39538-013: mff- soe reform and corporate governance ... · appraisal 2-6 march 2009 13–17 august...
TRANSCRIPT
Completion Report
Project Numbers: 39538-013 and 39538-035 MFF Number: M0041 Loan Numbers: 3240 and 3242 TA Numbers: 8016 and 8387 September 2019
Viet Nam: SOE Reform and Corporate Governance Facilitation Program (Tranche 2 and Multitranche Financing Facility) This document is being disclosed to the public in accordance with ADB's Access to Information Policy.
CURRENCY EQUIVALENTS
Currency unit – dong (D)
At Appraisal At Project Completion (26 October 2009) (31 December 2017)
D1.00 = $0.000055 $0.000044 $1.00 = D18,050.00 D22,709.00
ABBREVIATIONS
ADB – Asian Development Bank
ADF – Asian Development Fund
APFS – audited project financial statement
CC1 – Construction Corporation No. 1 Company Limited
DATC – Debt and Asset Trading Corporation
DMF – design and monitoring framework
DSCR – debt service coverage ratio
ESMS – environment and social management systems
IPO – initial public offering
MFF – multitranche financing facility
MOF – Ministry of Finance
OCR – ordinary capital resources
PFR – periodic financing request
PMU – project management unit
ROE – return on equity
Song Da – Song Da Corporation Joint Stock Company
SDR – special drawing right
SOE – state-owned enterprise
Sowatco – Southern Waterborne Transport Corporation
TA – Technical Assistance
VDB – Vietnam Development Bank
Vinatex – Vietnam National Textile and Garment Group
NOTES
(i) The fiscal year (FY) of the Government of Viet Nam ends on 31 December. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 31 December 2018.
(ii) In this report, “$” refers to United States dollars.
Vice-President Ahmed M. Saeed, Operations 2 Director General Ramesh Subramaniam, Southeast Asia Department (SERD)
Directors Eric Sidgwick, Viet Nam Resident Mission (VRM), SERD Jose Antonio Tan III, Director, Public Management, Financial Sector and Trade Division, SERD
Team leader Dao Viet Dung, Senior Public Management Officer, VRM, SERD
Team members Phan Thi Lan Phuong, Project Analyst, VRM, SERD Dang Thu Huong, Operations Assistant, VRM, SERD Steven Schipani, Unit Head, Project Administration, VRM, SERD
In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS
Page
BASIC DATA I
I. PROJECT DESCRIPTION 1
II. DESIGN AND IMPLEMENTATION 2
A. Facility and Project Design and Formulation 2 B. Facility and Project Outputs 4 C. Project Costs and Financing 6 D. Disbursements 7 E. Project Schedule 8 F. Implementation Arrangements 8 G. Technical Assistance 9 H. Consultant Recruitment and Procurement 9 I. Safeguards and Gender Equity 10 J. Monitoring and Reporting 10
III. EVALUATION OF PERFORMANCE 12
A. Relevance 12 B. Effectiveness 13 C. Efficiency 13 D. Sustainability 14 E. Development Impact 15 F. Performance of the Borrower and the Executing Agency 15 G. Performance of the Asian Development Bank 16 H. Overall Assessment 16
IV. ISSUES, LESSONS, AND RECOMMENDATIONS 16
A. Issues and Lessons 16 B. Recommendations 17
APPENDIXES
1. Design and Monitoring Frameworks 18 2. Facility and Project Cost at Appraisal and Actual 24 3. Project Cost by Financier 25 4. Disbursement of ADB Loan and Grant Proceeds for Facility and Tranche 2 26 5. Contract Awards of ADB Loan and Grant Proceeds for Facility and Tranche 2 29 6. Chronology of Main Events for Facility and Tranche 2 32 7. Status of Compliance With Loan Covenants—Tranche 2 33 8. Technical Assistance Completion Report for TA 8016-VIE 41 9. Technical Assistance Completion Report for TA 8387-VIE 44
10. Aspects of Governance and Transparency Adopted by General Corporations 47
BASIC DATA
I. MULTITRANCHE FINANCING FACILITY
A. Loan Identification 1. Country Viet Nam
2. Facility number M0041 3. Facility title SOE Reform and Corporate Governance
Facilitation Program 4. Borrower Socialist Republic of Viet Nam 5. Executing agency Ministry of Finance 6. Amount of facility OCR: $600,000,000.00
ADF: $30,000,000.00 equivalent
B. Facility Data 1. Appraisal
– Date started – Date completed
13 August 2009 17 August 2009
2. Loan negotiations – Date started – Date completed
29 October 2009 30 October 2009
3. Date of Board approval
14 December 2009
4. Date of MFF framework financing agreement
27 September 2010
5. Number of MFF framework financing agreement amendments
nil
6. Date of MFF framework financing agreement amendment
7. MFF availability period
– In framework financing agreement – Actual – Number of extensions
8. Actual date of final disbursement
9. Number of changes in scope
10. Actual completion date 11. Implementation arrangement
nil 14 December 2009–31 December 2015 31 December 2017 1 6 February 2018 2 31 December 2017 The executing agency for facility was MOF The implementing agencies for facility were
ii
– Song Da – Sowatco – CC1 – Vinatex
12. Multitranche Financing Facility Investment Plan
Cost PFR Appraisal Estimates Actual
Tranche 1 Tranche 2 Tranche 3 Total
130.93 335.00 180.00 645.93
123.23 137.42
0.00 260.65
PFR = periodic financing request.
13. Multitranche Financing Facility Financing Plan
Source Appraisal Estimates Actual A. ADB Loan
Tranche 1 Tranche 2 Tranche 3
Subtotal B. Government and
General Corporations Tranche 1 Tranche 2 Tranche 3
Subtotal Total (A+B)
130.00 320.00 180.00
630.001
0.93 15.00
0.00
15.93
645.93
117.73 129.46 0.00
247.19
5.50 7.96 0.00
13.46
260.65
C. Multitranche Financing Facility Loan Summary
Category
Original Allocation
(1)
Increased during
Implementation (2)
Cancelled during
Implementation (3)
Last Revised
Allocation (4=1+2–3)
Amount Disbursed
(5)
Undisbursed Balance (6 = 4–5)
Tranche 1
130.00 0.00 3.97 126.03 117.73 7.30
Tranche 2 320.00 0.00 100.71 219.29 129.46
89.83
Tranche 3
180.00 0.00 180.00 0.00 0.00 0.00
Total 630.00 0.00 284.68 345.32 247.19 97.13
Note: Details for each project are in Appendix 4.
1 MFF amount was $630.00 million at appraisal including (i) Tranche 1 of $130.00 million, (ii) Tranche 2 of $320.00
million, and Tranche 3 of $180.00 million. Tranche 3 was cancelled at the government's request on 11 May 2016.
iii
14. MFF performance report ratings
Implementation Period Ratings
From 1 January 2011 to 31 December 2011 From 1 January 2012 to 31 December 2012 From 1 January 2013 to 31 December 2013 From 1 January 2014 to 31 December 2014 From 1 January 2015 to 31 December 2015 From 1 January 2016 to 31 December 2016
Potential Problem Potential Problem Potential Problem
On track On track On track
From 1 January 2017 to 31 December 2017 On track
II. TRANCHE 2
A. Loan Identification 1. Country Viet Nam
2. Loan number and financing source 3240, ordinary capital resources 3242, Asian Development Fund
3. Project title SOE Reform and Corporate Governance Facilitation Program
4. Borrower Socialist Republic of Viet Nam 5. Executing agency Ministry of Finance 6. Amount of loan Loan 3240: $310,000,000.00
Loan 3242: SDR6,790,000.00 ($10,000,000.00 equivalent)
B. Loan Data 1. Appraisal – Date started – Date completed
1 April 2014 9 April 2014
2. Loan negotiations – Date started – Date completed
6 November 2014 7 November 2014
3. Date of Board approval
16 December 2014
4. Date of loan agreement
10 November 2015
5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions
8 February 2016 9 February 2016 0
6. Project completion date – Appraisal – Actual
30 June 2017 31 December 2017
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8. Financial closing date – Actual Loan 3240 Loan 3242
31 December 2017 27 March 2018
9. Terms of loan Loan 3240 – Interest rate – Commitment charge
– Maturity (number of years) – Grace period (number of years)
Loan 3242 – Interest rate
– Maturity – Grace period
London interbank offered rate-based 0.15% per annum 25 5 2.0% per annum during grace period and thereafter 25 years 5 years
10. Disbursements
a. Dates
Initial Disbursement 13 May 2016 (loan 3240)
13 December 2016 (loan 3242)
Final Disbursement 21 December 2017
6 February 2018
Time Interval 19.3 months 13.8 months
Effective Date 9 February 2016 (loan 3240) 9 February 2016 (loan 3242)
Actual Closing Date 31 December 2017 31 December 2017
Time Interval 22.7 months 22.7 months
b. Amount ($ million)
Category
Original
Allocation (1)
Increased during
Implementation (2)
Cancelled during
Implementation (3)
Last Revised
Allocation (4=1+2–3)
Amount
Disbursed (5)
Undisbursed
Balance (6 = 4–5)
ADB OCR
Debt Restructuring
CC1 99.39 0.00 0.00 99.38 57.38 42.01
Song Da 94.66 0.00 94.65 0.00 0.00 0.00
Vinatex 99.39 0.00 0.00 99.38 67.66 31.73
Interest & Commitment Charge
16.57 0.00 5.06 11.51 3.97 7.54
Subtotal 310.00 0.00 99.71 210.28 129.01 81.27
ADB ADF
Consulting Services
CC1 2.25 0.00 0.00 2.25 0.00 2.25
Song Da 0.98 0.00 0.98 0.00 0.00 0.00
Vinatex 3.33 0.00 0.00 3.33 0.44 2.88
Equipment
CC1 1.66 0.00 0.00 1.66 0.00 1.66
Vinatex 1.57 0.00 0.00 1.57 0.00 1.57
Interest charge 0.22 0.00 0.02 0.19 0.01 0.19
Subtotal 10.00 0.00 1.00 9.00 0.45 8.55
Total 320.00 0.00 100.71 219.28 129.46 89.82
ADB = Asian Development Bank, ADF = Asian Development Fund, CC1 = Construction Corporation No. 1 Company Limited, OCR = ordinary capital resources, Song Da = Song Da Corporation Joint Stock Company, Vinatex = Vietnam National Textile and Garment Group.
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C. Project Data
12. Financing plan ($ million)
Cost Appraisal Estimate Actual
Implementation cost Borrower financed 15.00 7.96 ADB financed
ADB ordinary capital resources ADB Asian Development Fund
293.43
9.78
125.04
0.44 Total implementation cost 318.21 133.44
Interest during construction costs Borrower financed 0.00 0.00 ADB financed 16.79 3.98 Other external financing 0.00 0.00 Total interest during construction cost 16.79 3.98 Total 335.00 137.42
ADB = Asian Development Bank.
13. Cost breakdown by project component ($ million)
Component Appraisal Estimate Actual
Investment Cost Component 1: Debt Restructuring
CC1 Song Da Vinatex
Component 2: Operational Restructuring Consulting Services
CC1 Song Da Vinatex
Equipment CC1 Vinatex
Interest and Commitment Charges
99.39 94.65 99.39
7.25 5.98 8.32
1.66 1.57
16.79
57.38 0.00
67.66
4.40 0.00
4.00
0.00 0.00 3.98
Total 335.00 137.42
CC1 = Construction Corporation No. 1 Company Limited, OCR = ordinary capital resources, Song Da = Song Da Corporation Joint Stock Company, Vinatex = Vietnam National Textile and Garment Group.
14. Project schedule
Item Appraisal Estimate Actual
Date of contract with consultants
Ernst & Young Vietnam Limited.
