project using state credit for development investment will be approved by DVB. The project
using government-guaranteed credit will be verified and managed by MOF. The project using
the SOEs’ capital for development investment will be carried out by BoM (or General Manager,
or Manager in the case of no BoM). After verification, these authorized agencies will send a
notice in writing to the investor on the decision to approve or refuse the use of state capital for
the investment. Verification content includes: (i) project’s compliance with the approved
strategies, planning, Socio-economic Development Plans at territorial level or provincial level,
(ii) state capital investment’s compliance with the objective, effectiveness and management
method, (iii) project’s compliance with investment support policy (if any), (iv) progress and
term of investment implementation, (v) feasibility of repayment of invested capital, loan
payment and its plan, and (vi) investment rate of return in terms of finance and social economic).
Management of capital and credit of SOEs
The existing regulation shows that SOEs can mobilize capital from some sources, including: (1)
credit of domestic credit organizations, (2) foreign loan with or without government’s guarantee,
(3) state invested credit or export credit (DVB), (4) enterprise’s bond (with or without
government’s guarantee), and (5) ODA capital as the government regulation on on-lending.
There is no difference between rules for SOEs and other enterprises in loan from credit
organizations, especially commercial banks. However, SOEs normally have more advantage in
approaching this source of capital because commercial banks have a tendency of appreciating
SOEs and consider SOEs’ properties and land-use right more reliable. Besides, the owner of
SOEs, especially EGs can get permission letter or agreement letter issued by the government for
credit provision. This practice makes the banks understand that the government guarantees the
loans.
ODA on-lending is applied for SOEs in two mechanisms: MOF directly on-lend to the
enterprise after PM's approval of unappraised projects and guarantee or assign the loan via DVB.
Although bond issuance is an important source of capital mobilization for enterprises because
of its high stability, until 2011 the government issued Decree 90/2011/ND-CP dated 14th Oct
2011 about the enterprise’s bond issuance, the legal framework of this type of capital
mobilization has just been detailed and suitable with reality. In order to issue investment
bonds for programs/projects, the issuer has to maintain and ensure a part of 20% as minimum

Page 22
of owned capital in total capital of the program/project. However, besides meeting the
conditions of operation duration and business performance results to issue bond, SOEs must
have bond issuance plan approved by the authorized agency to avoid the extensiveness and
inefficiency of SOEs loan which probably leads to insolvency. For domestic bond issuance,
the owner of SOEs has the authority to approve the plan, while for foreign bond, the plan
must be approved by the PM. Methods of bond issuance include: auction, guarantee issuance
via agency, and direct sale to the investor, (this is not applicable to state credit institutions).
For foreign loan, SOEs directly borrow loans and take self-responsibility to repay to the
foreign credit organizations without the government’s intervention (except loan guaranteed by
the government). In the case the foreign creditors request a guarantee from a commercial bank
or a credit institution, SOEs can seek a guarantee from non-resident but have to make sure
that it is not illegal or does not violate Vietnam laws. SOEs’ foreign long-term and middle-
term loan have to be calculated in the annual overall plan of commercial loan limit approved
by the PM and have to meet long-term and middle-term loan conditions as regulated by SBV.
SOEs’ short-term loan from foreign credit organizations has to be in the annual overall plan of
commercial loan limit approved by the PM and has to meet short-term loan conditions as
regulated by the Governor of SBV. SOEs’ credit withdrawal or loan repayment to foreign
credit organization has to be made via banks operating in Vietnam and eligible for providing
foreign exchange services. In case of direct repayment, the enterprise needs to report and
consult with authorized state agencies as in regulation.
At present, SOEs is the group of enterprises which have the highest credit volume in DVB in
terms of investment credit and export credit. The source of credit via this channel is ODA on-
lending under MOF’s authorization, revolving target funds, or donors’ trust fund such as KfW,
EIB, Finland, and development credit from the state budget, government bond, DVB’s bond
or valuable papers. If an SOE wants to approach this source of capital, it has to meet some
particular regulations in the Decree 75/2011/ND-CP dated 30th August 2011 on “state
investment credit and state development credit”. However, in reality, the support of DVB for
SOEs is sometimes over the control of these regulations, because of the government’s
interference.
About the government’s guarantee, though the existing laws state that enterprises of all
economic sectors can receive the government’s guarantee, most of them now are for SOEs,
including State corporations and EGs in reality. Reports of the MOF as of September 2011
show that total government guaranteed credit of SOEs account for 17.5% of SOEs’ credit
balance. The conditions of being guaranteed by the government have been fairly specified in
the Law on Public Debt Management 2009 and Decree 15/2011/ND-CP on the Provision and
Management of Guarantee by the Government dated 16th February 2011 which is related to
loan’s value, bond issuance, the field of the program/ project, borrower, bond issuer.
Generally, the list of programs/projects considered to be guaranteed by the government
include some fields such as energy and mineral exploitation, construction, infrastructure
development and composition, programs/projects of focal mechanic production for replacing
imported goods, focal projects decided by the PM or the Congress of all fields. MOF is the
window agency of the government to fulfill the state’s management of foreign loans and loan
repayment. MOF in cooperation with SBV builds and submits the PM the long-term, middle-
term annual program on foreign loan and loan repayment of the government, public
organizations and the limit of commercial foreign loans of the nation, simultaneously takes

