Sri Lanka makes case for ‘equitizing’ state firms

ECONOMYNEXT – Sri Lanka has raised the possibility of Vietnam style ‘equitization' of state enterprises with Deputy Economic Policy Minister Harsha de Silva making the case for members of the public becoming shareholders.

“What is the problem with account holders of a state bank holding 10 percent of shares?” de Silva questioned during a business forum in Colombo.

Similarly customers of an energy utility could hold shares, he said, floating a trial balloon on the idea.

Sri Lanka will soon sell stakes in small firms like hotels in the stock exchange he said.

Socialist countries like Vietnam has been in the forefront of listing small stakes of state firms in the stock market, a process they call ‘equitizing'.

About 500 firms are slated to be equitized in Vietnam. Heads of loss-making SOEs like Vinashin Shipping and PetroVietnam which expanded rapidly in the run up to a 2008 credit bubble and made losses, have been given the death penalty for mis-management or not watching subsdiaries closely.

Lenders like Techcombank have small stakes listed and also strategic investors. In general state companies with small listed stakes have low price to earnings ratios despite showing good performance.

Prices are re-rated upwards as stock is progressively sold down. Early candidates like Vinamilk has been progressively listed in the market with the existing management themselves taking the firms forward, even moving abroad, and becoming foreign investor darlings.

Vietnam started liberalizing late, abandoning state planning from 1984 ‘Doi Moi' (renewal) program, with getting the state out of agricultural markets, giving people stronger property rights, and inviting foreign investments.

But benefits came to the ordinary people fast as it liberalized trade aggressively in line with ASEAN requirements.

The communist state also did not have exploitative rent seeking private firms like Sri Lanka to complain of competition when import duties were slashed.

Private enterprises set up after liberalization competing with Chinese imports and products of Japanese companies made in industrial zones are themselves competitive.