Jan 2015
5 July 2016
15. Project performance report ratings
Tranche 2
Implementation Period Ratings
From 1 January 2016 to 1 December 2016 On track From 1 January 2017 to 1 December 2017 On track
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D. Data on Asian Development Bank Missions
Name of Mission Date No. of
Persons No. of
Person-Days Specialization of Members
Financing Facility Fact finding Appraisal
2-6 March 2009
13–17 August 2009
3 3
4 4
a, b, c a, b, c
Tranche 2 Fact finding for PFR2
Loan Review Loan Review Loan Review Consultation for PFR3 Consultation for PFR3 Consultation for PFR3 Loan Review Loan Review
5–9 February 2015 23–26 March 2015 11–15 May 2015 8–9 June 2015
16–21 July 2015 3–4 Sept 2015
24–27 Nov 2015 7–13 Dec 2016
3 4 2 1 2 2 5 2
1 4 4 2 4 2 3 5
a, b, c a, b, c a, b, c a, b
a, b, c a, b
a, b, c, d a, b, c
Loan Review Loan Review Project completion review
24–27 April 2017 9–16 October 2017
3–10 December 2018
2 4 6
3 3 1
a, b, c a, b, c a, b
PFR = periodic financing request. a = senior public management specialist; b = senior project officer, c = project analyst, d = senior counsel, PFR = periodic financing request.
I. PROJECT DESCRIPTION 1. Transforming and reforming state-owned enterprises (SOEs) is critical to reducing the dominance of inefficient state production, promoting private sector development, and enhancing economic growth. On 18 November 2009, the Asian Development Bank (ADB) approved a multitranche financing facility (MFF) to implement the SOE Reform and Corporate Governance Facilitation Program.1 This was an innovative ADB program that focused on SOE reform by supporting the debt and corporate restructuring of SOEs in conjunction along with TA support to enhance corporate governance, business practices and operations, and management capacity. This developed a model that could be replicated. Additionally, the program was to provide institutional support to the SOE reform process, making the reform environment a more enabling one. The program intended to transform five general corporations and their subsidiaries into focused, efficient businesses with stronger balance sheets and improved corporate governance. Applying lessons from the four pilots, the program provided institutional support to the SOE reform process to create a more enabling reform environment. The program was implemented during 2009–2015 and financed through loans under the MFF for the equivalent of $630.00 million—$600.00 million from ADB’s ordinary capital resources (OCR) and $30.00 million from the Asian Development Fund (ADF). 2. ADB and the Government of Viet Nam signed tranche 1 of the MFF, an OCR loan of $120.00 million (loan 2613) and an ADF loan for $10.00 million (loan 2614), on 27 September 2010. Tranche 1 was extended to Song Da Corporation Joint Stock Company (Song Da) and Southern Waterborne Transport Corporation (Sowatco).
3. ADB and the government signed tranche 2 of the MFF on 10 November 2015, comprising an OCR loan of $310.00 million (loan 3240) to support financial and corporate restructuring and an ADF loan of $10.00 million (loan 3242) to support operational restructuring and improve corporate governance. Under tranche 2, the MFF was to support Construction Corporation No. 1 Company Limited (CC1); the Vietnam National Textile and Garment Group (Vinatex); and Song Da, which had participated in tranche 1, and was also expected to participate in tranche 2.
4. In 2013, MOF proposed to extend the MFF to a third tranche with a loan of $186 million to include three other general corporations: the Infrastructure Development and Construction Corporation, the Corporation for the Development of Industrial Zones, and the Viet Nam Machinery Installation Corporation. However, the government cancelled tranche 3 before the loan negotiations because of the government’s priority to contain public debt.
5. The intended impact of the MFF and tranche 2 was the improved profitability and transparency of equitized and restructured SOEs, including large general corporations and their subsidiaries. The outcome was transforming participating general corporations into focused, efficient businesses with strong balance sheets and improved corporate governance.
6. The MFF had the following three outputs, of which the first two applied to tranche 2:
(i) debt restructuring implemented, combining financial and corporate restructuring; (ii) increased operational efficiency and improved corporate governance of general
corporations and other SOEs; and
1 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing
Facility to the Socialist Republic of Viet Nam for the State-Owned Enterprise Reform and Corporate Governance Facilitation Program. Manila.
2
(iii) institutions supporting key aspects of SOE reform strengthened and governance improved.
7. At the time the MFF was formulated, SOE reform was stymied by lack of viable approaches for equitizing and transforming large general corporations. Equitization is only one step in a successful transformation process for SOEs. It needs to be complemented, or even preceded, by many other steps, including undertaking strategic and business planning, carrying out corporate and financial restructuring, attracting investment and corporate financing, forming value-adding business partnerships or alliances, and implementing more transparent governance. Through the program, ADB introduced a timely catalyst into the SOE reform process by providing a comprehensive approach to successfully restructuring and equitizing general corporations and transforming them into competitive entities.
II. DESIGN AND IMPLEMENTATION
8. The MFF supported the government's agenda for SOE reform and transformation by providing a comprehensive package including the strengthening of general corporation balance sheets through corporate and financial restructuring, and enhancing operational efficiency and corporate governance. Debt restructuring supported by OCR loans allowed general corporations to strengthen their balance sheets, freeing resources for restructuring and investment in additional projects, while corporate restructuring enabled participating general corporations to focus on their core business. In addition, the MFF intended to strengthen corporate management processes, improve governance, and enhance operational efficiency. The associated TA provided capacity development to the executing and implementing agencies to support development and implementation of the policy reforms and the restructuring of individual SOEs. The coherent results chain consisted of piloting comprehensive SOE restructuring in selected SOEs and developing an institutional and policy framework to enable SOE reform.
A. Facility and Project Design and Formulation 9. Relevance of multi-tranche financing facility at appraisal and completion. The MFF was relevant at appraisal and remained so at completion. At the time the MFF was designed, ADB’s country strategy and program for Viet Nam, 2007–2010 recognized the critical importance of transforming and reforming SOEs to reduce the dominance of inefficient state production, promote private sector development, and enhance economic growth.2 The 2009 country assistance program evaluation also recommended continued support for SOE reform.3 After decades of preferential treatment, incentives, and subsidies, SOEs were failing to compete effectively, and their financial problems posed significant fiscal risks. 10. The MFF formulation process was adequate. During preparation of the MFF, ADB consulted closely with the Ministry of Finance (MOF), which was the executing agency, selected SOEs, which were the implementing agencies, and line ministries. Based on robust analysis, ADB proposed a comprehensive restructuring approach to encompass financial, organizational, and corporate restructuring of large general corporations, while also introducing improvements to corporate governance, management practices, and business processes. 11. The complexity and difficulty of SOE reform in Viet Nam called for flexibility and commitment. In that context, the MFF was an appropriate lending modality. It could facilitate a
2 ADB. 2006. Country Strategy and Program: Viet Nam, 2007–2010. Manila. 3 ADB. 2009. Country Assistance Program Evaluation for the Socialist Republic of Viet Nam. Manila.
3
comprehensive SOE restructuring approach by signaling long-term commitment to support the implementation of SOE reform. The MFF also allowed both the government and ADB to review and assess early tranches to inform the design of later tranches, and provide funding for the restructuring of SOEs’ high-cost debt. 12. Relevance of project at appraisal and completion. Tranche 2 was relevant at appraisal and at completion. Its design and formulation were consistent with ADB’s country partnership strategy, 2012–2015 and country operations business plan, 2012–2014 for Viet Nam.4 Transformation and reform of the SOE sector continued to be critical to reducing the prevalence of inefficient state production, promoting sound banking operations, encouraging private sector development, and enhancing economic growth. Prime Minister’s Decision 339/QDD-TTg (19 February 2013), also made restructuring of SOEs one of three pillars of economic restructuring, alongside bank and public spending restructuring, to transform the economy and improve its competitiveness during 2013–2020.5 13. The project formulation process was adequate. The MOF formulated the project with the active engagement of selected general corporations. A consultancy firm engaged by ADB to analyze the corporate structure, financial performance, and projections of each general corporation supported the project preparation process. General corporations under tranche 2 were selected using a rigorous and transparent three-stage process. The first stage entailed satisfying six essential criteria. Qualifying SOEs were then shortlisted for the second stage, which assessed them against 19 weighted criteria. In the final stage a committee composed of the MOF, an ADB consultant, and an independent member interviewed the leaders of shortlisted corporations. Based on the interviews, three general corporations were selected. The consulting team then carried out due diligence on the three general corporations. The project design remained unchanged, although the government ultimately decided that Song Da could not participate in the project because it did not meet a government requirement to divest a subsidiary, Ha Long Cement Company, on time. 14. The design and monitoring framework (DMF) for tranche 1 remained unchanged and, apart from the withdrawal of the Debt and Asset Trading Corporation (DATC), there were no changes in the project scope during implementation.6 The DMF for tranche 2 was not changed and, apart from the government’s decision that Song Da was unable to participate in tranche 2, there were no changes in the project scope during implementation. Appendix 1 compares the DMF for the MFF with facility achievements and the DMF for tranche 2 with project achievements. Due diligence was properly implemented. 15. The design of tranche 2 incorporated lessons learned from tranche 1. Under tranche 2, OCR disbursements for debt restructuring were linked to restructuring milestones instead of being provided at project inception. This design change better aligned incentives. Tranche 2 also introduced additional design work to ensure that these milestones were impactful.
4 ADB. 2012. Country Partnership and Strategy: Viet Nam, 2012–2015. Manila; and ADB. 2011. Country Operations
Business Plan: Viet Nam, 2012–2014. Manila. 5 Prime Minister Decision 339/2013/QD-TTg on “general restructuring of the economy in combination with converting
the growth model into one that improves quality, efficiency and competitiveness in the period of 2013–2020.” 6 Financing for the activities of the DATC was moved to a technical assistance project funded by the Japan
International Cooperation Agency, which delivered the envisaged targets related to legal, institutional, and capacity development.
4
B. Facility and Project Outputs
1. Multitranche Financing Facility Outputs 16. As of the end of 2018, nine of fourteen output performance indicators have been fully achieved and five have been partially achieved. However, the government has until 2020 to achieve two unmet output indicators (para. 78 and Appendix 1). The MFF’s performance indicators, however, have some weaknesses. The target date for the achievement of the financial indicators under output 1 of the MFF’s DMF is not consistent with the tranches. In some cases, the target dates extend to the end of 2020, which is beyond the date of this completion report. 7 Moreover, some outcome and output target dates were not clearly defined. 17. Output 1: Debt restructuring implemented, combining financial and corporate restructuring. Debt restructuring was intended to help the participating general corporations focus on their core business lines and strengthen their balance sheets by swapping high-cost, short-term loans for less expensive, longer-term loans to free up cash flow. Each of the four participating general corporations made commendable progress in corporate restructuring by merging several joint stock subsidiaries into larger entities organized along business lines and divesting of noncore business units. The target date for meeting tranche 1 output indicators was 2015 and the target date for the three tranche 2 output indicators is 2020. At the end of 2018, one performance indicator has been fully achieved by all four general corporations, and two have been fully achieved by three of four participating general corporations. The number of subsidiaries were substantially reduced. Financial performance indicators, particularly the current ratio and the debt service coverage ratio of the participating general corporations have improved and likely will improve further. Nevertheless, Vinatex did not achieve the two performance indicators. It increased its investments in 2016-2018 to take advantage of newly signed free trade agreement. However, these borrowings lowered its current ratio and its debt service coverage ratio below the targets. Overall, output 1 was substantially achieved. 18. Output 2: Increased operational efficiency and improved corporate governance of general corporations and other SOEs. This output was designed to support improvements in corporate structure and management practices. Output 2 has six performance indicators. Three of six indicators were achieved while the three remaining indicators were partially achieved as only four general corporations participated instead of five. If tranche 3 had not been cancelled, seven general corporations would have participated. Adjusting for the lower participation, five out of the six indicators were fully achieved. Song Da’s plans to establish subholding companies after further restructuring led to partial achievement of the remaining indicator. Overall, output 2 was substantially achieved as the participating general corporations made significant progress in streamlining their corporate structures and in improving management. 19. Output 3: Institutions supporting key aspects of SOE reform strengthened and governance improved. With technical assistance support from the Japan International Cooperation Agency and its internal resources, the DATC achieved all five output performance targets and made improvements in its organizational structure by clarifying the functions and responsibility of each department. It also strengthened its management by increasing the number of members on the board of directors, separating the board of directors and the board of management, introducing a supervisory board, and developing risk management regulations. The DATC’s responsibilities have expanded to debt resolution, recapitalization, and asset
7 Some MFF indicators are set for 5 years from the start of restructuring. Under tranche 2, the restructuring of
participating general corporations started in 2016 when the loan became effective, so the target date is end of 2020.