Page 23
charge of reporting to the PM about the adjustment of limit of commercial foreign loans in the
case the limit has been reached and the government guarantee is still requested.
Financial supervision on SOEs
Financial supervision by the owner
Existing laws allow the owner of SOEs to monitor SOEs’ financial standing in two forms: (1)
regular supervision and (2) special supervision when the SOE is in difficulty and loss. (SOEs
operating in the fields of finance, banking and insurance are regulated by the Law on Credit
Organizations).
Regular supervision is done to fully catch up opportunities, difficulties and problems of SOEs
for solutions, competitiveness improvement and efficiency of capital use. Based on the annual
financial report of the SOE, rating will be done based on each of the following criteria (i)
turnover, (ii) profit and profit margin of state capital, (iii) overdue debts and due debt repayment
ability, (iv) the abiding laws, policies, mechanism of related issues, and (v) implementation
status of public goods and services. The criteria selection depends on types and business
objectives of the enterprises and is stipulated in the Regulation on Supervision and Evaluation
of SOE’s Effectiveness issued together with Decision 224/2006/QD-TTg dated 6th October
2006 by the PM. The rating includes 3 categories: A, B and C based on evaluation of selected
criteria. After the enterprise’s self-assessment and classification, the owner will verify and
publicize the result on the website of the SOEs or national newspapers. In particular, the rating
result of corporations or parent companies will be publicized after getting comments of MOF.
The purpose of special supervision is to find out the reason causing the SOE’s loss and ineffient
activities for decision of support or treatment with SOEs or SOEs’ managers. SOEs must be
under special supervision if (i) making loss in 2 continuous years, (ii) making loss in one year
and losing 30% or more of capital, (iii) making profit in one year between two loss-making
years, and (iv) having solvency ratio smaller than 0.5
After receiving quarterly and annually reports from the SOE, the owner in cooperation with
financial agency at the same level conducts supervision of the SOE in order to confirm the
accuracy of the report and analize, assess aspects such as manufacture, sale, inventory, supply,
material use, the goods, fulfillment of targets, technology, labor, loan volume, loan
repayment, ’corporate governance to gives suitable recommendations. Depending on the result
of supervision and fulfillment of recommendation of the SOE, the owner will decide the
treatment for the SOE. If in two next years the SOE ceases making loss, fulfills all required
supervision recommendations, the SOE will be deleted from the special supervision list. If the
SOE does not fulfill supervision recommendations, the manager will be blamed and warned and
not be given bonus or salary increase. If the SOE does not fulfill supervision recommendations
as well as the recommendation directly related to loss ceasing, the SOE’s manager will be
dismissed and replaced. If the enterprise fulfills supervision recommendations in 2 continuous
years but still makes loss, the SOE will be equitized, or liquidated or bankcrupted as regulated.
In general, legal framework for SOEs still has some loopholes. Related legal documents are
inadequate or unclear. For example, criteria for evaluation of business efficiency still applies
the provisions provided for by the expired Law on SOEs 2003, thus, EGs are not under

