VZCZCXRO3030
RR RUEHHM
DE RUEHHI #1153/01 1731058
ZNR UUUUU ZZH
R 221058Z JUN 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 5719
INFO RUEHHM/AMCONSUL HO CHI MINH 3297
RUEHGP/AMEMBASSY SINGAPORE 2416
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 001153 
 
SIPDIS 
 
TREASURY FOR OASIA 
SINGAPORE FOR REGIONAL TREASURY ATTACHE BAKER 
STATE PASS FEDERAL RESERVE SAN FRANCISCO FOR DFINEMAN 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN VM
SUBJECT: Vietnam's State Capital Investment Corporation 
 
REF: HANOI 1149 
 
¶2.  (SBU) Summary: The State Capital Investment Corporation (SCIC) 
officially opened its doors in August 2006, by order of the Prime 
Minister, in order to become the repository of the GVN's shares in 
most equitized state-owned enterprises.  With a current capital base 
of $315 million, SCIC expects to implement a rapid-fire disposal 
program of the vast majority of the small stakes it will receive in 
equitized companies so that it may re-deploy those funds in 
companies and industries deemed strategically important.  SCIC 
officials seem to want to create an efficient and relatively 
transparent organization that can meet Vietnam's strategic needs 
while contributing to a more vibrant private sector economy.  End 
Summary. 
 
¶2.  (U) This is one of five cables reporting on Regional Financial 
Attache Susan Baker's May 29-June 1 visit to Vietnam.  This message 
reports her findings and impressions of the State Capital Investment 
Corporation. 
 
 
 
SCIC MANAGEMENT PHILOSOPHY SEEMS SOUND 
-------------------------------------- 
 
¶3.  (U) Vietnam's State Capital Investment Corporation (SCIC) 
officially opened its doors in August 2006, by order of the Prime 
Minister, in order to become the repository of the Government of 
Vietnam's (GVN) shares in most equitized state-owned enterprises 
(SOEs).  According to an SCIC publication detailing its investment 
as of February 7, 2007, SCIC Chairwoman Le Thi Bang Tam believes 
that "continuous improvements to the State management of SOEs are 
crucially important to achieve stronger growth and economic 
integration with the rest of the world.  This requires a distinct 
separation between regulatory and supervisory function, complete 
business autonomy, removal of all state subsidies and preferential 
capital grants to SOEs and more efficient and flexible mechanism for 
state capital investment."  SCIC, established as a "special economic 
organization of the State," has a government mandate to: 
 
* "(i) act as the sole representative of State ownership in state 
invested enterprises; 
* (ii) invest state capital in key sectors where state dominance is 
needed; 
* (iii) raise capital from domestic and overseas markets; 
* (iv) provide financial advice and business support; and 
* (v) promote international cooperation in the areas of investment 
and corporate finance." 
 
¶4. (SBU) SCIC officials said they expect to have three categories of 
holdings.  SCIC would maintain stakes in strategically important 
companies in the first category indefinitely.  Staff expects this 
category to contain only around 10 firms, such as Vinamilk, 
technology company FPT, and large financial institutions.  In the 
second category, they would include 50 to 60 medium-sized companies 
in need of restructuring.  They would expect gradually to sell these 
companies off to strategic shareholders.  Finally, the vast majority 
of holdings would fall into a third category of small holdings to be 
sold. 
 
¶5. (SBU) SCIC officials reported that they intend to promote early 
engagement of consultants and strategic shareholders to introduce 
high standards of corporate governance in their companies.  SCIC 
will encourage all its companies to be audited and publicly listed. 
Currently 18 of their companies are listed, with another 20 
expecting to list soon.  SCIC recognizes that its limited staff will 
not be able to monitor carefully each company, and as such will need 
to rely on market pressure to encourage good corporate performance. 
So far, SCIC officials sit on less than 10 of the boards of 
directors for the companies in its portfolio, but SCIC said that in 
many cases the directors representing line ministries would "report" 
to SCIC on company issues.  SCIC noted that its Singapore 
counterpart Temasek had recommended promoting independent directors 
rather than attempting to staff boards itself.  (Note: SCIC reported 
having discussions and studying the models of other sovereign wealth 
funds from Singapore, Malaysia and Qatar.) 
 
¶6. (SBU) SCIC itself expects to have its financial statements 
audited by a Big Four accounting firm and to publish them on its 
website. (Note: this would be a higher level of transparency than 
other similar organizations in the region.)  SCIC's management board 
will meet quarterly, chaired by a former Deputy Minister of Finance 
who works for SCIC full time.  Other management board members 
include the Deputy Minister of Planning and Investment, the Deputy 
Minister of Industry and SCIC's chief auditor.  SCIC also expects to 
have various investment committees focusing on specific sectors. 
 
HANOI 00001153  002 OF 002 
 
 
 
BUT MANY COMPANY EXCEPTIONS 
--------------------------- 
 
¶7. (SBU) SCIC is currently not slated to receive government shares 
in a set of large holding companies that the government will 
establish to hold shares in what the government considers to be 12 
to 19 key industries (reportedly including, for example, textiles, 
rubber, shipyards, airlines, minerals and oil & gas).  Moreover, 
SCIC is currently not slated to be the repository of the equitized 
shares of state-owned commercial banks in which the government 
intends to maintain control, although SCIC officials confessed that 
they hoped to take over these financial institutions' shares.  This 
would require a change to a government decree on transformation of 
state-owned banks, which SCIC staff hoped would occur in June 2007. 
 
AGGRESSIVE PLANS FOR DISPOSAL 
----------------------------- 
 
¶8. (SBU) SCIC officials reported that as of end May 2007, SCIC held 
stakes in 600 equitized companies, with ownership share averaging 40 
percent, but reaching as high as 90 percent in some cases.  By the 
end of 2007, they expect to receive stakes in 400 more companies, 
giving them up to 1000 different stakes worth less than US$ 1 
million per company.  Saying that they intended to only hold 100-200 
of these stakes for any length of time, SCIC officials said they 
were working with several consulting firms and investment banking 
firms on strategies for block sales.  For example, they may sell 
stakes in several companies in a particular industry as a group to 
an interested party. 
SCIC reported that they had signed more than 50 international 
partnership arrangements on a non-exclusive basis.  SCIC's proposal 
to open a joint venture security company with Morgan Stanley has 
raised questions about SCIC's ability to engage with multiple 
foreign investment advisors. 
 
CONSTRAINTS TO GROWTH 
--------------------- 
 
¶9.  (SBU) SCIC was seeded with $315 million in capital, but 
officials expect the Prime Minister to approve a capital transfer of 
up to $1 billion.  SCIC officials also hope to raise capital through 
the securities markets, but noted that SCIC needed a three year 
track record before it could issue bonds. (Note: it might also have 
to be officially "equitized" itself.)  After eight months in 
operation, SCIC has a staff of 55 people, which they hope to double 
by the end of 2007.  Recognizing the very competitive market for 
financial talent in Vietnam, SCIC had requested "special status" to 
provide higher salaries and structure its remuneration differently 
than typical civil service policy. 
 
¶10.  (SBU) Comment: SCIC's rhetoric and corporate set-up generally 
seem in line with international best practices of state-owned 
enterprise management. However, the large exceptions to the assets 
they are given brings into question whether they will ever be as 
powerful as regional counterparts such as Singapore's Temasek and or 
Malaysia's Kahzanah.  There is a risk that SCIC will end up holding 
many small stakes in problematic companies.  If it is stuck with bad 
assets, its admirable start with respect to transparency may prove 
difficult to maintain in the future. End Comment. 
 
ALOISI