5
management. Human resources and equity have been substantially enhanced. As result, the DATC has assisted more than 180 SOEs in debt resolution. Output 3 was achieved.
2. Project Outputs
a. Tranche 1 Outputs
20. Tranche 1 has three outputs, all of which align to the three outputs of the MFF (paras. 17–19). The first two outputs of tranche 1 aimed to support two general corporations—Song Da and Sowatco, while output 3 targeted the DATC. 21. Both Song Da and Sowatco satisfactorily achieved three targets under output 1 related to strengthening the balance sheets of the general corporations. Output 2 contained five targets for Sowatco and six targets for Song Da, related to creating subholding companies, increasing operational efficiency, and improving corporate governance. Ten of the eleven targets were achieved. Output 3, targeting the DATC, was achieved.
b. Tranche 2 Outputs
22. Output 1: Debt restructuring implemented, combining financial and corporate restructuring. All six target indicators were achieved (Table 1). Both participating general corporations under tranche 2 strengthened their core businesses and demonstrated improvement in financial performance. Output 1 was achieved.
FY= fiscal year, CC1 = Construction Corporation No. 1 Company Limited, Vinatex = Vietnam National Textile and Garment Group. Sources: Construction Corporation No. 1 Company Limited and Vietnam National Textile and Garment Group.
23. Output 2: Increased operational efficiency and improved corporate governance of general corporations and other SOEs. Six of eight output performance indicators were achieved on time (Table 2). Both participating general corporations were restructured to focus on core businesses and were equitized with improved corporate governance. Management, risk management, and financial planning have improved. The implementation of improved information technology infrastructure, however, was postponed because of the general corporations’ inability to access ADF financing (para. 31). Overall, output 2 was substantially achieved.
8 Debt service coverage ratio = (accounting profit before tax and interest expense + depreciation)/(interest expense +
loan principal payable + finance lease paid).
Table 1: Output 1, Tranche 2 Achievements Indicators Achievements
Current ratio of participating general corporations improves to reach a minimum level >1 within 5 years after restructuring (Baseline: FY2014).
Progress toward achievement is:
• CC1’s current ratio is 1.25 as of FY2018. Achieved
• Vinatex’s current ratio is 1.24 as of FY2018. Achieved
Debt service coverage ratio8 of participating general corporations improves to reach a minimum level >1.5 within 5 years after restructuring (Baseline: FY2014).
Progress toward achievement is:
• CC1’s debt service coverage ratio is 4.15 as at FY2018. Achieved
• Vinatex’s debt service ratio is 2.34 as at FY2018. Achieved
Management control over subsidiaries through buy-backs and purchase of additional shares to strengthen core operations by 2017 (Baseline: FY2014).
• Vinatex bought back shares in its subsidiary Phong Phu. Achieved
• CC1 divested from non-core businesses and used proceeds from divestments to expand investments in core operations. Achieved
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Table 2: Output 2, Tranche 2 Achievements Output Performance Targets Achievements
Parent company of the participating general corporations equitized under the restructuring timelines not later than 2016 (Baseline: FY2014).
• CC1 was equitized in October 2016. Achieved
• Vinatex was equitized in September 2014. Achieved
Businesses refocus on core business lines achieved by participating general corporations by 2017 (Baseline: FY2014).
• CC1 refocused from 7 to 4 business lines. Achieved. Vinatex divested from nonessential businesses and refocused on core business lines, developing a vertically integrated business providing original design and manufacturing. Achieved
Management practices and business practices relating to risk management, financial planning, budgetary controls, and IT infrastructure strengthened not later than 2017 (Baseline: FY2014).
• CC1 and Vinatex introduced enhanced management and business practices relating to risk management, financial planning, and budgetary controls but did not complete a rehabilitation of IT infrastructure by 2017 because they could not access ADF financing. Partially achieved
Improvement in audited financial statements through reduction in the qualifying audit opinion for 2015 and in future audit statements (Baseline: FY2014).
• CC1 has had unqualified audits since 2015. Achieved
• Vinatex has had unqualified audits since 2014. Achieved
CC1 = Construction Corporation No 1 Company Limited, FY = fiscal year, IT = information technology, Vinatex = Vietnam National Textile and Garment Group. Sources: Construction Corporation No. 1 Company Limited and Vietnam National Textile and Garment Group.
C. Project Costs and Financing 24. Multitranche financing facility. The MFF project cost at appraisal was estimated at $645.93 million equivalent, comprising $600.00 million from OCR, $30.00 million equivalent from the ADF to be released through three tranches and $15.93 million as counterpart funds financed by the government and the general corporations. The actual MFF financing was $260.65 million, comprising of $242.84 million from OCR, SDR2.92 million ($4.35 million equivalent) from the ADF and $13.46 million as the Borrower’s counterpart financing to cover taxes and duties, debt restructuring, and improve management capacity and corporate governance. The partial loan cancellations occurred mainly in tranche 2 because of difficulties associated with collateral compliance demands (para. 31). Tranche 3 was fully cancelled at the government’s request (para. 4). The MFF, however, helped participating general corporations to raise additional financing through initial public offerings (IPOs)9 and divestments of non-core businesses.
25. Although not part of the MFF’s original financing plan at appraisal, the total investment needs for SOE reform during 2009–2015 was estimated at $1.77 billion. By 2018, actual investment in the SOE sector during 2011–2018 was $10.07 billion, much higher than the estimated figure at appraisal10 . 26. Project. At appraisal, the total project cost of tranche 2 was estimated at $335.00 million. ADB was to finance $320.00 million for debt restructuring, consulting services, and equipment with two loans of SDR6.79 million ($10.00 million equivalent) from the ADF and $310.00 million from OCR. The government and the general corporations were to provide counterpart financing of $15.00 million. The government’s counterpart financing was to cover the operational and recurrent costs of the MOF project management unit (PMU), while the general corporations’
9 Through IPOs, $88.4 million was raised, under which Sowatco raised $27.60 million, Vinatex $52.20 million, and CC1
$8.60 million. 10 At the SOE reform conference on 21 November 2018, MOF reported that the total financial amount received from
IPOs and divestments by SOEs was $9.80 billion, comprising $844.05 million during 2011–2015 and $8.96 billion during 2016–2018.
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counterpart financing was to cover operational and recurrent costs for the project implementation units for the three general corporations’ taxes and duties, debts restructuring, and corporate governance activities. 27. On the ADB loan closing dates, the actual ADB financing was $129.46 million, comprising SDR 0.32 million ($0.45 million equivalent) from the ADF and $129.01 million from OCR. Unutilized loan proceeds of SDR0.68 million ($1.00 million equivalent) from ADF were partially cancelled on 1 December 2017 and the remaining SDR5.79 million ($8.55 million equivalent) was cancelled at financial closure of the loan on 27 March 2018. Unutilized loan proceeds of $99.71 million from OCR were partially cancelled on 1 December 2017 and the remaining $81.27 million was cancelled at the financial closure of the loan on 31 December 2017. The Borrower’s counterpart funds amounted to $7.96 million, comprising $0.16 million to cover the executing agency and PMU’s operating costs and $7.80 million financed by the general corporations to cover debt restructuring, some corporate governance activities, taxes and duties, and other expenses.
28. The actual ADB financing was 41.60% of the amount estimated under the OCR loan and 4.70% of that estimated under the ADF loan. The difference was mainly because (i) a requirement for collateral meant that CC1 could only receive $57.38 million (57.70%) of the OCR and Vinatex could only receive $67.66 million (68.10%) of the OCR (para. 31), (ii) interest and commitment charges were lower than appraised, (iii) Song Da’s OCR financing of $99.70 million was cancelled at the government’s request, and (iv) the two participating implementing agencies cancelled some consulting services and IT procurement activities because of collateral issues. Despite the lower level of financing, most of the original output indicator targets have been substantially achieved. This is partially due to the capacity building and direction provided by the consultants under the two associated TA projects. This enabled the general corporations to implement some restructuring implementation independently of ADF support. In addition, participating general corporations also used the proceeds received through IPOs and divestments11 to strengthen their core businesses. Actual financing of the tranche 2 amounted to $137.42 million, comprising of $129.46 million financed by ADB and $7.96 million financed by participating general corporations. While the financial performance of the SOEs is acceptable, it is likely that more ambitious targets could have been reached had the general corporations been able to avail themselves of the full amounts of OCR and ADF financing available. D. Disbursements 29. Multitranche financing facility. The loans were disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). Under tranches 1 and 2, the executing agencies established advance accounts to manage, replenish, and liquidate ADF-financed expenditures using statement of expenditure procedures. During implementation, direct payment was used for the procurement of information technology equipment and services. The disbursement arrangement was appropriate and used in both tranches. Total MFF disbursement was $247.19 million, comprising of $242.84 million from OCR and SDR2.92 million ($4.35 million equivalent) from the ADF. This was 39.2% of the MFF’s total envisaged cost. 30. Project. Of the $310.00 million OCR component, Vinatex received $67.66 million and CC1 received $57.38 million. Adding interest and commitment charges of $3.97 million, ADB disbursed $129.01 million in 2016 and 2017 to replace the short-term debts of CC1 and Vinatex with long-
11 Vinatex undertook an IPO in September 2014 and received $52.2 million from strategic investors while CC1 received
$8.60 million from its IPO in July 2016.
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term debt. Of the SDR6.79 million (equivalent to $10.00 million) only SDR0.32 million (equivalent to $0.45 million) was disbursed—4.70% of the planned disbursement. The remainder was cancelled because CC1 and Vinatex cancelled some of the consulting services and IT procurement activities and because they used $1.16 million of their own funds to cover some of the corporate governance activities. 31. The disbursement targets for tranche 2 proved to be unrealistic as the issue of collateral requirements had not been recognized at appraisal. This was the primary reason for the delay in tranche 2 disbursement. The loan proceeds were to be re-lent to CC1 and Vinatex via the Vietnam Development Bank (VDB), a policy bank under the MOF. The VDB required the general corporations to provide collateral. Neither general corporation was able to offer unencumbered assets for the whole value of the loans, and they instead wanted to use shares of subsidiaries that had been listed on the stock market as collateral. Despite a strong request from each of the implementing agencies and ADB’s efforts to resolve the issue, the VDB did not accept shareholdings in subsidiary companies as collateral.12 As a result, disbursements took significantly longer, and the disbursed amount was less than planned. Despite the low disbursement, most of the tranche 2 output indicator targets have been substantially achieved.
E. Project Schedule 32. Multi-tranche financing facility. The MFF was approved on 14 December 2009 for the planned implementation period of 6 years, from 14 December 2009 to 31 December 2015. On 28 May 2014, ADB approved an extension of the MFF implementation period to 10 years because of start-up and implementation delays for periodic financing request (PFR) 1. The extension would allow for the completion of PFR1, continued processing and implementation of PFRs 2 and 3, and financial closure of the MFF. However, the MFF was eventually closed as originally scheduled because the government requested the cancellation of tranche 3 (para. 4) and the collateral issue could not be resolved to facilitate further disbursement of tranche 2 (para. 31). The implementation period of each tranche or loan was not expected to exceed 3 years. 33. Project. Tranche 2 was approved by ADB on 16 December 2014, signed with the borrower on 10 November 2015, and declared effective on 9 February 2016. The planned and actual implementation period of tranche 2 was 3 years starting on 1 January 2015. The financial closing of the OCR loan was on 31 December 2017 and the financial closing of the ADF loan was 27 March 2018.13
F. Implementation Arrangements
34. The implementation arrangements for the MFF and tranche 2 were generally adequate to deliver the outputs and achieve the outcomes. The MOF, as the focal point for, and driving force behind, SOE reform in Viet Nam, was designated the executing agency. The MOF developed the road map for SOE reform and acted as the core agency to lead the reform process, developing policy and legal instruments to support the objectives of continuing reform. As the executing agency, the MOF benefited from direct and indirect capacity building and a clear understanding
12 See official letter No. 3438/BTC-QLN dated 15 March 2016 and official letter No. 11174/BTC-QLN dated 22 August
2017 of the Ministry of Finance. 13 The closing date of tranche 2 was extended from 2017 to 2019. However, at the government’s request, the MFF and
the project was closed in 2017 as originally scheduled because tranche 3 was cancelled and tranche 2 collateral issues could not be resolved to facilitate further disbursements (para. 31).