Page 24
regulation of the current law. Besides, the criteria is limited and unable to totally appreciate
SOE’s business activities. Other inadequate thing is that is the capital that the parent company
of economic groups or state general corporations invested in their subsidiary companies
considered as state capital or not, and how this issue should be regulated. Besides, the rating
fulfillment for enterprises has been more formal rather than actual, has not brought effects to
the assessment and problem determination in administration and management. The use of
business result assessment to decide to put or withdraw investment capital of the owner is
limited.
Financial supervision by SA
SOEs are subject to supervision of SV in accordance with Law on State Audit 2005. The SV
has the right to audit regulation compliance, financial reports and activities of SOEs.
Activities of Government Inspectorate in accordance with Law on Inspection
SOEs are subject to inspection of Government Inspectorate. At territorial level, EGs and
enterprises established by the PM will be subject to inspection of government inspectors.
SOEs under Ministries/PPCs are under inspection of their owners. Inspectors can conduct
annual or sudden investigation when violation signal appears in the enterprise. After the
investigation, the inspector will publicize conclusions and recommendations of solution to
concerned authorities or request the concerned investigation agency to investigate and
prosecute if there is criminal signal.
SOE rearrangement and renovation
Forms of SOE rearrangement and renovation
Existing laws list some different forms of SOE rearrangement and renovation as follow: (1)
transformation to 100% state capital LLC under The Law on Enterprises, (2) equitization, (3)
sale and assignment of enterprise, (4) mergers and acquisitions, division and (5) dissolution
and bankruptcy.
Procedures of SOE rearrangement and renovation
SOE rearrangement and renovation is carried out in 5 basic steps. The first is SOE
classification in accordance with Decision 14/2011/QD-TTg dated 04th March 2011 by the
PM on the criteria and classification of SOEs. Based on the criteria, Ministers, heads of
ministerial-level agencies, heads of governmental agencies, chairpersons of PPCs, BoM of
EGs and State Corporations 91are responsible for the plan of SOE rearrangement and
renovation for their SOEs to submit to the PM. The PM will assign concerned ministries,
agencies to comment on the submitted plans (for example, MPI for planning activities and
capital structure, MoF for finance and capital and MoLISA for labor, job-related issues…).
Upon receiving comments of Ministries, the PM issues a guiding document on approval of
plans for SOE rearrangement and renovation for implementation.
The government and ministries will issue guiding documents for almost all forms of SOE
rearrangement and renovation on subject, conditions for application, implementation
procedure, right and obligation of concerned organizations and other issues. The

Page 25
transformation of SOEs into 100% state capital LLCs is regulated by Decree 25/2010/ND-CP.
Sale and Assignment of enterprises is undertaken in accordance with Decree 109/2008/ND-
CP. SOEs’ dissolution is stipulated by Decree 180/2004/ND-CP and Circular 04/2005/TT-
BKH before 1st July 2010 and under The Law on Enterprises 2005. SOEs’ bankruptcy is
subject to regulation of Law on Bankruptcy 2004.
Equitization accounts for major proportion of SOE rearrangement and renovation activities (in
the period 1992-2011, about 4,000 enterprises were equitized, accounting for 70% rearranged
SOEs). Legal framework has been developed since 2002, as 4 changes are recorded as
issuance of Decree 64/2002/ND-CP, Decree 187/2004/ND-CP, Decree 187/2004/ND-CP,
Decree 109/2007/ND-CP and the latest is Decree 59/2011/ND-CP. Due to changes in legal
framework, the process of SOE equitization is implemented slowly. The main reason is
obstacles in calculating value of land-use right with geographical location advantage in
assessment of the SOE. SOE equitization of SOE is also subject to many regulations of many
governmental agencies, for example Circular 202/2011/TT-BTC of MOF about pre-
equitization asset treatment, Circular 196/2011/TT-BTC about initial public offering (IPO),
Circular 196/2011/TT-BTC about expenses for equitization, and Decree 91/2010/ND-CP
about labor policy in equitized enterprises.
Conclusion and recommendation
The application of The Law on Enterprises on SOEs’ operation has been done smoothly and
conveniently. However, some aspects of SOEs’ operation are subject to other specific
regulations and this practice creates some inconsistency. Therefore, a completion of legal
framework for SOE is needed, including the issuance of guiding documents for The Law on
Enterprises in particular for SOE operation to avoid the application of guiding documents of
expired Law on SOEs, and the issuance a specific rule for state capital management in SOEs
or put into the draft of Law on Public Investment as an important part in order to ensure the
effective management on state capital.
In rearranged SOEs, the labor force and management do not change much. The application of
The Law on Enterprises 2005 will surely raise new matters in organization structure and
enterprise management and operation; thus, it is necessary to undertake methods to improve
capacity of officials involving in enterprise’s management. At the same time, it is necessary to
limit the concurrent and part-time engagement in the Board of Members and BOD of SOEs,
especially in big enterprises in order to enhance their business activities and supervision.
Another issue is that many agencies are playing the role of owners for one SOE, including
administrative agencies and business enterprise such as the PM, PPCs, sector ministries,
parent company in parent-subsidiary enterprise mode, EGs and SCIC. However, there is no
supporting system to provide consultancy and summary to help the PM, ministries, PPCs in
these agencies’ to fulfill the ownership. Simultaneously, the delay in transferring of some
JSCs’ ownership from ministries to SCIC should be tackled to ensure the determination and
compliance to legal regulations in effect.

