~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

[Year 1997]
[Year 1998]
[Year 1999]
[Year 2000]
[Year 2001]

Viet Nam remain reluctant to open a stockmarket


If you want to take a trip back in time, step through the door at 39 Nguyen Cong Tru Street in the former Saigon. This is the back-door entrance to the local office of the State Bank of Vietnam, the central bank. It leads to an open-cage elevatorthat ascends ever so slowly through four storeys of narrow, spiralling staircase which in turn snakes past windows apparently shuttered for decades.

At the top, behind one of three tall wooden doors, is the Ho Chi Minh City branch of Vietnam's newly christened State Securities Commission. The only sign of life is Director Bui Nguyen Hoan, a former State Bank executive transplanted from Hanoi. The place reeks of inertia. Even the tear-sheet calendar hanging on Hoan's bare wall hasn't been updated for days. And that pretty much sums up the state of Vietnam's plan to develop a stock exchange: It's going nowhere fast.

Financial bedlam in Southeast Asia has reinforced the reluctance of Vietnam's economic planners to loosen their hold on state-owned enterprises and open the economy to outsiders. Yet with foreign direct investment slowing and offshore borrowing limited, the country must find other sources of funding or risk an economic backslide.

Establishing a capital market seems the obvious solution, but vested interests prevent the ruling Communist Party from fully embracing a market economy. Managers of state-owned nterprises don't want to give up their perks, or--potentially--their jobs. State Bank officials vie with those at the Ministry of Finance to oversee this or that facet of the economy. Hanoi and Ho Chi Minh City compete for financial-centre status. A cumbersome regulatory framework impedes the equitization, or partial privatization, of state firms. Valuation techniques remain primitive.

When officials began talking of a stockmarket five years ago, people thought there would be one by now. But these days no one dares predict when a bourse might open--they have been proved wrong too many times already. Says a report by Indosuez W.I. Carr Securities: "Judging by the progress of the equitization effort, a functioning stock exchange is not expected until the next millennium."

Oddly enough, even free-wheeling Ho Chi Minh City has yet to develop a grey market, making it an exception to the pattern in many developing countries, including China. Here again, tight regulation appears to have strangled trading in the few shares available--those of the 14 small companies equitized since 1992. The state has kept a 30%-40% stake in these firms, and most of the rest has gone to managers and employees.

The system does little to promote liquidity. Employees borrow from the state to buy most of their shares, and they can't sell until they have fully paid for their allotments. Managers, who own large stakes, cannot sell until two years after they have left the company. Only 10% of the stock of equitized firms has been made available to the "public," usually employees' relatives who buy so-called bearer shares. The little trading that takes place is usually on a face-to-face basis, often when managers buy up workers' stock.

"The bearer shares have a basic weak point--the state cannot control the ownership," Hoan of the securities commission writes in a forthcoming book about the development of Vietnam's stockmarket. As a result, he says, shareholders avoid dividend taxes, and "it cannot be known who is really controlling the activities of the company." To control-prone Hanoi, that is intolerable and one reason why there are so few bearer shares.

Government reluctance, more than anything, is slowing the development of a market that could speed privatization efforts. "A secondary market for equity is urgently needed," says Leif Olsen, a former consultant to the State Bank. "To wait for a stock exchange will cause tremendous problems in equitizing companies. An over-the-counter market, managed by one or a few appointed banks, could speed up this process remarkably and gain significant experience for the bourse-to-come."

But it's not going to happen any time soon. Tran Thi Thai Ha, chief of the securities commission's research division, says the body has ruled it out. "First we will have a stock exchange," she insists.

And before that comes regulation. Vietnam is virtually unique in attempting to develop a legal framework for an exchange before share trading occurs spontaneously. Hanoi considers that a strong point.

Others disagree. "They don't understand what a securities business is, and even so they try to regulate it," says a frustrated foreign executive with a securities firm. "They're always discussing, but there's no clear decision or direction."

That's partly why only 14 small companies--out of a total 6,000 state firms--have been equitized so far. Still, anecdotal evidence suggests that these 14 have improved their performance. A survey by the government's Committee for State-Owned Enterprise Reform shows that five firms equitized by mid-1995 have boosted sales and profits while expanding employment and raising salaries. State firms, meanwhile, have stagnated, and even those that are profitable have watched their revenues slide recently, says the committee.

Disclosure remains a problem. Indosuez W.I. Carr sent a questionnaire to all 14 firms, but only two-thirds responded. "For those that did, many of the answers were simply NA, even for the most fundamental questions such as revenue, net profit, assets, etc.," says Indosuez's report.

The REVIEW encountered similar opacity when visiting equitized firms. Saigon Hotel and the Bee Honey Corp. of Ho Chi Minh City said they couldn't hand over financial statements because the accountant was out.

Still, they managed to get through a daunting equitization process. Le Thanh Chon, general director of the Saigon Hotel, says it took two years to complete. "Government policy is very difficult. One metre of paperwork," he says, lifting his hand off the table to show the size of the stack he submitted. The 18 billion dong ($1.5 million) the hotel raised in July was the country's largest share offering to date. (The hotel plans to add rooms with the money.) Soon, though, it's likely to be overtaken by Bach Thuyet Paint, which is issuing 20 billion dong, 20% reportedly to the public.

But these 14 companies, which have raised less than $10 million in equity capital, aren't the kind of firms that foreign investors salivate over. It's no accident that the biggest firms are off limits. The state considers such jewels as PetroVietnam and Vietnam Airlines strategic assets. The commission's Ha says most private companies wouldn't meet the forthcoming listing requirements, but that these might trade on what could become a second board for smaller, riskier firms.

Moreover, the securities commission has yet to decide how--or even whether--foreigners will be able to buy shares when an exchange is launched. "First we will issue for local investors; foreigners will not be allowed to buy shares,"says Ha. "Whether we will allow institutional investors, we haven't decided."

Either way, capital controls are likely. An executive of a foreign securities firm operating in Vietnam suspects Hanoi fears that allowing in foreign retail investors would simply lead to Overseas Vietnamese taking control of the country's financial sector. What's clear is that the securities commission has rejected emulating China's system of A shares for locals and B shares for foreigners.

Meanwhile, debate continues to rage about a seemingly more mundane matter: where an exchange will be located. Hoan in Ho Chi Minh City says the commission is looking at three banks on Ham Nghi Street near the Saigon River--the city's former financial centre. But Ha in Hanoi says a site hasn't been determined. Consultants say the conflict could be resolved by putting aside the notion of a physical exchange and setting up electronic trading floors in both cities.

In the meantime, Vietnam's itchy bankers and would-be brokers are lying low. Several have been denied permission to set up brokerages, says Hoan. Asia Commercial Bank, perhaps the sturdiest private bank in Vietnam (its owners include Jardine Matheson), says it has two people studying the securities industry but that's about the extent of its preparation.

The State Securities Commission, meanwhile, is making progress on the regulatory side, says a Hong Kong-based consultant. Two years ago the consultant helped draft a law that the government returned after putting "so many controls and checks in it that it would have been totally inoperable," she says. Recent drafts are more encouraging, leaving lots of discretion to the commission, but aren't ready for presentation to the legislature.

In the meantime, Vietnam continues to lag the rest of the region. Almost every other country--even tiny Bhutan--has an up-and-running stockmarket. Still, it will be a long time before Hanoi is troubled by "irrational exuberance."

By Faith Keenan, November 13, 1997 .(The Far Eastern Economic Review)