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of the lessons learned.14 Overall, the capacity of the participating general corporations and the MOF was satisfactory although they had much to learn, particularly concerning the administrative and procurement aspects of participating in an ADB financed project. ADB’s direct support on these matters was invaluable. The implementation arrangements applied to all tranches, and there was no deviation. The collateral requirements, however, were problematic (para. 31). Although ADB and the participating general corporations sought solutions with VDB the issue could not be resolved, leading to some implementation delays and a shortfall in disbursement.
G. Technical Assistance 35. ADB provided two capacity development TAs under the MFF.15 The first TA was to support an update of the institutional and policy framework to allow for an effective, generalized approach to SOE restructuring and reform. The TA drew on lessons from the implementation of the MFF’s pilot restructurings.16 The second TA intended to strengthen the capacity of selected SOEs and help MOF develop an enabling policy framework for SOE reform. Both TAs are rated successful.17 36. The TA projects contributed directly to the successful achievement of the MFF’s performance targets by identifying candidate SOEs and improving and refining the restructuring plans developed by candidate SOEs. This was in line with the approach adopted and recommended under the MFF, which aimed to strengthen the performance of SOEs through holistic restructuring, both corporate and financial. In addition, the TAs supported institutional strengthening and capacity development of the MOF in initiating, adopting, and implementing measures in core areas of SOE reforms. There were no changes in the TA implementation arrangements.
H. Consultant Recruitment and Procurement 37. Multi-tranche financing facility. Consultants were selected in accordance with ADB’s Guidelines on Use of Consultants (2007, as amended from time to time), following the quality- and cost-based selection method as envisaged at appraisal. All goods financed by the MFF were procured in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). Procurement packages were appropriate. However delays arose because; (i) general corporations were required to follow parallel ADB and the government procedures which took up to 9 months to finalize; (ii) decisions relating to Song Da’s participation in the Vietnam Industrial Construction Corporation Economic Group18 and the subsequent reversal and disbanding of the group;19 and (iii) the need to comply with VDB’s collateral requirements, which was particularly difficult for CC1, Sowatco, and Vinatex. Implementing agencies deemed all inputs by the consultants and contractors to be satisfactory.
14 The project catalyzed the issuance of Prime Minister’s Decision 929, which mirrored the project’s approach to focus
on core businesses and divesting from non-core and nonessential businesses. 15 The TA completion reports are in Appendixes 9–10. 16 ADB. 2011. Strengthening Support for State-Owned Enterprise Reform and Corporate Governance Facilitation
Program. Manila (TA 8016-VIE). 17 ADB. 2013. Strengthening Support for State-Owned Enterprise Reform and Corporate Governance Facilitation
Program. Manila (TA 8387-VIE). 18 An economic group in context of Viet Nam is a cluster of large companies, comprising a parent company and
subsidiaries. 19 The government decided that Song Da as a core company would merge five other large general corporations under
the MOC into an economic group. This pilot project was initiated in January 2010 but was terminated on 2 October 2012 by Prime Minister’s Decision No. 1428/QD-TTg.
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38. Project. CC1’s procurement plan consisted of eight packages amounting to $4.00 million covering (i) support for the implementation of corporate restructuring, (ii) development of an information strategy, (iii) development of a comprehensive marketing plan, (iv) purchasing of software used in the construction business, (v) purchasing and implementation of an enterprise resource planning system, (vi) purchase of computer equipment, (vii) implementation of centralized information storage and intranets, and (viii) installation of an online meeting and conference call system.
39. Vinatex envisaged five packages amounting to $5.00 million covering (i) capacity building of corporate governance and management, (ii) development of business strategies, (iii) implementation of the first phase of an enterprise resource planning system, (iv) implementation of human resource training services, and (v) implementation of the second phase of the enterprise resource planning system. 40. The original contract award projections were considered unrealistic because participating general corporations had not understood in advance the difficulties associated with the demands for collateral. CC1 could not provide collateral so it used its own resources instead and cancelled ADF-financed procurement. Vinatex used $0.44 million for package 1 (capacity building of corporate governance and management), engaging Ernst & Young. However, the remainder of the consulting services were cancelled because of the collateral requirements. CC1 and Vinatex confirm that they plan to implement the other reforms but at a slower pace than originally envisaged and using their own resources.
I. Safeguards and Gender Equity 41. The MFF was category C for all safeguard categories, and no safeguard frameworks were required. Under tranche 2, the participating general corporations undertook corporate and plant-level audits of their environmental and social management systems as required by ADB’s Safeguard Policy Statement (2009). Audits were completed as follows; CC1 in January 2014, Vinatex’s in December 2013 and Song Da’s in September 2013. The audits’ scope included gender equity. The audits established that the project did not have an adverse impact on the environment or indigenous peoples and would not require involuntary resettlement. Minor impacts on employment, none of which were adverse, were mitigated by training people for alternative positions, reducing the use of casual workers, and maintaining core employees. Vinatex invested in new factories in rural areas to increase capacity and employed more people in those areas. 42. EPRO Consulting JSC and the OCD Management Consulting Company assisted Vinatex and CC1 to develop their environment and social management systems (ESMS), combining environmental and gender action plans. Gender action plans were prepared with strong management support to strengthen capability and skills of women workers through training and re-deployment. Two participating general corporations have fully implemented policies to ensure the rights of workers under the legislation of the Ministry of Labour, War Invalids, and Social Affairs. They have committees for the advancement of women that, in conjunction with women’s affairs committees and trade unions, organize activities to promote women’s empowerment.
J. Monitoring and Reporting 43. Covenant compliance. Of the 91 covenants for the MFF (27 for tranche 1 and 64 for tranche 2), 83 were met, 3 were partially met, and 5 were not met. Out of these 5 covenants, one covenant under tranche 1 required the submission of audited project financial statements (APFS) during implementation of the OCR loan, which was not done. The other four covenants were
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under tranche 2 (Appendix 7). The areas of noncompliance are as follows; (i) CC1’s self-financing ratio fell below the target of 25% (Table 3), (ii) audit reports were submitted late, (iii) forecast reports were not submitted to ADB, and (iv) one specific covenant requiring all obligations to be met was not complied with since few covenants mentioned above were not met. These areas of noncompliance had no material impact on project performance.
44. Tranche 2 contained 10 financial covenants. However, Song Da did not participate in tranche 2, so only the seven covenants relating to the two participating general corporations are reported. Six of the seven covenants were achieved (Table 3). The financial covenant that was not achieved pertains to CC1 generating funds from internal sources.
Table 3: Tranche 2 Financial Ratio Compliance by Implementing Agencies
Implementing Agencies Achievements
CC1 will generate funds from internal sources equivalent to not less than 25% in its fiscal year 2017 and thereafter of the annual average of CC1's capital expenditures incurred, or expected to be incurred, for that fiscal year.
2017 = 20% 2018 = 20% Not achieved
The net revenues of CC1 will be at least the following relative to the debt service requirements of CC1: 1.5 times in its fiscal year 2017 and thereafter.
2017 = 3.43 2018 = 4.15 Achieved
CC1's debt–equity ratio will be maximum of 3 in its fiscal year 2017 and thereafter.
2017 = 1.55 2018 = 1.03 Achieved
Vinatex will continue to generate funds from internal sources equivalent to not less than 25% of the annual average of Vinatex's capital expenditures incurred, or expected to be incurred, for all fiscal years during the project implementation period and thereafter.
2016 = 38% 2017 = 37% 2018 = 36% Achieved
Vinatex’s ratio of net revenues to the debt service requirements will be maintained at least 1.5 times in its fiscal year during the project implementation period and thereafter.
2016 = 2.34 2017 = 2.57 2018 = 2.27 Achieved
Vinatex's debt–equity ratio will continue to be maintained at a maximum of 3 during the project implementation period and thereafter.
2016 = 0.63 2017 = 0.65 2018 = 0.59 Achieved
Ratio of current assets to current liabilities of all the implementing agencies will continue to be maintained at more than 1.
CC1 2018 = 1.25 Achieved Vinatex 2018 = 1.24 Achieved
CC1 = Construction Corporation No. 1 Company Limited, Vinatex = Vietnam National Textile and Garment Group. Sources: Construction Corporation No. 1 Company Limited and Viet Nam National Textile and Garment Group.
45. There were weaknesses in the design of the covenants. Some covenants were overly generic and seem to have been based on infrastructure projects. There were also inconsistencies between covenant target dates; some covenants were for 2017 whereas the DMF targeted the same outputs for 2020. 46. Monitoring and reporting arrangements. ADB policies and framework financing agreement undertakings were complied with. A program steering committee for the MFF was established in November 2010 with representatives of relevant ministries and enterprises under Decision No. 2938/QD-BTC of the Minister of Finance. The committee, led by a vice-minister from the MOF, directed the implementation of the MFF, including the selection of project components and participating SOEs. The program steering committee established a PMU to be the primary liaison between the implementing agencies, the MOF, and ADB. 47. Financial management. As part of due diligence, ADB undertook a financial management assessment for each general corporation before inclusion in tranche 2. The implementing agencies with TA support developed an action plan to address the weaknesses identified and maintained accounting, management information, and financial control systems acceptable to ADB. They also engaged independent auditors from auditing firms licensed to operate in Viet
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Nam and acceptable to ADB and authorized them to submit financial statements to ADB at least annually. 48. However, implementation of the MFF’s financial management arrangements had some weaknesses. Implementing agencies failed to submit APFS within the time limits specified in the MFF agreement. Instead, they submitted procedure reports and audited entity-level financial statements for the first 5 years under the OCR loan (loan 2613) and the first 6 years for the ADF loan (loan 2614). The APFS requirement was initially unclear. ADB identified the deficiency while delegating the project to the Viet Nam Resident Mission in November 2016. To address the issue, an action plan to belatedly submit all pending APFS for tranches 1 and 2 was developed in close consultation with MOF and participating general corporations. APFS compliance was eventually achieved at the end of 2017. Excluding the $0.29 million in interest and commitment charges, all ADB disbursements for tranche 2 were recorded in the final APFS. Noncompliance did not affect project performance.
III. EVALUATION OF PERFORMANCE A. Relevance 49. Multi-tranche financing facility. The MFF’s design at appraisal was relevant given the need for SOE reform, and the credit limitations in the market. The MFF was an innovative and appropriate modality as it provided long-term commitment from the executing agencies and implementing agencies to support SOE reform in Viet Nam while allowing modifications to the DMF, covenants, and project design of each tranche. The intended outcome was fully in line with the government’s SOE policy. The MFF was also the catalyst for the MOF to develop and subsequently update its plans for SOE reform (para. 60). Although DATC withdrew from tranche 1 and Song Da was unable to participate in tranche 2, both SOEs implemented the recommendations designed by the MFF. 50. The MFF’s design remained relevant at completion. Developments in the legal framework that were a result of both tranches and the associated TAs benefited the participating general corporations and assisted the whole SOE sector (para. 60). The design, which provided for a comprehensive restructuring approach, has been replicated to give other SOEs the tools, techniques, and enhanced capacity to restructure in a planned and controlled manner (para. 69). 51. Project. The design of tranche 2 was relevant at appraisal. It supported the continuing need for comprehensive restructuring of general corporations and SOEs, while incorporating lessons from tranche 1. Capacity building at the management level had a significant positive impact on management’s understanding and mindset in relation to restructuring. Tranche 2 provided significant input into the redrafting of the legal framework encompassing management of state capital in SOEs, financial information disclosures, and the monitoring and evaluation of SOEs undergoing restructuring. 52. Tranche 2 remained relevant at completion. SOE reform was and remains an important development issue for Viet Nam (para.12). The tranche provided lessons on how SOEs can strengthen their management, streamline operations, and grow financially stronger and positively shaped the development of the legal framework governing future SOE reforms (paras. 68 and 69).