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PART I: MAJOR MILESTONES IN REGULATIONS ON STATE OWNED
ENTERPRISES (SOEs)
I. The period prior to the Law on SOEs 2003
Prior to 1995, management of SOEs in Vietnam was regulated by Decision No. 332-HDBT
dated 23/10/1991 by the Council of Ministers (which is now the Government) on preservation
and development of state capital in SOEs and guidance of the MOF, i.e. the ministry in charge
of the sector. However, by this time state regulations on SOE financial management were not
comprehensive and completed.
In 1995, to enhance the effectiveness of legal documents on management of SOEs, the
National Assembly (NA) issued the Law on SOEs 1995. After that, the Government issued
Decree No. 59 dated 3/10/1996 on mechanism for financial management and accounting of
SOEs and Decree No. 27/1999 dated 20/4/1999 on amendment and supplementation to
Decree 59.
According to the legal documents, SOEs had the rights to manage and use capital, land,
natural resources and other resources which was assigned by the State as regulated by law to
achieve business targets or perform tasks for public interests as assigned by the State. SOEs
were responsible for accounting and monitoring accurately all the asset and capital under its
management in accordance with law. SOEs had the right to use capital and funds to serve
their business on the principle of capital preservation and development, the right to change the
asset and capital structure for production and business, to use the asset and capital within their
power for investment outside the enterprises, to mobilize capital in the form of bond issuance,
borrowing, joint-ventures, etc...
Management agencies were responsible for checking and comparing debt situation,
classifying debts to introduce appropriate measures, and re-evaluating SOE assets. MOF was
the agency that managed the asset and capital of the State in SOEs. Ministries and PPCs
executed the ownership of the State over their enterprises as delegated by the Government.
However, the implementation of Law on SOEs 1995 and the Decrees of the Government on
SOE financial management became to show certain limitations as Vietnam started economic
reform to move to a more market economy with socialist orientation; the subsidiary
mechanism showed some constraints for the development of SOEs; SOEs needed a more open
mechanism to leverage their autonomy in production and business to fully play the key role of
the State in the economy.
II. The Law on SOEs (2003 – 2010)
Facing the inadequacy of policies on SOEs in the development of market economy in
Vietnam, in 2003, the NA issued the Law on SOEs 2003 to replace the Law on SOEs issued
in 1999. To provide guidance for the Law, the Government issued Decree 199/2004 dated
3/12/2004 on regulations for SOE financial management and management of state investment

Page 27
in other enterprises1. The PM issued the Regulation on Monitoring and Evaluation of SOE
efficiency (attached to Decision No. 271/2003/QD-TTg dated 31/12/2003).
However, during the operation of SOEs, some problems had arisen due to the
inappropriateness of the regulation at that time: mobilized capital became many times as
much as their equity and investment outside the main business. Therefore, the Government
issued Decree No. 09/2009/ND-CP dated 5/2/2009 to replace Decree 199/2004; the PM
issued Decision No. 224/2006/QD-TTg dated 6/10/2006 to replace Decision 271 on the
Regulation on Monitoring and Evaluation of SOE efficiency.
Box 1: Too much debt of SOEs
Total amount of SOEs’ debt was VND 1,008 trillion while their equity was
VND 790 trillion.
On average, the debt-to-equity ratio of SOEs was 1.36. However, up to 30
SOEs had this ratio of more than 3.
Typical examples were Truong Son Construction Corporation, LICOGI,
HUD, EVN and VINALINES with the debt-to-equity ratios of 9.19, 4.79, 4,
3.83 and 3.12 respectively.
Compared with the total bank loan balance of SOEs, this amount made up
more than half of the total bank loan balance of the whole banking system
(about more than VND 2,500 trillion).
Source: Minister of Planning and Investment Bui Quang Vinh on website: www.chinhphu.org.vn on
Mar 2012.
According to the above-mentioned documents, management of state investment in SOEs had
the following changes:
- When establishing new enterprises or adjusting the charter capital to the size and
structure of an SOE, the owner’s representative is to get agreement with MOF on the
capital amount and the source of capital. SOEs could receive the charter capital from
State budget. The Government and National Assembly have the authority to increase
SOEs’ charter capital. The use of fund for enterprise rearrangement for EGs, corporations
or parent companies to increase the charter capital of SOEs must be approved by the PM.
- SOEs had the right to actively use state capital, other capital sources and funds under
their management for business and production activities. SOEs were responsible for
capital preservation, development and efficiency to state-management agencies. SOEs
were decision makers of loan contracts with value of up to 3 times as much as the charter
capital. If an SOE needed an amount over this limit, it must report to the owner’s
representative for consideration and decision based on efficiency of the project. After
1 “Other enterprises” means the enterprises in which state capital makes up less than 50% their charter capital.

