Government Intervention and Privatization in Thailand, Vietnam, and Singapore

Singapore: Anke D’hoore & Sean MurphyThailand: Sihan DaiVietnam: Jonathan Francx & Piyush Virmani

Agenda

Government Intervention

Country Comparisons

Privatization

Country Comparisons Conclusion

Government Intervention - Singapore

Trends

- Transition to state-owned holding companies

- Conflicts of interest

- Performance

- Why this structure?

- Accountability

Government Intervention - SingaporeCorporate Governance Watch 2014 (CLSA)

Country Total CG Rules & Practices

Enforcement Political & Regulatory

IGAAP CG Culture

1. Hong Kong 65 61 71 69 72 51

1. Singapore 64 63 56 64 85 54

3. Japan 60 48 62 61 72 55

4. Thailand 58 62 51 48 80 50

4. Malaysia 58 55 47 59 85 43

6. Taiwan 56 48 47 63 75 47

7. India 54 57 46 58 57 51

Government Intervention - Thailand SOEs Governance System:

Government Intervention - Thailand Trends:

3.Why do they fight for these SOEs?

- Revenues are a source of financing for government projects.- Investment projects of SOEs are more important than the government in boosting the economy.- The more allies are on board, the more they can control the SOEs and Economy.

1.Who has the political power?

- Conflict between two political factions (Red and Yellow)

- Military Control2.What can government do?

- Put public pressure on the resignation of heads of these firms: by putting allies into SOEs.

- Military also got the power on the board of SOEs.

- The government retains control as majority and active shareholder.

- Control foreign share: No individual foreigner hold more than 5% of shares. No more than 25% total foreign ownership.

Government Intervention - Thailand

(Data of 2014)

Government Intervention - Vietnam

Government classifies SOEs (State owned Enterprises) into 3 groups :● Public enterprises under complete state ownership.● SOEs whose shares are controlled by government even after privatization.● SOEs which can be privatised by :

1. keeping state shares intact and issue new shares.2. selling new shares.3. privatizing parts of SOE.4. selling all shares to private shareholders.

Government Intervention - Vietnam

The Government retains major stake of ownership and does not give up ultimate control.

Less foreign-ownership limit on the stocks.

Bias towards government intervention, sacrificing private sector development

Score of 34.9 out of a 100 for government intervention

Government Intervention Comparison

Ease of Doing Business (World Bank 2015)

Country 2014 2015

Singapore 1 1

New Zealand 2 2

Denmark 3 3

South Korea 4 4

Thailand 46 49

Vietnam 93 90

Singapore- State-owned holding companies- Strong regulation and protection of consumers- Smart regulations

Thailand- Strong regulation by complicated governance system- Strong impact by political power- Not easy for starting a new business

Vietnam- Strong political impact- Government does not give up ultimate control - Policies attract less foreign investment

Privatization - Singapore

Privatization drivers:● The need for innovation● The need for efficiency● The ability to compete in a globalizing economy

Recent sectors: Telecom, Energy, Banking, Postal Service

Privatization - Singapore

Commercial banking Sector● Monetary Authority of Singapore

● 1999 : Announcement of liberalisation program

● “We want to shape and strengthen our banking sector, while maintaining confidence and stability in the financial system” - Lee Hsien Loong

Privatization - Singapore

Goals● Performance● Globalization

Regulatory controls● Selective access● Deposit quota

Privatization - Thailand● Objective:

Encouraging capital inflows and relieving resource constraints in many key sectors of the economy.

1998, Master Plan for State Enterprise Reform:

This plan lays out a comprehensive strategy and timetable for privatization of infrastructure and various state-owned enterprises (SOEs).

1999, State Enterprise Corporatization Act:

This plan provides the framework for the conversion of state enterprises into stock companies, and corporatization is viewed as an intermediate step toward eventual privatization.

● Main government movement accelerated privatization in late 90s:

1999, Foreign Business Act:

Foreign investors are allowed to participate in the privatization but certain restrictions are also applied in certain sectors.