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B. Effectiveness 53. Multitranche financing facility. The MFF outcome was partially achieved with three of five outcome target indicators met. Among the two partially achieved indicators, one outcome indicator pertained to reducing the general corporations’ debt-to-equity ratio. One of the four participating general corporations did not achieve this target in tranche 1. One participating in tranche 2, Vinatex, has not yet achieved it but has planned divestments that it anticipates will help it to achieve the target by the 2020 deadline. The second unmet outcome indicator pertains to increasing cash from operations. One participating general corporation did not fully achieve this target in tranche 1 and one participating in tranche 2 has not yet achieved it but has until 2020. 54. The MFF outputs were partially achieved with nine of fourteen output performance indicators met. Among the five unmet indicators, two indicators were not achieved because only four rather than five general corporations participated. One of these indicators pertains to a requirement to create sub-holding companies to hold their remaining subsidiaries. Song Da has postponed this action until it has completed additional divestments and mergers. Another unmet indicator relates to Vinatex’s debt service coverage ratio (DSCR). The remaining unmet indicator is still in progress and pertains to Vinatex’s current ratio. Overall, the MFF is rated less than effective as the MFF outcome and outputs were partially achieved. 55. Project. Tranche 2’s outcome was partially achieved. It had five outcome indicators. Two were fully achieved and three were partially achieved. One indicator was partially achieved because there were only two participating general corporations instead of the targeted four. The other two indicators, both relating to debt-to-equity ratios and cash from operations, are still in progress. Vinatex has until the end of 2020 to achieve them. Tranche 2 outputs were substantially achieved. Out of the seven tranche 2 output indicators, six were achieved and one was partially achieved. The partially achieved indicator pertains to improvement of corporate governance and implementation of enhanced information technology infrastructure by CC1 and Vinatex. While these two general corporations made progress in improving corporate governance, they could not enhance their IT infrastructure because they did not make use of the ADF resources provided to meet this target (para. 28). 56. Tranche 2 is rated less than effective as the project outcome was partially achieved. While innovative pilots steered the participating general corporations toward new concepts and expanded SOE reform, only two general corporations participated in tranche 2 instead of three as planned. More ambitious targets could have been achieved had the general corporations been able to access full OCR and ADF envisaged financing (para. 28).
C. Efficiency 57. As the project’s main objective was to support reforms in the SOE sector, the efficiency assessment relies on return on equity (ROE), which reflects how well corporate managers are deploying investments. Under tranche 1, Song Da’s ROE moved from a negative position in 2011 to 5.90% in 2015 and 6.40% in 2017. Sowatco’s ROE improved from 5.90% in 2011 to 7.00% in 2015 and 46.60% in 2017. 58. Under tranche 2, Vinatex’s ROE improved from 7.60% in 2015 to 8.50% in 2017. CC1’s ROE fluctuated from 6.80% in 2013 to 9.50% in 2018. In all cases, at project completion in 2018, the ROE was higher than government borrowing rates of 3.00%–5.00%, depending on the tenor.
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59. Tranche 2 and the MFF are efficient. Although there was a delay in MFF implementation, the increases in ROE are material and attributable to the reforms under the MFF. Besides supporting participating general corporations, the MFF played a significant role in improving and accelerating the SOE reform process, supporting legislation development, and providing a model for restructuring (paras. 68 and 69). The MFF and tranche 2 provided seed capital and triggered restructuring of the participating general corporations, facilitating these SOEs to raise private investments (para. 24). During its implementation period 2011–2017, the MFF catalyzed a more comprehensive and sustainable SOE reform framework (para. 69). D. Sustainability 60. The MFF, including tranche 2, has demonstrated a comprehensive restructuring approach, which is more dynamic and focused than earlier piecemeal approaches. It has also triggered wider SOE reform, including the Prime Minister’s Decision 929 and Decree 71/2013, which mirrored the project’s approach of focusing on core businesses and divesting from noncore and nonessential businesses. It has also strengthened the government’s approach to risk management, internal audit, and corporate governance (para.69 and Appendix 10). 61. Although results vary, all four participating general corporations have stabilized their businesses and established sustainable financial positions.
62. Sowatco now has a strong capacity to repay its debts. It is primarily financed from internal resources,20 and its profitability is steadily increasing. Although Sowatco suffered a decline in cash flow from its operating activities in 2017, this was due to capital investments in its port and shipping operations. Cash flow from operating activities recovered in 2018.
63. Song Da has become more profitable and efficient, but its turnaround is more complex. This is in part due to (i) the years lost as a result of the Prime Minister’s Decisions 52/QD-TTg, 53/QD-TTg, and 1428/QD-TTg directing it to form an economic group; (ii) legal impediments that slowed the divestment and restructuring of its subsidiaries; and (iii) the complexity of restructuring a corporation as large as Song Da. Nevertheless, the ROE, the current ratio, and cash from operations have all improved.
64. CC1’s financial position has fluctuated. It suffered from its inability to access the full ordinary capital resources (OCR) and ADF support and was subject to a 27-month equitization process. Its profitability in 2016 and 2017 was lower than 2015. However, revenue doubled between 2011 and 2018. CC1 is complying with the key ratios in the loan agreement, and the company expects profits and profitability to grow from 2019.
65. Vinatex is now Viet Nam’s largest garment and textile company. Revenues and profits are increasing, and it has a healthy balance sheet and is expanding its exports to developed markets. Participation in the project has made the company’s management more efficient and effective. Vinatex divested 29 noncore business units by 2018 and will continue divesting until the process is complete. Vinatex’s revenues grew by 59% between 2013 (when it was selected to join tranche 2) and 2017. 66. Two participating general corporations, CC1 and Vinatex, were able to provide financial projections for 2019‒2023. These projections provide further evidence of the MFF’s sustainability. As projected, most of DMF tranche 2 indicators, including the DSCR, debt-equity ratio, and current
20 Sowatco’s self-financing ratio has reached 86%.
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ratio will be met during 2019‒2023. The only exception is CC1’s self-financing ratio which is projected to be 20% or 21%, lower than the target of 25%. However, this ratio may improve if CC1 is successful in raising funds as planned through issuing shares.
67. Tranche 2 and the MFF are likely sustainable. The rating is based on; (i) the financial performance of the general corporations, (ii) their leadership’s commitment to further restructuring, (iii) the introduction of enhanced management and corporate governance practices (para.69 and Appendix 10), and (iv) the viability of these general corporations for the foreseeable future. At a wider level, the project demonstrated a comprehensive restructuring approach that is more dynamic and focused than the prior piecemeal approach (para. 60). E. Development Impact 68. The MFF has contributed to significant progress in restructuring SOEs and large general corporations. It has also been viewed positively by the wider SOE and general corporation sector, many members of which have followed the project’s approach and learned from the experiences of the participating general corporations through training (Appendix 8). In addition to the outputs and outcome in the DMF, tranche 2 supported the government in enhancing and accelerating SOE reforms, including by providing a significant input into the redrafting of legislation on the management of state capital in corporations, financial information disclosure, and the monitoring and evaluation of SOEs undergoing restructuring (Appendix 8). 69. The development impact of the MFF and tranche 2 is assessed as satisfactory because of the institutional impacts, achievement of the impact performance targets, and demonstration effect on subsequent government policy. The participating general corporations have been transformed into focused, efficient businesses with strong balance sheets and improved corporate governance. Board committees on strategy and finance, risk management, human resources, and internal controls have been established. In addition, to enhance risk management, the participating corporations set up internal audit and risk management departments (Appendix 10). The MFF introduced a comprehensive approach to successfully restructure and equitize general corporations and transform them into competitive entities. The transparency of equitized and restructured SOEs, including large general corporations and their subsidiaries, has also been improved. Moreover, the number of SOEs was reduced from 1,500 to 652 during 2011-2016. As indicated in the government’s report to the National Assembly in May 2018, the average profitability of restructured large SOEs and general corporations has improved by 166.7%, increasing from 3% in 2011 to 8% in 2017.
F. Performance of the Borrower and the Executing Agency 70. The performance concerns included (i) withdrawal of the DATC from tranche 1 because of the unanticipated legal difficulties with the corporation’s participation in the pilot; (ii) VDB’s collateral requirements, which slowed implementation and resulted in CC1 and Vinatex drawing significantly less OCR and ADF support than envisaged; (iii) implementation delays caused by the decision (subsequently reversed) for Song Da to pilot an economic group; and (iv) the shortcomings in financial reporting (para. 48). 71. Despite these shortcomings, the performance of the line ministries, the Ministry of Industry and Trade, the Ministry of Transport, and the Ministry of Construction, is considered satisfactory in the MFF and tranche 2. The performance of the MOF, which was the borrower and the executing agency, is also satisfactory. Collectively, these ministries had strong ownership, successfully implemented project activities, and took steps to ensure sustainability. The MOF
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established a project steering committee in 2010 with representatives of relevant ministries and enterprises. This committee directed the implementation of the MFF in accordance with national strategic objectives and regulations, including the selection of MFF components and participating SOEs. The PMU effectively liaised between the implementing agencies, MOF, and ADB. G. Performance of the Asian Development Bank 72. ADB’s performance is rated satisfactory. ADB fielded regular project review missions on time. ADB provided transaction technical assistance to help the executing and implementing agencies prepare the MFF and develop SOE reform policies and the associated Law on Management of State Capital in SOEs. The executing agency and implementing agencies appreciated ADB’s responsiveness. Although the submission of APFS was less than adequate, resulting in a 5-year delay in their submission, the issue was resolved before MFF completion with no tangible impacts on the MFF’s outcome (para. 48). H. Overall Assessment 73. Overall, the MFF and tranche 2 are rated successful (Table 4). Tranche 1 and tranche 2 were implemented as conceived and designed and largely met their outcome and output targets (Tables 1–3).
Table 4: Multitranche Financing Facility and Tranche 2 Overall Ratings Criteria Rating
Tranche 1 Tranche 2 MFF
Relevance Relevant Relevant Relevant Effectiveness Effective Less than effective Less than effective Efficiency Efficient Efficient Efficient Sustainability Likely sustainable Likely sustainable Likely sustainable Overall Assessment Successful Successful Successful Development impact Satisfactory Satisfactory Satisfactory Borrower and executing agency Satisfactory Satisfactory Satisfactory Performance of ADB Satisfactory Satisfactory Satisfactory
ADB = Asian Development Bank, MFF = multitranche financing facility. Source: Asian Development Bank.
IV. ISSUES, LESSONS, AND RECOMMENDATIONS
A. Issues and Lessons
74. A key issue is the government’s equitization process. While Sowatco and Vinatex had both already equitized before participating in the MFF, Song Da was working toward equitization with an original target date of 2015. However, cumbersome processes and slow decision-making delayed Song Da’s equitization until December 2017. Moreover, once its valuation was established, Song Da could not implement any further corporate or financial activities that would impact its valuation. The majority ownership that the government retained in Song Da made its IPO less attractive to investors. The same is true for CC1, which started its equitization in June 2014 and did not conclude its IPO until October 2016 because of the delayed approval by the Ministry of Construction of the company’s value and equitization proposal submitted to the government. 75. There are three key lessons. First, the on-lending terms, including reasonable collateral requirements between VDB and the implementing agencies, should have been agreed during project appraisal.