Page 28
decision was made, the owner’s representative was responsible for informing MOF for
cooperation in monitoring and supervision.
- SOEs had the right to use the asset and capital under their management to invest abroad.
SOEs’ capital invested in other enterprises must comply with regulations, in line with the
strategy, master plan and development plan of SOEs to ensure the principle of efficiency,
capital preservation and development, and profit growth without affecting the delivery of
their production and tasks assigned by the State.
- At the same time, to ensure efficient management of investment capital and SOEs’
concentration on their key tasks, the Government regulated that SOEs had to use at least
70% of their total investment capital in main business. The total capital invested in non-
core business (including short- and long-term investment) could not exceed the charter
capital of the SOE. As for investment in banking, insurance or securities, the SOE could
only invest in one enterprise in each area with investment amount of no more than 20%
of charter capital of the invested enterprise; capital contribution of a parent company and
its subsidiaries could not exceed 30% of charter capital of the invested enterprise.
Exceptional cases that exceeded this limit must be reported to the PM for consideration
and approval.
- The profit split mechanism in SOEs was decided based on business and production
efficiency and SOE rating results. Enterprises with special capital structures had adjusted
profit sharing mechanism. For enterprises that do not conduct evaluation and rating
according to current regulations, they could not establish a fund for rewards and bonus.
- The right and obligation of the state ownership representative in other enterprises were
clearly provided. The full-time representative received an allowance paid to the state
ownership representative2 besides the profit sharing from state capital in the enterprise.
On top of the salary, responsibility allowance, bonus and other benefits are provided
based on the regulation of the enterprise. For a representative who is a part-time member,
the salary, responsibility allowance (if any), bonus and other benefits should be paid by
the state ownership representative. In addition, the representative had the right to buy
additionally-issued securities and/or convertible bonds upon decision of the SOE’s owner.
- Regarding the owner’s representative, the Government issued Decree No. 132/2005/ND-
CP dated 20/10/2005 on implementation of the right and obligation of SOE owners and
Decree No. 86/2006/ND-CP dated 21/8/2006 on amendment and supplementation to
Decree 132. In accordance with the authorization and delegation of the Government, the
PM directly performed the right and obligation as owner of critical groups and
corporations. Ministries and PPCs were the owner’s representatives of state capital in
SOEs under the management of the Ministries and PPCs. MOF performed some rights
and obligations of the state ownership in SOEs. The BOD consisted of representatives of
the owners in the SOE charter capital as regulated by Law on SOEs. The state investment
in shareholding companies was regulated as follows:
2 State ownership representatives are individuals authorized by the State to manage State capital atSOEs,
includingmembers of Member Councils of statecapital LLCs,members of BOM of JSCs or chairmen of Member
Councils of State-owned one-member LLCs.

