Viet Nam: SOE Reform and Corporate Governance Facilitation Program - Tranche 2

Sovereign Project | 39538-035

Summary

This is Periodic Financing Request 2 (PFR2) of the multitranche financing facility (MFF) which was approved in December 2009. The overall MFF amount is $630 million, of which $600 million is OCR and $30 million is ADF. The MFF supports the corporate, operational, and financial restructuring of selected state-owned enterprises (SOEs) on a pilot basis with a view to developing a general approach to guide the reform and restructuring of Viet Nam's remaining large SOEs. The pilot programme is expected to successfully transform the selected SOEs and thereby strengthen the government's resolve to push ahead with further SOE restructuring. PFR2 is now proposed to be extended to three SOEs - Construction Corporation No. 1 Company Limited, Song Da Corporation (SDC), and Vietnam National Textile and Garment Corporation.

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Project Name SOE Reform and Corporate Governance Facilitation Program - Tranche 2
Project Number 39538-035
Country Viet Nam
Project Status Approved
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 3240-VIE: SOE Reform
Ordinary capital resources US$ 310.00 million
Loan 3242-VIE: SOE Reform
Asian Development Fund US$ 10.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector

Public sector management - Reforms of state owned enterprises

Gender Equity and Mainstreaming No gender elements
Description This is Periodic Financing Request 2 (PFR2) of the multitranche financing facility (MFF) which was approved in December 2009. The overall MFF amount is $630 million, of which $600 million is OCR and $30 million is ADF. The MFF supports the corporate, operational, and financial restructuring of selected state-owned enterprises (SOEs) on a pilot basis with a view to developing a general approach to guide the reform and restructuring of Viet Nam's remaining large SOEs. The pilot programme is expected to successfully transform the selected SOEs and thereby strengthen the government's resolve to push ahead with further SOE restructuring. PFR2 is now proposed to be extended to three SOEs - Construction Corporation No. 1 Company Limited, Song Da Corporation (SDC), and Vietnam National Textile and Garment Corporation. The total cost of the proposed PFR2 is estimated at $320 million equivalent, comprising a $310 million lending facility from OCR loans to the government to on-lend to the participating SOEs, and $10 million from ADF.
Project Rationale and Linkage to Country/Regional Strategy

Strategic Context and Policy Framework for SOE Reforms since 2009. SOE restructuring is a strategic goal of the 2011 -2015 Socio-Economic Development Plan. A number of key legislative and policy initiative (decrees, decisions and circulars) have been introduced and adopted to improve the governance, oversight and management of SOEs. Prime Minister's Decision (PM Decision) 929 of July 2012 provides the strategic direction for SOE reforms and sets a deadline for preparing restructuring plans and for initiating divestment of non-core investments. To support this effort, as of December 2013, about 60% of state economic groups and general corporations have had their restructuring plans approved. PM Decision (339/QDD-TTg) of 19 February 2013 also put restructuring of SOEs as one of three pillars of economic restructuring alongside banking sector restructuring and public spending restructuring to transform the economy and improve its competitiveness for the period 2013- 2020. As the lead agency for coordination and oversight of the restructuring process, the Ministry of Finance (MOF) has finalized the SOE Reform Roadmap which highlights the key roles of line ministries/owners and enterprises to facilitate an enabling environment and to undertake specific structural reforms. A comprehensive monitoring and evaluation framework that provides key performance indicators to monitor the overall progress of the restructuring and support performance management at individual SOE and line ministry/owner level is under finalization, and its implementation is likely to commence from the 3rd quarter of 2014.

ADB support. ADB's Country Partnership and Strategy 2012- 2015, and the Country Operational Business Plan 2012 -2014, underline SOE reform as central to its strategy for business development and private-sector-led employment growth. Within this framework, ADB has been supporting economic reforms and private sector developments through a number of programs focused on SOE restructuring, development of microfinance, SME development, and financial sector reforms. ADB has committed significant investments to the pilot restructuring of selected SOEs and is also providing capacity-building support to the management of pilot SOEs being restructured. Continuing support and sustained engagement in these sectors will be essential to continuing progress in the SOE sector.

Impact improved profitability and transparency of equitized and restructured SOEs, including large general corporations and their subsidiaries.
Project Outcome
Description of Outcome participating general corporations are transformed into focused, efficient businesses with strong balance sheets and improved corporate governance.
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Debt restructuring implemented, combining financial and corporate restructuring

increased operational efficiency and improved corporate governance of general corporations and other SOEs.

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects The project will not involve construction/civil works. The OCR loan will be used to restructure short-term debt of participating SOEs, while the ADF loan will be used to help participating SOEs to refine and implement their respective restructuring plan. The project will not involve any physical work that may cause short-term or long-term impact on the environment which justifies a category "C" for environment. As required by SPS for clients seeking general corporate finance, a corporate audit of the SOE's ESMS and past/present performance was conducted.
Involuntary Resettlement The project will not involve construction/civil works. The OCR loan will be used to restructure short-term debt by converting to long-term debt. The ADF loan is meant to help selected SOEs to refine and implement its restructuring plan. No land acquisition or resettlement is envisaged which justifies a category "C" for IR. Participating SOEs commissioned experts to conduct corporate audit of their ESMS and apst/current performance as per SPS requirement for General Corporate Finance.
Indigenous Peoples The project will not involve construction/civil works. The OCR loan will be used to restructure short-term debt by converting to long-term debt. The ADF loan is meant to help selected SOEs to refine and implement its restructuring plan. No impacton indigenous people is envisaged which justifies a category "C" for IP. Participating SOEs commissioned experts to conduct corporate audit of their ESMS and apst/current performance as per SPS requirement for General Corporate Finance.
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services International and national experts will be engaged.
Procurement IT equipment and software will be procured.
Responsible ADB Officer Prasanna Kumar Jena
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SERD
Executing Agencies
Ministry of FinanceEFDMOF@FPT.VN28 Tran Hung Dao
Ha Noi, Viet Nam
Timetable
Concept Clearance -
Fact Finding 01 Apr 2014 to 09 Apr 2014
MRM 12 Aug 2014
Approval 16 Dec 2014
Last Review Mission -
Last PDS Update 31 Mar 2015

Loan 3240-VIE

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
16 Dec 2014 - - 31 Dec 2017 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 325.00 Cumulative Contract Awards
ADB 310.00 16 Dec 2014 0.00 0.00 0%
Counterpart 15.00 Cumulative Disbursements
Cofinancing 0.00 16 Dec 2014 0.00 0.00 0%

Loan 3242-VIE

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
16 Dec 2014 - - 31 Dec 2017 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 10.00 Cumulative Contract Awards
ADB 10.00 16 Dec 2014 0.00 0.00 0%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 16 Dec 2014 0.00 0.00 0%

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