17
76. Second, the MFF should have better anticipated and mitigated the cumbersome disbursement and procurement procedures and the complexity and time demands of equitization. The MFF has a maximum implementation period of 10 years. Although the government closed the project after 8 years, the full 10 years would have still been insufficient. Equitization procedures were untested and took longer than expected. Moreover, consultancy packages were not procured in parallel, and the procurement had to satisfy both the national and ADB regulations. In the case of tranche 2, which was effective for less than 2 years (para.33), there was only time to procure and implement a single package. 77. Third, the DMFs’ performance indicators should be easy to understand, specific, and quantifiable. In some cases, outcome and output indicators in the tranche DMF were inconsistent with those in the MFF DMF. Moreover, some outcome and output target date were not clearly defined. The target date “during first 5 years after general corporation restructuring” could be interpreted in different ways (para.16). B. Recommendations 78. Future monitoring. Two MFF output indicators with target dates of December 2020 have not yet been met. ADB should monitor these outputs through the preparation of the relevant 2020 entity-level financial statements. 79. Covenants. The MFF had 91 loan covenants. The 27 covenants for tranche 1 are generally relevant to the project, although they could be reduced in number. Tranche 2 had 64 covenants (Appendix 7). Some covenants pertaining to the project agreement appear to be generic to a physical infrastructure project and have not been developed specifically for tranche 2. The number of covenants for any project should be rationalized and only include those that are relevant and specific to the project (para.45). 80. Further action or follow-up. Any future support to Vietnamese SOEs should be in line with the government’s restrictions on on-lending to SOEs that were introduced in 2017 following the 2017 Law on Public Debt Management. ADB may explore providing nonsovereign financing to SOEs that have been restructured under the project, have improved corporate governance, and have sufficiently strong financial operations. In addition, ADB may be able to support SOEs in critical areas, such as transport and energy, in selling or transferring their assets, and in reinvesting the proceeds in greenfield projects. 81. Timing of the project performance evaluation report. The project performance evaluation report should take place in 2021 after CC1 and Vinatex have completed their 2020 entity-level financial statements and tranche 2 has used its full-time allocation to achieve the output indicators.
18 Appendix 1
DESIGN AND MONITORING FRAMEWORKS
Table 1.1: Design and Monitoring Framework for Multitranche Financing Facility Design Summary Performance Indicators Facility Achievements
Impact Improved profitability and transparency of equitized and restructured SOEs, including large general corporations and their subsidiaries.
• Number of general corporations and large SOEs undergoing operational and financial restructuring during 2009–2017 increases by at least 50% over that in previous 4 years.
• Profitability of restructured general corporations and SOEs increases by 15% over average of 4 years preceding restructuring.1
• Between 2005 and 2008, the government’s restructuring focus was on equitizing smaller SOEs and creating larger general corporations and state economic groups.2
• By 2012 the focus had changed to restructuring general corporations and state economic groups.3
• During 2011-2016, significant progress was made in restructuring SOEs. The number of SOEs was reduced from 1,500 to 652.4 Therefore, this can be considered as achieved
Achieved. Whilst this indicator is not specific in terms of timeframe the government has reported that the average profitability of restructured large SOEs and general corporations has improved by 166.7% by moving from 3% in 2011 to 8% in 2017.5
Outcome Participating general corporations are transformed into focused, efficient businesses with strong balance sheets and improved corporate governance.
• Debt–equity ratios reduced by at least 15% during first 5 years after general corporation restructuring.
• Cash flows from operations are enhanced by at least 20% during first 5 years after general corporation restructuring.
• Debt-to-equity ratios Tranche 1
(i) Song Da improved by 11.2% moving from 2.31 in 2011 to 2.05 in 2015. Not achieved
(ii) Sowatco improved by 77% moving from 0.26 in 2011 to 0.06 in 2015. Achieved
Tranche 2 (i) CC1 improved by 19.7% moving from
2.74 in 2016 to 2.20 in 2018. Achieved (ii) Vinatex moved from 1.16 in 2016 to 1.30
in 2018. Not achieved, yet there are still 2 years until the scheduled target
• Cash flows from operations Tranche 1
(i) Song Da’s cash flow from operations was negative in 2011 and reached D1,137 billion by 2015. Achieved
(ii) Sowatco achieved in 2014 and 2018 but not the other years. Partially achieved
Tranche 2 (i) CC1 improved moving from a negative
position in 2016 to D913 billion in 2018. Achieved
1 The definitions of “restructuring” and “restructuring date” are unclear in the project documents. 2 Decree No. 101/2009/ND-CP of November 2009 took conglomeration one step further by creating state economic
groups. 3 Decision No. 929/QD-TTg dated July 17, 2012 approved a scheme to restructure state-owned enterprises, focusing
on economic groups and state-owned corporations. 4 Dang Quyet Tien. “Restructuring SOEs and the Way Forward.” Finance Magazine. 30 January 2017. 5 Report No 217/BC-CP of the Government to Assembly, dated 24 May 2018.
Appendix 1 19
Design Summary Performance Indicators Facility Achievements
• At least four general corporations converted into pure holding companies.
• Lines of business of general corporations reduced.
• Number of principles of good corporate governance adopted by general corporations.
(ii) Vinatex moved from a positive position in 2016 to a negative in 2018. Not achieved, yet there are still 2 years until the scheduled target
• Each of the four participating general corporations has been converted into a holding company. Achieved
• Sowatco’s lines of business were reduced from 5 to 1. Song Da’s lines of business were reduced from 5 to 2. CC1’s lines of business were reduced from 7 to 4. Vinatex refocused to be a vertically integrated business providing original design and manufacturing. Achieved
• Each of the four participating general corporations introduced new and enhanced principles of corporate governance. Achieved.
Outputs 1. Debt restructuring implemented, combining financial and corporate restructuring.
• Current ratio improves by at least 10% during the 5 years after restructuring.
• Debt-service coverage ratio improved by at least 20% during first 5 years after general corporation restructuring.
• Number of subsidiaries directly below general corporation reduced.
• 3 of 4 participating general corporations achieved the target by the end of 2018. Partially achieved (i) Sowatco: improved by 140%, from 1.27 in
2011 to 3.05 in 2015. Achieved (ii) Song Da: improved by 14%, from 0.88 in
2011 to 1.0 in 2015. Achieved (iii) Vinatex: declined from 1.35 in 2015 to
1.24 in 2018. Not achieved, yet there are still 2 years until the scheduled target
(iv) CC1: improved by 16%, from 1.08 in 2015 to 1.25 in 2018. Achieved
• 3 of 4 participating general corporations achieved the target by the end of 2018. Partially achieved (i) Sowatco: improved by 61%, from 2.35 in
2011 to 3.78 in 2015. Achieved (ii) Song Da: improved by 22%, from 1.16 in
2011 to 1.41 in 2015. Achieved (iii) Vinatex: improved by 2%, from 2.22 in
2015 to 2.27 in 2018. Not achieved, yet there are still 2 years until the scheduled target
(iv) CC1: improved by 245%, from 1.23 in2015 to 4.23 in 2018. Achieved
• All 4 participating general corporations achieved the target by the end of 2018. Achieved (i) Sowatco: reduced its subsidiaries by
three. Achieved (ii) Song Da: parent company divested 27
companies and reduced the number of subsidiaries from 24 to 13. In addition, Song Da subsidiaries divested 57 companies by 2017. Achieved
20 Appendix 1
Design Summary Performance Indicators Facility Achievements (iii) Vinatex: divested 29 noncore business
units by 2018. Achieved (iv) CC1: refocused on core businesses,
reducing from 7 to 4 business lines. Achieved
2. Increased operational efficiency and improved corporate governance of general corporations and other SOEs.
• At least five general corporations create sub-holding companies and bring remaining subsidiaries under them.
• At least five general corporations refocus operations in core business lines.
• Management practices and business processes are rationalized in at least five general corporations.
• Budgetary controls and financial planning processes are improved.
• Directors, managers and staff follow a code of ethics.
• Surplus employees provided
appropriate training for redeployment.
• 3 out of 4 participating general corporations created sub-holding companies. Partially achieved Song Da developed two subsidiary business lines (power and infrastructure) and plans to establish them legally as sub-holding companies by 2021. Not yet achieved.
• All 4 participating general corporations refocused operations into core business lines. Partially achieved (i) Song Da refocused from five business
lines to two. Achieved. (ii) Sowatco refocused from four to one.
Achieved. (iii) Vinatex divested from nonessential
businesses and refocused on core business lines, developing a vertically integrated business providing original design and manufacturing (ODM). Achieved.
(iv) CC1 refocused from 7 to 4 business lines. Achieved.
• All 4 general corporations introduced revised board structures, board committees, and risk management practices. Partially achieved
• All 4 general corporations introduced revised budgeting, financial planning, and forecasting. Achieved
• All 4 general corporations introduced revised codes of ethics for management and staff. Achieved
• Surplus employees were provided with training at all 4 general corporations. Achieved
3. Institutions supporting key aspects of SOE reform strengthened and governance improved.
• Improved management systems and processes at DATC
• Improved internal audit system at DATC
• Strengthened human resource processes at DATC
• Improved information management at DATC
• Improved legal framework for DATC
• Achieved. Although not completed as originally planned, all the output targets were achieved with assistance from the Japan International Cooperation Agency. Roles and position of DATC have been strengthened with improved legal framework for DATC. Functions and tasks of DATC have been expanded to debt resolution, recapitalization, and asset management. Job descriptions for the job positions and KPI management have been developed and applied. Processes and procedures have been put in place for the primary work functions. Human resources and equity have been enhanced. The number of employees has increased from 150 to 240 (end 2018). Statutory capital has increased 3 times,
Appendix 1 21
Design Summary Performance Indicators Facility Achievements
from D2,000 billion to D6,000 billion. To date, DATC has assisted more than 180 SOEs in debt resolution, of which more than 20 are SEGs and general corporations
CC1 = Construction Corporation No. 1 Company Limited, DATC = Debt and Asset Trading Corporation, SEG = state economic group, SOE = state-owned enterprise, Song Da Corporation = Song Da Corporation Joint Stock Company, Sowatco = Southern Waterborne Transport Corporation, Vinatex = Vietnam National Textile and Garment Group. Source: Asian Development Bank.
22 Appendix 1
Table 1.2: Design and Monitoring Framework for Tranche 2
Design Summary Performance Indicators Project Achievements
Impact
Improved profitability and transparency of equitized and restructured SOEs, including large general corporations and their subsidiaries.
• Number of general corporations and large SOEs undergoing operational and financial restructuring during 2009–2017 increases by at least 50% over that in previous 4 years.
• Profitability of restructured general corporations and SOEs increases by 15% over average of 4 years preceding restructuring.6
• Achieved. Before 2009, no general corporations and large SOEs underwent operational and financial restructuring. During 2011-2016, significant progress was made in restructuring SOEs. The number of SOEs was reduced from 1,500 to 652 during this period.
• Achieved. Whilst this indicator is not specific in terms of timeframe, the government has reported that the average profitability of restructured large SOEs and general corporations has improved by 166.7% by moving from 3% in 2011 to 8% in 2017.7
Outcome
Participating general corporations are transformed into focused, efficient businesses with strong balance. sheets and improved corporate
governance.
• Debt-equity ratios reduced by at least 15% during first 5 years after general corporation restructuring.
• Cash flows from operations are enhanced by at least 20% during 5 years after general corporations restructuring.
• At least four general corporations converted into pure holding companies.
• Lines of business of general corporations reduced.
• Number of principles of good corporate governance adopted by general corporations.