Page 29
 In case a JSC had been transformed from a subsidiary of an EG or a corporation, the
parent company or the EG/corporation continued to send its owner’s representative
in the JSC.
 A shareholding company could become an independent SOE under direct
management by the Ministry, the sector or the locality, in which the corporation that
invested state-owned capital acted as the owner.
 For State corporations, the State conducted step-by-step capitalization on a case-by-
case basis. The PM assigned the line ministry or the corporation that invested state-
owned capital to act as the owner’s representative.
III. Application of the Law on Enterprises 2005
Since the effect of the Law on Enterprises from 1 July 2006, the Law on SOEs 2003 has
become ineffective. All SOEs have to become either shareholding companies or 100% state
capital one-member LLCs to comply with the Law on Enterprises. This marks an end to the
discrimination in the form of economic sectors in the law; thus, whatever economic sector an
enterprise belongs to, the enterprise has to operate in a fair play ground under regulation of
the Law on Enterprises.
The Law on Enterprises only keeps the most basic legal frame for SOEs. According to the
Law, state ownership over SOEs is in accordance with the principle: (1) performing
ownership as an investor; (2) state capital preservation and development; (3) separation of the
right as SOEs’ owner from the state administrative function; (4) separation of the right as
SOEs’ owner from business autonomy of enterprises; (5) respect for business autonomy of
enterprises; and (6) concentration and consistency in implementing the owner’s rights and
obligations over capital.
To provide the guideline for the conversion of SOEs into other forms of enterprise as required
by the Law on Enterprises and completion of the legal framework for management of SOEs,
the Government has issued many legal documents such as: Decree 109/2007 on conversion
of SOEs into shareholding companies; Decree 111/2007 on organization and management of
state corporations and transformation of state corporations, independent SOEs, parent
companies in the form of parent - subsidiary companies; Decree 109/2008 on sale or
assignment of SOEs; Decree 101/2009 on pilot establishment, organization, operation and
management of state EGs; Decree 25/2010 on transformation of SOEs into one-member
LLCs and management of state one-member LLCs, and some other legal documents issued by
the PM and Ministers to provide guidance for these decrees.
During this period, there have been some important changes in the policies on SOEs. The
policies for the management and conversion of SOEs were issued in a rather synchronous
manner. Over the past years, although the total number of SOEs decreased, their scale in
terms of capital in important sectors/industries increased and their efficiency is improved.
SOEs have contributed to setting the direction and played a key role in some economic sectors.
However, there remain short-comings with SOE operations. Some SOEs operate in areas that
the State does not need to maintain its control. State EGs have not concentrated on their core
business activities. The efficiency and competiveness of SOEs in business and production do
not match the resources assigned to them. Therefore, at present, the policy for management of

Page 30
SOEs is in the process of research and many amendments are being made to the existing legal
documents such as Decree 132/2005 and Decree 86/2006 on exercising the right and
obligation of the State as SOEs owner, Decree 101/2009 on pilot establishment, organization,
operation and management of state EGs, Decision 224/2006 by the PM on the issuance of the
regulation on monitoring and evaluating the efficiency of SOEs…

Page 31
PART II: GENERALDESCRIPTION OF SOEs, GOVERNANCE OF SOEs AND
TWO TYPICAL SOEs (DATC & SCIC)
I. Definition of SOEs and operating models of SOEs
The changes in the legal environment for SOEs mentioned above have, to a certain extent,
displayed the movements of SOE reform in Vietnam, one of the key areas for restructuring
the economy. The definition of SOEs has been changed accordingly over the period.
The Law on SOEs 1995 defines that an SOE is an economic organization that the State
invests in, establishes, organizes and manages to do business or to serve public interests to
achieve the socio-economic targets assigned by the State. According to this law, SOEs exist
in the form of independent enterprises, corporations, subsidiaries of a corporation. However,
according to the Law on SOEs 2003, an SOE is an economic organization with charter
capital is owned by the State or in which the State has a share or a dominating capital share;
it has a form of an SOE, a shareholding company or an LLC. As compared with the Law on
SOEs 1995 this definition is broader with various forms of enterprises; it does not define the
objective of SOEs as to achieve the socio-economic objectives assigned by the State and there
is no longer the concept of enterprises for public interests.
However, since the The Law on Enterprises 2005 took effect in July 2006, the definition of
SOEs is understood as follows: “SOE” is an enterprise in which the State owns more than
50% of the charter capital and operates in accordance with the Law on Enterprises”. (Article
4.22, The Law on Enterprises 2005). The Law on Enterprises 2005 set a timeframe of 4 years
its effect date, for SOEs (which were being managed and operating in accordance with Law
on SOEs 2003) to be transformed to limited companies or shareholding companies with
management and operation in line with current regulations. Therefore, as provided by The
Law on Enterprises 2005 and the decrees which provide guidelines for the conversion of
SOEs into limited companies or shareholding companies (Decree 25/2010/ND-CP and Decree
109/2007/ND-CP). Accordingly, SOEs consist of the following forms:
(1) State one-member LLC
(2) LLC with two members or more in which the State owns more than 50% of the charter
capital. (In reality, the number of these enterprises is very small, the majority of SOEs is
in the form of one-member LLC or shareholding companies)
(3) Shareholding company in which the State, an SOE or State ownership representative is
one shareholder of more than 50% of the charter capital.
However, in addition to the types of SOEs provided by The Law on Enterprises, there are
other forms of SOEs. These enterprises are established and operate based on specialized laws
for target investment activities. Specifically:
(4) State EGs
Actually this is a typical type of SOEs that applies a pilot model provided in Decree
101/2009/ND-CP on pilot establishment, organization, operation and management of state
EGs. These SOEs is directly controlled and operated by the PM.
(5) Typical enterprises, including:

