Dr. Nguyen Dinh Cung, former Director of the Central Institute for Economic Management (CIEM), discussed this matter with Saigon Investment in much more detail.
JOURNALIST: - Sir, what is your comment on this bailout request made by Vietnam Airlines?
Dr. NGUYEN DINH CUNG: - We all know that the aviation sector has been badly affected by the Covid-19 pandemic. Many major companies such as VNA have had to face unforeseen challenges. From early January to the month of May the effects of Covid-19 have evaporated almost 50% equity of 115 listed aviation companies in the world.
According to the International Air Transport Association (IATA), aviation companies worldwide are expected to see sales fall by USD 419 bn and face losses of upto USD 84 bn in 2020, with Asia-Pacific firms alone losing about USD 29 bn. VNA is predicted to suffer a net loss of billions of dong in 2020. Therefore, it is not wrong for VNA to ask for such a financial bailout assistance.
- Sir, you have been known to favor fair business practices and equality of opportunity for all enterprises. Will it be against your belief if the State provides financial support to VNA, despite being its owner?
- This matter is not about support from the State, but investment from the State. That is, the State helps its company to ride out the storm, continue to do business and avoid going into bankruptcy. This is exactly what private owners often do for their companies. Therefore, the State just exercises its right over its company, which is VNA in this case. This is not about issuing a specific policy applicable to VNA only. This does not affect the business environment, or fair business practices, or equality of opportunity for other companies.
In fact, the Government has recently fulfilled its state management responsibilities and introduced several measures and provided assistance packages for companies, regardless of economic sectors, including, the aviation companies.
- Sir, the State is not the only owner of VNA. What solutions do you think are the most suitable for VNA as well as other state-owned companies in similar situations?
- It is true that the State is not the only holder of VNA, but has control of 90% of its equity. If the State holds the biggest volume of shares and did not take any action to put in substantial investment, then no other holders will do anything to save the company. Holders with small number of shares are just followers. In terms of legalities, the decision to raise more funds or borrow a great deal more money must be approved by the Board of Holders, with the State in the main role.
From international experience and facts on the ground we can take a few immediate measures, such as issuance of shares to current shareholders, in this case, it is the State Capital and Investment Corporation (SCIC). Also, transfer of capital between the companies owned by the Commission for the Management of State Capital at Enterprises (CMSC) and issuance of convertible bonds, with the Government as the biggest shareholder, can offer refinancing loans via state-owned commercial banks or guaranteed loans.
- Sir, what measures do you think will work best in the present scenario?
- I believe we should be prepared to face a longer duration for the bad effects of the Covid-19 pandemic to pass. The aviation industry will suffer as a result with VNA not remaining immune to the resonating financial losses that are bound to affect all airlines across the globe. We thus have to find the best solution to cope with short-term difficulties and work towards restructuring VNA for a post Covid-19 period.
The best possible approach could combine measures that will suffice in unusual times and uncertain circumstances, which means we should have a diversity of ideas and approaches to cope with the current problem. We should be flexible about taking action, while complying with rules or regulations that also safeguard us in the unpredictable situation caused by the Covid-19 pandemic.
Take the capital withdrawal process for instance. Only the State can withdraw capital, and not put more investment in VNA. However, the current difficulty is an objective reality and force majeure, and in this situation, if the State continues to withdraw capital, nobody would invest in VNA. The State would have to sell a good volume of assets at a very low price. If the State does the same with VNA, not only the State will suffer huge losses, but it would also put the national defense and security at great risk and lose the chance to facilitate economic recovery in coming time.
In brief, from the market point of view, the increased investment of the State in VNA will not be a loss. SCIC is a professional capital investor, and it has the right to choose and decide the areas and ways to make investments and use its capital in accordance with market rules that ensure effectiveness, profitability and compliance with applicable legal regulations.
The business goals are also clear. That is, investments must also make profits, go into safe channels and increase State capital invested in SCIC and SCIC capital invested in other businesses. SCIC role here in VNA is similar to that at Vinaconex eight years ago, when it was decided to invest another VND 1,000 bn for the restructuring of Vinaconex in 2012. After that, SCIC earned a profit of upto VND 4,800 bn in 2018.
The capital that SCIC intends to put into VNA is not coming from the State budget, and therefore is not against Decree No.32/2018/ND-CP. The State may combine all measures in a reasonable way such as refinancing loans and make more investments as a current shareholder. Yet it may immediately give refinancing loans, and cover the current financial needs of the company.
- Thank you very much.