SOEs play a leading role in Vietnam’s economy. As of December 31, 2004, Vietnam had 4596 SOEs employing 2.2 million people in various industries. The 100 largest SOEs employed approximately 275,000 people and contributed approximately 46% of all government revenue derived from SOEs in 2004. As of august 31, 2006, 52 equitized SOEs were listed on the Vietnam Stock Exchanges, representing the majority of the listed market capitalization and listed companies.

The government has been undertaking a campaign over the past several years to reform and equitize its SOEs. Vietnam’s National Steering Committee for SOE Reform is charged with directing all aspects of SOE reform and reports directly to the prime minister. The principal components of SOE reform include:

• Restructuring SOEs, primarily through equitization
• Reducing the dependence of the overall economy on SOEs and the dependence of SOEs on government support; and
• Restructuring the non-performing loans of SOEs

SOEs are primarily restructured through equitization, which involves the issuance of new shares by an SOE or the sale by the government of an equity stake in an SOE to employees and other investors. Equitized SOEs become joint stock companies subject to the law on enterprises. Foreigners may participate in equitization, subject to the 30.0% cap on foreign ownership of Vietnamese companies. Domestic investors are not subject to ownership limitations. If a former SOE becomes a listed company, foreigners may acquire up to 49.0% of the equity in the former SOE.

The government has encountered difficulties in meeting numerical targets for SOE reform due to its efforts to maintain social and economic stability while it pursues SOE reform, but also in part due to difficulties in asset valuation, the levels of outstanding SOE debts, and resistance by SOE management.

A substantial number of the SOEs that have been equitized since 1997 have been smaller enterprises. In addition, the State still retains a controlling interest in many equitized SOEs. Historically, the majority of the shares of the equitized SOEs were purchased by employees and strategic investors (such as key customers and suppliers) both of whom generally enjoy discounts from the auction price, leaving few shares to be sold to outside investors. Under regulations which became effective in early 2005, an equitizing SOE must offer shares equivalent to at least 20.0% of its charter capital to outside investors through public auction. Greater participation by both foreign and domestic investors is expected as the larger SOEs begin to be equitized.

The government is developing plans to begin equitization of large-scale general corporations and to expand equitization process into additional sectors, including finance, banking, insurance, construction, telecommunications, and airlines. The government has announced through a Prime Minister’s decision dated august 24, 2004, that it currently contemplates the maintenance of full or partial ownership of SOEs in certain strategic sectors and targeted industries. The prime minister’s decision states that the government will maintain full ownership of SOEs: (i) in strategic sectors including national defense, toxic materials, and international and national information backbone networks; (ii) in the business of meeting critical development needs of populations in mountainous and remote areas; and (iii) (a) that meet certain financial criteria, (b) that area leaders in high and cutting edge technology, or (c) that make important contributions to macro-economic stability and are in certain industries including the pharmaceutical, food and fuel industries, among others. The government will also maintain more than 50% ownership of SOEs that meet certain financial criteria (more modest than those applicable to SOEs that must be fully owned by the government) and are in certain industries including the pharmaceutical, food, fuel, power generation, telecommunication infrastructure, and chemical industries, among others. Under the government’s policy, government authorities have more flexibility in dealing with SOEs not involved with strategic sectors or targeted industries.