Privatization - ThailandThailand’s privatization mainly happened from 2001-2006 (in key sectors)

-2001Partially privatized the Petroleum Authority of Thailand (PTT) and Internet Thailand

-2002Corporatized Bank Thai Bank, Krung Thai Card, Telephone Organization of Thailand(TOT corporation), and The Airport Authority of Thailand (renamed to Airports of Thailand).

-2003Completed corporatization of Communication Authority of Thailand (CAT Telecom), Thailand Post, and partially privatized Krung Thai Bank.

-2004:Corporatized the Mass Communication Authority of Thailand (MCOT),Conducted an initial public offering of 30 percent of the shares in Airports of Thailand, and a second public offering of Bangchak Petroleum Public Company and Thai Airways International (THAI).

-2005:Corporatized Electricity Generating Authority of Thailand (EGAT)

-2006~:Metropolitan Electricity Authority, Metropolitan Waterworks Authority, CAT Telecom, TOT corporation, the Electricity General Authority, Provincial Electricity Authority, and Provincial Waterworks Authority are being prepared for privatization.

Mr. Thaksin’s leading generation

The military deposed Mr. Thaksin in a 2006 coup, cutting short his privatization plans.

Privatization - Petroleum Authority of ThailandBusiness Units Products Services

● Exploration and Production● Natural Gas● Oil● International Trading● Petrochemical Business● Refining Business● Foreign Investments

● PTT Blue Innovation● PTT Lubricants● NGV● Cooking Gas● Aviation Fuel● Natural Gas Product

● PTT Life Station● Café Amazon● Jiffy● Fleet Card● Customer Service Gas● Ordering & Customer Relations Center (ORC)

Before: Capital Intensive-1983, PTT affiliates PTTEP’s business is capital intensive, finally listing on stock market.-1997, facing loss and debt as Thai baht depreciated, especially 2 PTT affiliates, ThaiOil and RRC.-Could not do any new investment.

Financial management of PTT after privatization: Partially privatized in 2001, government shares 51%

After: Strong Financial Position-Invested in a number of energy projects of both PTT and affiliates.-2004,the products from gas separation plants and the gas sale from the fields rose by 50% and 20% respectively.-The government and various Thai funds have a 70% stake of PTT and the affiliates earn a profit of Baht 7-80,000 million.- The debt restructuring of ThaiOil and RRC, also reduced the debt of the country.

Privatization - Vietnam

Objective - Improve the productive, economic and financial performance of the firms.● From 10,000 SOEs in 2000, now they are reduced to less than 1,000 (2006).

● 2001: SOE employed 60% of capital → contribute 38% of GDP● 2012: SOE employed 38% of capital → contribute 33% of GDP● 71 SOE’s privatized (Nov 2014) of 432 targeted for 2014-2015● Ranked 112 on the CPI (2015)● Foreign investors don’t want minority stakes → can’t make needed changes● April 2015: prime minister of Vietnam ordered to speed up privatization of

SOE’s

Privatization - Vietnam

Recent changes made by government - sell 45% stakes of Vinamilk and remove the foreign-ownership limit on the stocks.

80% of stakes being put for sale and first SOE in telecom sector being made public

Will sell a 49% stake in the company

Sell 70% stake. More scandals and problems as average SOE.

● Vietnam Airlines: tried to sell a 3.5% stake but this did not appeal to foreign investors

Privatization Comparison

Singapore- Globalization,

innovation, efficiency- Slow and controlled- Market sensitive

Thailand- Politic sensitive- Strong financial impact - Almost stopped after

2006’s coupVietnam

- Increasing privatization - Becomes more competitive- Will remove 49% foreign

ownership cap

Conclusion

Privatization - Singapore

Postal service● Singapore Post Limited

○ Privatization launched in 2003○ Fully liberalized since 2007

■ expect cost savings of 25$/year

Government Intervention - Thailand A Battleground:

Privatization - Thailand SOEs’ disclosure and transparency