Page 32
a. SOCBs that operate in accordance with the Law on Credit Institutions
b. State-owned insurance companies that operate in accordance with the Law on
Insurance Trading
c. Bank of Investment and Development of Vietnam (BIDV), Social Policy Bank of
Vietnam (SPBV)
d. State Capital and Investment Corporation (SCIC) under MOF
e. Debt and Asset Trading Corporation (DATC) under MOF.
II. SOE organization and governance under The Law on Enterprises
1. 100% state capital one-member LLC
According to The Law on Enterprises and Article 19 of Decree 25, there are 03
management models for SOEs that are 100% state capital one-member LLCs, including:
(1) Company managed by Board of Members and Director (Chief Executive Officer
(CEO)), controllers
(2) Company managed by Chairman and Director (CEO), controllers
(3) Company managed and directed by BOD, and Director (CEO), BOC.
For state EGs, the model with Board of Members or BOD is mandatory; for the rest of
the enterprises, the owner has the authority to shape a model for the company to suit its
size and activities.
a. Board of Members in LLC model includes Board of Members – CEO
Article 21 of Decree 25 provides that a Board of Members should have 7 members at
maximum including full-time and part-time members. The Board of Members of a
parent company of a state EG has between 05 and 09 members. The members in the
Board of Members are appointed by the owner.
In reality, the Board of Members of a one-member LLC often has 5 people.
The working mechanism and the organization structure of different Boards of
Members are also different, depending on the owners, specifically:
 For subsidiary companies in the model of holding company or in a state EG,
there are often 3-5 members. Full-time members include director, chairman of
Board of Members, chief accountant (or controller), and 1 or 2 part-time
members from the parent company.
 For a company directly belonging to the PPC, the Board of Members often has
between 3 and 5 people with 2-3 direct managers of the enterprise and at least 1
member appointed by the provincial department in the same sector as the
enterprise. For companies belonging to ministries, part-time members are often

Page 33
appointed by the planning – investment unit of the ministry such as the
Department of Planning and Finance, the Department of Planning and
Investment.
b. Chairman in one-member LLC model includes chairman- CEO
For small companies, the owners tend to select the one-member LLC model that has
Chairman-CEO. For this model, Chairman often acts as CEO. Small companies are
often organized according to the model of one-member LLC; the function and task of
the chairman of Board of Members are similar to those of Board of Members.
c. Controller
Decree 25 provides that state one-member LLC must appoint controllers with the right
and obligation provided in Article 71 of the Law on Enterprises. Controller shall have
three following authorities:
 Appraise the accuracy and validity of the accounting reports and business plans
of the company
 Check and ensure the legality, honesty and carefulness of the Board of Members,
chairman and CEO in the management and operation of the company
 Make recommendations to the owner to amend and supplement the regulations
on the management and operation of the company.
In reality, most of the companies only appoint one single controller outside the staff of
the company. Controllers’ activities are mere formalities due to the following reasons:
 Controllers receive salaries from the enterprises, so their independence and
objectivity will be affected;
 All transformed enterprises have no experience in appointment and maintenance
of the activities of controllers in the organization structure
 Most of controllers have not been trained enough to really understand and apply
their rights and obligations in enterprises.
d. Director (CEO)
The provisions on the director’s rights and obligations in Decree 25 are rather short.
Article 23 of Decree 25 provides that: CEO is the person who directs the daily
activities of the company according to the objectives, plans, resolutions and decisions
of Board of Members in line with the Regulations of the company; CEO is
accountable to Board of Members and the laws for implementing the assigned rights
and obligations.

Page 34
The provisions on CEO’s rights, obligations and benefits are too sparse in guiding
documents The Law on Enterprises for SOEs while CEO directly runs the daily
business of the enterprise and makes decisions that directly affect its business results.
For SOEs that were transformed in 2010-2011, most of the directors and key officers
of the enterprises were retained and this has both pros and cons. On the one hand, the
continuity of the director will ensure the continuous operation of the enterprise; on the
other hand, the habit and practice of the former model still exist over a certain period
after conversion.
2. State shareholding companies
Management of state shareholding companies includes three following major units:
 General Assembly of Shareholders (GAS)
 The BOD
 Board of Controllers
 CEO
a. General Assembly of Shareholders (GAS)
According to The Law on Enterprises, GAS has two types (1) Annual GAS and (2)
Irregular GAS (Article 97.1).
Regarding the participation of the owner’s representatives at a GAS, Article 14.1.b
Decree 139/2007/ND-CO guiding the implementation of The Law on Enterprises
provides that an organization shareholder owning at least 10% of the total popular
shares has the authority to send three people to the GAS. Therefore, a shareholder that
is a state-owned agency owning more than 50% of the total popular shares has the
authority to send only three people to attend GAS. We can see that Article 96.3 of the
Law on Enterprises 2005 does not limit the number that a shareholder has authority to
send; however, the limit of authorized people is provided in Article 14 Decree 139 on
guiding the implementation of the Law on Enterprises 2005. From the viewpoint of a
shareholder’s rights, this limit also means the limit of the authority of a state
organization shareholder. However, from the viewpoint of management, to a certain
extent, this limit is necessary to avoid difficulties or even a stuck in the proceeding of
a GAS due to too big number of participants causing huge costs and difficulty in
finding an appropriate GAS venue …
b. The Board of Directors (BOD)

