Bloomberg News

Vietnam Scandal to Boost State Firm Disclosure: Southeast Asia

May 31, 2012

Vietnam’s state-owned companies, accounting for a third of the economy, are set to begin publishing audited earnings as the government boosts oversight and reassures investors after losses and corruption scandals.

The companies will all have to publicly post results online at least once a year under rules expected to be signed by Prime Minister Nguyen Tan Dung within the next few weeks, Dang Quyet Tien, deputy head of the finance ministry’s corporate-finance department, said in an interview in Hanoi. In some cases, financial statements will be required quarterly, he said.

“It’s a fundamental change,” Tien said. State-owned companies will be required to publish information including sales, profit, losses, debt, return on assets, return on equity, cash flow and salary ranges, he said. Unlisted state companies only compile earnings once a year at present and there is no requirement to release the data publicly.

The regulations, which will probably come into effect in the second half, will also detail ministries’ responsibility over companies as well as potential penalties, Tien said. Vietnam is stepping up scrutiny as police seek an ex-head of the nation’s biggest shipping line accused of mismanagement and after eight shipyard executives were jailed for losses in March.

“We’ll need to improve our accounting and reporting process, but that’s good,” said Nguyen Van Bien, deputy general director of state-owned Vietnam National Coal-Mineral Industries Group, the country’s biggest miner. “More detailed results will help the government grade companies better, and investors will have more information before investing.”

KPMG, Ernst & Young

Under the new regulations, state companies will appoint independent auditors to examine their financial statements before they are posted online, Tien said. The companies will be encouraged to select from among the largest international auditors such as KPMG LLP, Ernst & Young LLP, Deloitte Touche Tohmatsu Ltd., PricewaterhouseCoopers LLP, he said.

“It would be great if the government could begin to impose discipline on these firms, through transparency and forcing them to announce to the world exactly how they make their money,” said Jonathan Pincus, a Ho Chi Minh City-based economist at the Harvard Kennedy School’s Vietnam program. “The public tolerance for very risky speculation in the state sector is zero at this point.”

Concerns about a lack of financial transparency contributed to Standard & Poor’s downgrading Vietnam to BB-, three levels below investment grade, in December 2010. Moody’s Investors Service cut its rating on the country to B1, four below investment grade, the same month.

Slowest Improvements

Vietnam has encouraged state-owned companies to list on the stock exchange and sell non-core businesses to tackle inefficiencies that have weighed on the economy. The nation’s industrial productivity grew an average of less than 1 percent annually over the past decade, the slowest rate in Southeast Asia, according to a Jan. 20 Harvard Kennedy School policy discussion paper, based on World Bank’s Development Indicators.

The state sector’s share of the economy has declined to 33 percent of GDP in 2011 from 40 percent in 1994, while the foreign share has increased to 19 percent in 2011 from 6 percent in 1994, said Art Woo, a Hong Kong-based director of sovereign ratings at Fitch Ratings.

The police said this month they are searching for Duong Chi Dung after the ex-chairman of Vietnam National Shipping Lines fled his home in Hanoi on May 17. Dung, who has been suspended from his current post as head of the Vietnam Maritime Administration, is accused of “intentionally violating state regulations on economic management, causing serious consequences,” according to a posting on the government website last week, citing Col. Tran Duy Thanh, head of the economic- crime investigation bureau.

Falsifying Contracts

Dung and two other former executives at the ship and port operator, known as Vinalines, were allegedly involved in falsifying contracts that raised the cost of a floating dock to $24.3 million from $14 million in 2007, according to a May 22 posting on the government website.

“The Vinalines case has created pressure on the government to move faster with rules to scrutinize companies,” said Nguyen Duc Kien, deputy head of the National Assembly’s economic committee. “It had discussed this before, but hadn’t done much.”

Former executives at Vietnam Shipbuilding Industry Group were imprisoned for as long as 20 years in March after a probe into the company’s near collapse in 2010 under $4 billion of debt. Vietnam Electricity Chairman Dao Van Hung was also fired in February after the power company lost 11.5 trillion dong over two years, according to postings on the government website.

“We are concerned when we hear stories, reports about problems in the state enterprise sector,” Victoria Kwakwa, the World Bank’s Vietnam country director, said May 28. “You need to ensure accountability. You need to have clear targets for performance that SOEs are held accountable for. You need modern, clear management and governance.”

To contact Bloomberg News staff for this story: Nguyen Dieu Tu Uyen in Hanoi at

To contact the editor responsible for this story: Neil Denslow at

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