Several decades of preferential treatment, incentives, and subsidies failed to make the state-owned enterprises (SOEs) in Viet Nam competitive and efficient. With virtually no access to private capital markets, general corporations had relied on extensive borrowing from the government and state-owned commercial banks to finance their operations.  Most of these large general corporations and other SOEs consequently became increasingly mired in debt, with debt-to-equity ratios frequently exceeding 100%.  While adding to the fiscal strains, the high indebtedness of the SOEs also contributed to the many nonperforming loans in the banking system.  To prevent the problems from escalating, the government’s socioeconomic development plan for 2006–2010 called for diversifying the ownership of SOEs and narrowing or eliminating the role of ministries and other state entities in their governance and management. 

Against this backdrop, the Asian Development Bank (ADB) approved in November 2009 a multitranche financing facility (MFF) of up to $630 million for the SOE Reform and Corporate Governance Facilitation Program. This was an innovative ADB program that aimed to improve the profitability and transparency of equitized and restructured SOEs, as impact; and transform participating general corporations into focused, efficient businesses with strong balance sheets and improved corporate governance, as outcome.  Focusing on a few general corporations and their subsidiaries, it planned to deliver three outputs: (i) debt restructuring of the corporations, combining financial and corporate restructuring; (ii) increased operational efficiency and improved corporate governance of general corporations and other SOEs; and (iii) improved governance of institutions supporting key aspects of SOE reform.

Tranche 1 of the MFF was approved in September 2010 for two loans amounting to $130 million.  It was extended to the Song Da Corporation Joint Stock Company (Song Da) and Southern Waterborne Transport Corporation (Sowatco).  Tranche 2, the focus of this report along with the MFF, was approved in November 2015 for two loans totaling $320 million and was set to support the Construction Corporation No. 1 Company Limited (CC1); the Vietnam National Textile and Garment Group (Vinatex); and Song Da.  In 2013, the Ministry of Finance (MOF) proposed to extend the MFF to a third tranche with a loan of $186 million to include three other general corporations.  However, the government cancelled tranche 3 before the loan negotiations because of its public debt ceiling policy.

Despite implementation challenges ─ including the withdrawal from the project of the Debt Asset Trading Company (DATC), a special enterprise supporting the restructuring, reorganization, and transformation of SOEs and the disqualification of Song Da from tranche 2 coverage ─ the MFF largely achieved its output and outcome targets.  Although only three were able to create subholding companies as planned, each of the four participating general corporations made commendable progress in corporate restructuring by merging several joint stock subsidiaries into larger entities and divesting from noncore business units. Three of the corporations performed financially better during the first 5 years of restructuring and met the program targets in reducing debt-to-equity ratio and increasing cash from operations.  

Despite DATC withdrawal, targets related to legal, institutional, and capacity development were also substantially achieved, with support from a Japan International Cooperation Agency-financed technical assistance (TA) project.  Building on lessons from tranche 1, another TA provided by ADB enhanced the design and implementation of tranche 2, for example, by linking the disbursement of the tranche 2 allocations for debt restructuring to restructuring milestones, which effectively incentivized good performance by the participating corporations.  TA support to update the general approach to SOE restructuring, based on tranche 1 experience, also enhanced program execution and helped create a more enabling environment for SOE reform.  Enhancements in the legal framework that resulted from the program benefited not only the participating general corporations but the entire SOE sector.  

Overall, through the program, ADB was able to introduce a timely catalyst for effectively implementing the SOE reform process in Viet Nam.  Its design—which followed a comprehensive and doable approach for successfully restructuring and equitizing general corporations and transforming them into competitive entities—could and should be replicated as appropriate.  The program had the MOF as executing agency and the participating general corporations as implementing agencies.