• Financial restructuring started in 2016 for tranche 2 so the target period is 2016 to 2020
• CC1 improved by 21.48% moving from 1.35 in 2016 to 1.06 in 2018. Achieved
• Vinatex has improved by 11.11% moving from 0.63 in 2016 to 0.58 in 2018. Not achieved, yet there are still 2 years until the scheduled target
Progress as of 2018:
• CC1 has improved moving from a negative position in 2016 to D913 billion in 2018. Achieved
• Vinatex has moved from a positive position in 2016 to a negative in 2018 Not achieved
• There were only 2 general corporations included in tranche 2; both general corporations are holding companies. Partially achieved
• CC1’s lines of business were reduced from 7 to 4. Vinatex refocused to be a vertically integrated business providing original design and manufacturing. Achieved
• Both general corporations implemented enhanced corporate governance principles. Achieved
Outputs
1. Debt restructuring implemented, combining financial and corporate restructuring.
• Current ratio and debt-service coverage of participating general corporations improves to reach a minimum level >1 and 1.5
• Both participating general corporations achieved the current ratio target by FY2017. Achieved
• As of FY 2018, CC1 and Vinatex have achieved the DSCR. Achieved
6 The definitions of “restructuring” and “restructuring date” are unclear in the project documents. 7 Report No 217/BC-CP of the Government to Assembly, dated 24/5/2018.
Appendix 1 23
Design Summary Performance Indicators Project Achievements
respectively within 5 years after restructuring (Baseline: FY2014)
• Management control over subsidiaries through buybacks, and purchase of additional shares to strengthen core operations by 2017 (Baseline: FY2014)
• Vinatex bought back shares in its subsidiary Phong Phu. Achieved
• CC1 received 57% of the designated OCR for debt restructuring, contributing to strengthening core operations. Achieved
2. Increased operational efficiency and improved corporate governance of general
corporations and other SOEs.
• Parent company of participating general corporations equitized under the restructuring plan timelines not later than 2016 (Baseline: FY2014).
• Business re-focus on core business lines achieved by participating general corporations by 2017 (Baseline: FY2014).
• Management and business practices relating to risk management, financial planning, budgetary controls, and IT infrastructure strengthened not later than 2017 (Baseline: FY2014).
• Improvement in audited financial statement through reduction in the qualifying audit opinion for 2015 and in future audit statements (Baseline: FY 2014).
• CC1 was equitized in October 2016. Achieved Vinatex was equitized in September 2014. Achieved
• Both participating general corporations refocused on core business lines by FY2017. Achieved
• Both general corporations introduced risk management departments, developed a framework of policies and processes for financial planning and budgeting, prepared manuals and training to build staff capacity, and enhanced budgeting and forecasting IT enhancement was not made at Vinatex and CC1 as per the restructuring plan because CC1 could not access the ADF, and Vinatex only received 10% of the planned ADF. Partially achieved
• Both participating general corporations have had unqualified audits since FY2015. Achieved
ADF = Asian Development Fund, CC1 = Construction Corporation No. 1 Company Limited, DSCR = debt service coverage ratio, FY = fiscal year, IT = information technology, Vinatex = Vietnam National Textile and Garment Group, OCR = ordinary capital resources, SOE = state-owned enterprise. Source: Asian Development Bank.
24 Appendix 2
FACILITY AND PROJECT COST AT APPRAISAL AND ACTUAL ($'000)
Table 2.1: Facility
Item Appraisal
Estimate Actual
A. Component 1: Debt Restructuring 1. CC1 99.38 60.68
2. Song Da 204.24 112.53
3. VINATEX 99.38 71.03
4. Sowatco 2.30 2.30
5. Lilama 70.00 0.00
6. Sonadezi 50.00 0.00
7. Licogi 50.00 0.00
Subtotal (A) 575.30 246.54
B. Component 2: Operational Restructuring
1. Consulting Services 35.00 7.27
2. Equipment Subtotal (B)
10.00 19.04
0.78 4.20 Subtotal (B) 45.00 8.05
C. Financial Charges During Implementation 25.63 6.06
Subtotal (C) 25.63 6.06
Total (A+B+C) 645.93 260.65
Source: Asian Development Bank.
Table 2.2: Project (Tranche 2)
Component Appraisal Estimate Actual
Investment Cost Component 1: Debt Restructuring
CC1 Song Da Vinatex
Component 2: Operational Restructuring Consulting Services
CC1 Song Da Vinatex
Equipment CC1 Vinatex
Interest and Commitment Charges
99.39 94.65 99.39
7.25 5.98 8.32
1.66 1.57
16.79
57.38 0.00
67.66
4.40 0.00
4.00
0.00 0.00 3.98
Total 335.00 137.42
Source: Asian Development Bank.
Table 2.3: Facility Financing At Appraisal At Completion
Amount % of Cost Category
Amount % of Cost Category Source
ADB 630.00 97.53 247.19 94.84 Government and SOEs 15.93 2.47 13.46a 5.16
Total 645.93 100.00 260.65 100.00
ADB = Asian Development Bank, SOEs = state-owned enterprises. a During facility implementation, the government revised its policy and stopped funding SOE restructuring. b The external resources figures reflects proceeds from IPOs undertook by participating SOEs.
Source: Asian Development Bank.
Appendix 3 25
PROJECT COST BY FINANCIER
($'000)
Table 3: Project Cost at Appraisal and Completion by Financier
Item
At Appraisal At Completion
ADB Government and
SOEs Total Cost
ADB Government and SOEs
Total Cost
Amount % of Cost Category
Amount % of Cost Category
Amount % of Cost Category
Amount % of Cost Category
Facility
A. Investment Costs
1. Component 1: Debt Restructuring
405.32 100.00 0.00 0.00 405.32 236.93 98.71 3.10 1.29 240.03
2. Component 2: Operational Restructuring
19.04 55.94 15.00 44.06 34.04 4.20 28.86 10.36 71.14 14.56
a. Consulting Services 12.52 49.06 13.00 50.94 25.52 3.94 30.23 9.10 69.77 13.04
b. Equipment 6.52 63.91 3.68 36.09 10.20 0.26 13.54 1.66 86.46 1.92
Subtotal (A) 424.36 96.38 15.93 3.62 440.29 241.13 94.71 13.46 5.29 254.59
B. Interest and Commitment Charges
25.64 100.00 0.00 0.00 25.64 6.06 100.00 0.00 0.00 6.06
Subtotal (B) 25.64 100.00 0.00 0.00 25.64 6.06 100.00 0.00 0.00 6.06
Total Project Cost (A+B) 450.00(*) 96.58 15.93 3.42 465.93 247.19 94.84 13.46 5.16 260.65
Tranche 1
A. Investment Costs
1. Component 1: Debt Restructuring
111.89 100.00 0.00 0.00 111.89 111.89 97.30 3.10 2.70 114.99
2. Component 2: Operational Restructuring
9.26 100.00 0.00 0.00 9.26 3.76 61.04 2.40 38.96 6.16
a. Consulting Services 5.97 100.00 0.00 0.00 5.97 3.50 61.40 2.20 38.60 5.70
b. Equipment 3.29 77.96 0.93 22.04 4.22 0.26 56.52 0.20 43.48 0.46
Subtotal (A) 121.15 99.24 0.93 0.76 122.08 115.65 95.46 5.50 4.54 121.15
B. Interest and Commitment Charges
8.85 100.00 0.00 0.00 8.85 2.08 100.00 0.00 0.00 2.08
Subtotal (B) 8.85 100.00 0.00 0.00 8.85 2.08 100.00 0.00 0.00 2.08
Total Project Cost (A+B)
130.00 99.29 0.93 0.71 130.93 117.73 95.54 5.50 4.46 123.23
Tranche 2
A. Investment Costs
1. Component 1: Debt Restructuring
293.43 100.00 0.00 0.00 293.43 125.04 100.00 0.00 0.00 125.04
2. Component 2: Operational Restructuring
9.78 39.47 15.00 60.53 24.78 0.44 5.26 7.96 94.74 8.40
a. Consulting Services 6.55 33.51 13.00 66.49 19.55 0.44 6.02 6.90 93.98 7.34
b. Equipment 3.23 53.99 2.75 46.01 5.98 0.00 0.00 1.46 100.00 1.46
Subtotal (A) 303.21 95.29 15.00 4.71 318.21 125.48 94.03 7.96 5.97 133.44
B. Interest and Commitment Charges
16.79 100.00 0.00 0.00 16.79 3.98 100.00 0.00 0.00 3.98
Subtotal (B) 16.79 100.00 0.00 0.00 16.79 3.98 100.00 0.00 0.00 3.98
Total Project Cost (A+B) 320.00 95.52 15.00 4.48 335.00 129.46 94.21 7.96 5.79 137.42
Notes: (*) MFF amount was $630.00 million at appraisal including (i) Tranche 1 of $130.00 million, (ii) Tranche 2 of $320.00 million, and Tranche 3 of $180.00 million. Tranche 3 was cancelled at the Government's request on 11 May 2016.
26 Appendix 4
DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS FOR FACILITY AND TRANCHE 2
Table 4.1: Annual and Cumulative Disbursement of ADB Loan Proceeds
($ million) Loan 3240-VIE
ADB = Asian Development Bank, VIE = Viet Nam. Source: Asian Development Bank.
Table 4.2: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)
Loan 3242-VIE Annual Disbursement
Cumulative Disbursement
Year
Amount % of Total Amount % of Total
($ million) ($ million) 2015 0.00 0.00 0.00 0.00
2016 0.17 37.36 0.17 37.36
2017 0.19 43.40 0.36 80.76
2018 0.09 19.24 0.45 100.00
Total 0.45 100.00 0.45 100.00
ADB = Asian Development Bank, VIE = Viet Nam. Source: Asian Development Bank.
Table 4.3: Annual and Cumulative Disbursement of ADB Loan Proceeds
($ million) Loan 3240-VIE and Loan 3242-VIE
Calendar year Projected Actual
For the Year Cumulative For the Year Cumulative
2015 0.00 0.00 0.00 0.00
2016 0.00 0.00 120.53 120.53
2017 315.00 315.00 8.85 129.38
2018 4.37 319.37 0.09 129.46
Total 319.37 319.37 129.46 129.46
ADB = Asian Development Bank, VIE = Viet Nam. Source: Asian Development Bank.
Table 4.4: Annual and Cumulative Disbursement of ADB Loan Proceeds - MFF ($ million)
Calendar year Projected Actual
For the Year Cumulative For the Year Cumulative
2011 91.07 91.07 91.07 91.07
2012 24.42 115.48 1.00 92.07
2013 4.75 120.23 13.79 105.86
2014 1.40 121.63 10.57 116.43
2015 0.00 121.63 0.98 117.42
2016 0.00 121.63 120.56 237.98
2017 315.00 436.63 9.14 247.12
2018 4.37 441.00 0.07 247.19
Total 441.00 441.00 247.19 247.19
ADB = Asian Development Bank, MFF = multitranche financing facility. Source: Asian Development Bank.
Annual Disbursement Cumulative Disbursement
Year
Amount % of Total Amount % of Total
($ million) ($ million) 2015 0.00 0.00 0.00 0.00
2016 120.36 93.29 120.36 93.29
2017 8.65 6.71 8.65 100.00
2018 0.00 0.00 0.00 100.00
Total 129.01 100.00 129.01 100.00
Appendix 4 27
ADB = Asian Development Bank.
Source: Asian Development Bank.
ADB = Asian Development Bank.
Source: Asian Development Bank.
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
2015 2016 2017 2018
Dis
bu
rse
me
nt in
$ m
illio
n
Figure 4.1: Annual Disbursement of ADB Loan Proceeds ($ million) - Tranche 2
Projected Actual
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
2015 2016 2017 2018
Dis
bu
rse
me
nt in
$ m
illio
n
Figure 4.2: Cummulative Disbursement of ADB Loan Proceeds ($ million) - Tranche 2
Projected Actual
28 Appendix 4
ADB = Asian Development Bank, MFF = multitranche financing facility.
Source: Asian Development Bank. ADB = Asian Development Bank, MFF = multitranche financing facility. Source: Asian Development Bank.