Page 35
In a shareholding company, because the State holds more than 50% of charter capital,
members of the BOD who are appointed by the State (or the Owner) always account
for the majority of the BOD.
The BOD of these companies often includes 5 or 7 members, out of which at least 3
members (in case BOD has 5 people) or 4 members (in case BOD has 7 people) of the
BOD are always assigned by the State.
The representatives assigned by the State often hold the following positions:
 CEO
 BOD Chairman
 Part-time representatives from the ministry or parent company (in case the
shareholding company owns more than 50% of shares of its parent company).
The provision of The Law on Enterprises 2005 shows that power of BOD is
considerably shared with the GAS. BOD has little financial power because a part of it
power is held by the GAS. Its role of supervision is decreased due to the existence of
an independent BOC. In general, the rights and tasks of BOD can be classified into the
following groups:
 The rights to make recommendations:
- Recommendations on the type of shares and total number of shares for each
type;
- Recommendations on the re-organization, dispersal or request for bankruptcy
of the company;
- Recommendations on dividends, dividend payment deadline and procedures,
or loss handling in the business.
The rights to make recommendations of BOD come from the need to prevent
inaccurate voted decisions made in the GAS due to insufficient information about
the company and the market for the sake of the company and shareholders. In the
meantime, BOD members are normally businessmen who have access to various
flows of information about the business market, so they can make analysis to make
valuable recommendations for shareholders’ reference as the basis voting.
 The rights to make decisions:
- On business:
o Decisions on the medium-term strategy and plans and annual business
plans of the company
o Decisions on investment plans and investment projects within the authority
and limits as provided by the Law on Enterprises or the regulations of the
company
o Decisions on the solutions for market development, marketing and
technologies.

Page 36
- On the finance:
o Decisions to offer new shares within the limit for shares offered for sale of
each type; decisions on additional fund mobilization in other forms.
Here it is necessary to distinguish between the authorities of the GAS and
those of BOD. If the GAS has the right to make decisions on the total
number of shares offered for sale for each type without directly deciding
how to sell, at which price and when to sell… which are within the
authorities of BOD, i.e. BOD has the rights to offer new shares within the
limit (total) of shares offered for sale defined by the GAS. This split of
authorities proves to be reasonable because only the BOD has enough
conditions to decide when to sell shares for the best interests of the
company and the shareholders.
o Decision on the prices of the shares and bonds offered by the company.
o The BOD has the right to buy back not more than 10% of the total number
of shares for each type that have been offered for sale every twelve months
(in other cases, the re-buying of shares is decided by the GAS)
o To approve contracts on buying, selling, borrowing, loans and other
contracts with the value of 50% or more of the total asset recorded in the
most recent financial statement of the company or a lower rate provided at
the Regulations of the company, except for the contracts and transactions
provided at Terms 1 and 3 of Article 120 of the Law on Enterprises.
What should be noticed is that among the rights on finance, according to
the Law on Enterprises 1999 (Article 80.2.k), BOD had the right to
evaluate capital contribution which is not in VND, foreign currencies and
gold, but the Law on Enterprises 2005 has removed this right of BOD; the
valuation accordingly is made by the founding shareholders or
professional valuation organizations as provided by Article 30.
o Submitting the annual accounting reports to the GAS (i.e. a responsibility
of BOD).
- On the organization and management of the company:
o Appointment, dismissal, demotion, contract signing, contract termination
for the Director or CEO and other important managers as provided by the
Regulations of the company; decisions on the salary and other benefits for
these managers; appointment of representatives who are authorized to
execute the ownership of shares or capital contribution in other companies,
decision on the pay and other benefits for such people;
o Supervision and directions for Director or CEO and other managers in the
daily business operations of the company;

Final report on State owned enterprise

Final report on State owned enterprise

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