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
2011 2012 2013 2014 2015 2016 2017 2018
Dis
bu
rse
me
nt in
$ m
illio
n
Figure 4.3: Annual Disbursement of ADB Loan Proceeds ($ million) - MFF
Projected Actual
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
500.00
2011 2012 2013 2014 2015 2016 2017 2018
Dis
bu
rse
me
nt in
$ m
illio
n
Figure 4.4: Cummulative Disbursement of ADB Loan Proceeds ($ million) - MFF
Projected Actual
Appendix 5 29
CONTRACT AWARDS OF ADB LOAN AND GRANT PROCEEDS FOR FACILITY AND TRANCHE 2
Table 5.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)
Loan 3240-VIE Annual Contract Awards Cumulative Contract Awards
Year
Amount % of Total
Amount ($ million) ($ million) % of Total
2015 0.00 0.00 0.00 0.00
2016 125.04 100.00 125.04 100.00
2017 0.00 0.00 125.04 100.00
2018 0.00 0.00 125.04 100.00
Total 125.04 100.00 125.04 100.00
ADB = Asian Development Bank, VIE = Viet Nam. Source: Asian Development Bank.
Table 5.2: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)
Loan 3242-VIE Annual Contract Awards Cumulative Contract Awards
Amount Amount
Year ($ million) % of Total ($ million) % of Total
2015 0.00 0.00 0.00 0.00
2016 0.44 100.00 0.44 100.00
2017 0.00 0.00 0.44 100.00
2018 0.00 0.00 0.44 100.00
Total 0.44 100.00 0.44 100.00
ADB = Asian Development Bank, VIE = Viet Nam. Source: Asian Development Bank.
Table 5.3: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)
Loan 3240-VIE and Loan 3242-VIE
Calendar year Projected Actual
For the year Cumulative For the year Cumulative
2015 0.00 0.00 0.00 0.00
2016 0.00 0.00 125.48 125.48
2017 302.60 302.60 0.00 125.48
2018 0.00 302.60 0.00 125.48
Total 302.60 302.60 125.48 125.48
ADB = Asian Development Bank, VIE = Viet Nam. Source: Asian Development Bank.
Table 5.4: Annual and Cumulative Contract Awards of ADB Loan Proceeds - MFF ($ million)
Calendar year Projected Actual
For the Year Cumulative For the Year Cumulative
2011 90.89 90.89 90.89 90.89
2012 22.20 113.09 2.38 93.27
2013 4.70 117.79 0.31 93.58
2014 0.55 118.34 21.81 115.39
2015 0.00 118.34 0.00 115.39
2016 0.00 118.34 125.48 240.87
2017 302.60 420.94 0.26 241.13
2018 0.00 420.94 0.00 241.13
Total 420.94 420.94 241.13 241.13
ADB = Asian Development Bank, MFF = multitranche financing facility. Source: Asian Development Bank.
30 Appendix 5
ADB = Asian Development Bank. Source: Asian Development Bank.
ADB = Asian Development Bank. Source: Asian Development Bank.
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
2015 2016 2017 2018
Co
ntr
act A
wa
rds in
$ m
illio
n
Figure 5.1: Annual Contract Awards of ADB Loan Proceeds ($ million) - Tranche 2
Projected Actual
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
2015 2016 2017 2018
Con
tra
ct A
wa
rds in
$ m
illio
n
Figure 5.2: Cummulative Contract Awards of ADB Loan Proceeds ($ million) - Tranhce 2
Projected Actual
Appendix 5 31
ADB = Asian Development Bank, MFF = multitranche financing facility.
Source: Asian Development Bank.
ADB = Asian Development Bank, MFF = multitranche financing facility.
Source: Asian Development Bank.
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
2011 2012 2013 2014 2015 2016 2017 2018
Co
ntr
act A
wa
rds in
$ m
illio
n
Figure 5.3: Annual Contract Awards of ADB Loan Proceeds ($ million) - MFF
Projected Actual
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
2011 2012 2013 2014 2015 2016 2017 2018
Con
tra
ct A
wa
rds in
$ m
illio
n
Figure 5.4: Cummulative Contract Awards of ADB Loan Proceeds ($ million) - MFF
Projected Actual
32 Appendix 6
CHRONOLOGY OF MAIN EVENTS FOR FACILITY AND TRANCHE 2 Facility
Date Event
2009 2-6 March 2009 15 July 2009 13-17 August 2009 9 October 2009 29-30 October 2009 14 December 2009 2010 27 September 2010 2015 31 December 2015 2016 1 November 2016 2017 31 December 2017 2018 27 March 2018 3-10 December 2018
Fact-Finding Mission Management Review Meeting Appraisal Mission Staff Review Meeting Loan Negotiations Asian Development Bank Board Approval Framework Financing Agreement Signed Original MFF Closure Asian Development Bank delegation MFF administration to VRM Actual MFF Closure Actual MFF Financial Closure Project Completion Review Mission
MFF = multitranche financing facility. Source: Asian Development Bank.
Tranche 2 Date Event
2014 1-9 April 2014 12 August 2014 6-7 November 2014 16 December 2014 2015 24-27 November 2015 11-15 May 2015 8-9 June 2015 16-21 July 2015 3-4 Sept 2015 2016 9 February 2016 2017 24-27 April 2017 9-16 October 2017 1 December 2017 1 December 2017 31 December 2017 2018 27 March 2018 3-10 December 2018
Fact-Finding Mission Management Review Meeting Loan Negotiations Asian Development Bank Board Approval Loan Inception Mission Loan Review Consultation for PFR3 Consultation for PFR3 Consultation for PFR3 Loan Effectiveness Review Mission Review Mission 1st Partial Loan Cancellation (OCR Loan) 1st Partial Loan Cancellation (ADF Loan) 2nd Loan Cancellation and Loan Closure (OCR Loan) 2ndLoan Cancellation and Loan Financial Closure (ADF Loan) Project Completion Review Mission
ADF = Asian Development Fund, OCR = ordinary capital resources, MFF = multitranche financing facility, PFR = periodic financing request, VRM = Viet Nam Resident Mission. Source: Asian Development Bank.
Appendix 7 33
STATUS OF COMPLIANCE WITH LOAN COVENANTS—TRANCHE 2
Covenant Reference in Loan
Agreement Status of
Compliance
L3242-VIE (SF) – Special Operations
1. In the carrying out of the Project and operation of the project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 4 to the ordinary operations loan agreement and the project agreement
Section 4.01 Not complied with
2. The Borrower shall enable ADB’s representatives to inspect the project, the goods any relevant records and documents.
Section 4.02 Complied with
3. The Borrower shall take all actions which shall be necessary on its part to enable the project executing agency to perform its obligations under the project agreement and shall not take or permit any action which would interfere with the performance of such obligations.
Section 4.03 Complied with
4. The Borrower shall exercise its rights under the subsidiary loan agreements for the special operations loan in such a manner as to protect the interests of the borrower and ADB and to accomplish the purposes of the loan.
Section 4.04 Complied with
5. No rights or obligations under the subsidiary loan agreement for the special operations loan shall be assigned, amended or waived without the prior concurrence of ADB.
Section 4.04 Complied with
L3240-VIE
1. The Borrower shall cause the project to be carried out with due diligence and efficiency and in conformity with sound applicable technical, financial, business and development practices.
Section 4.01 Complied with
2. In the carrying out the Project and operation of the project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 4 to this loan agreement and the project agreement.
Section 4.01 Complied with
3. The Borrower shall make available, or cause to be made available, promptly as needed, facilities, services and other resources, as required, in addition to the proceeds of the loan, for the carrying out of the project.
Section 4.02 Complied with
4. The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the project and operation of the project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.
Section 4.03 Complied with
5. The Borrower shall take all actions which shall be necessary on its part to enable the implementing agencies to perform their obligations under the project agreement and shall not take or permit any action which would interfere with the performance of such obligations.
Section 4.04 Complied with
6. The Borrower shall exercise its rights under the subsidiary loan agreements for the ordinary operations loan in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the loan.
Section 4.05 Complied with
34 Appendix 7
Covenant Reference in Loan Agreement
Status of Compliance
7. No rights or obligations under the subsidiary loan agreement for the ordinary operations loan shall be assigned, amended abrogated or waived without the prior concurrence of ADB.
Section 4.05 Complied with
L3240-VIE Schedule 4
1. The Borrower and the implementing agencies shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM. Any subsequent change to the PAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this loan agreement, the provisions of this loan agreement shall prevail.
Schedule 4 Implementation Arrangements
Complied with
2. The Borrower shall ensure, and cause the implementing agencies to ensure, that the project does not have any environmental, indigenous peoples or involuntary resettlement impacts, all within the meaning of ADB’s Safeguard Policy Statement (2009). In the event that the project does have any such impact, the Borrower shall take, and cause the implementing agencies to take, all steps required to ensure that the Project complies with the applicable laws and regulations of the Borrower and with ADB’s Safeguard Policy Statement.
Schedule 4 Safeguards
Complied with
3. Without limiting the generality of para. 2 above, the Borrower shall cause each of the implementing agencies to ensure that measures are put in place to improve the existing ESMS, and that, if necessary, the required ESMS is put in place, based on the audit assessment of each selected SOE’s ability to manage all relevant social and environmental risks to and impacts on its business and operations, in particular the issues identified in the ADB safeguard requirements.
Schedule 4 Safeguards
Complied with
4. The Borrower shall ensure that the SOE roadmap shall continue to be monitored by MOF
Schedule 4 SOE Management
Complied with
5. Within 12 months of the effective date, the Government of the Borrower shall have submitted to its National Assembly the Law on Management of Investments of State Capital and develop an enhanced framework for improved management of the state's capital invested in the SOE sector.
Schedule 4 SOE Management
Complied with
6. Within 18 months of the effective date, the Government of the Borrower shall have issued a decree, establishing the legal framework to (a) carry out effective debt resolution, and (b) enhance operational effectiveness of the Debt and Asset Trading Corporation.
Schedule 4 SOE Management
Complied with
7. The Borrower shall ensure, and cause each of the implementing agencies to ensure, that the implementing agencies continue to implement their respective restructuring plans as agreed and to the satisfaction of ADB.
Schedule 4 Restructuring of the Implementing Agencies
Complied with
8. The Borrower, through MOF, shall start implementing the monitoring and evaluation framework for the implementing agencies within the period as agreed for each of the implementing agencies, and continue thereafter. The Borrower shall expand the implementation of such monitoring and evaluation framework to the other SOEs.
Schedule 4 Restructuring of the Implementing Agencies
Complied with
Appendix 7 35
Covenant Reference in Loan Agreement
Status of Compliance
9. For the purposes of this paragraph, all financial calculations, ratios and financial covenants shall be applied in respect of the implementing agencies operations only.
Schedule 4 Financial Matters
Complied with
10. Except as ADB shall otherwise agree, the Borrower shall ensure that for each of its fiscal years after its fiscal year ending 31 December 2014 the implementing agencies meet the following requirements:
Schedule 4 Financial Matters
11. CC1 will generate funds from internal sources equivalent to not less than 25% in its fiscal year 2017 and thereafter of the annual average of CC1's capital expenditures incurred, or expected to be incurred, for that fiscal year.
Schedule 4 Financial Matters
Not Complied with
12. The net revenues of CC1 will be at least the following relative to the debt service requirements of CC1:1.5 times in its fiscal year 2017 and thereafter.
Schedule 4 Financial Matters
Complied with
13. CC1's ratio of debt to equity will be maximum of 75:25 in its fiscal year 2017 and thereafter.
Schedule 4 Financial Matters
Complied with
14. Song Da will generate funds from internal sources equivalent to not less than 25% in its fiscal year 2016 and thereafter of the annual average of Song Da's capital expenditures incurred, or expected to be incurred, for that fiscal year.
Schedule 4 Financial Matters
Complied with
15. The net revenues of Song Da will be at least the following relative to the debt service requirements of Song Da:1.04 times in its fiscal year 2016 and 1.5 times in its fiscal year 2020 and thereafter.
Schedule 4 Financial Matters
Complied with for 2016
16. Song Da's ratio of debt to equity will be maximum of 75:25 in its fiscal year 2016 and thereafter.
Schedule 4 Financial Matters
Complied with
17. VINATEX’s ratio of net revenues to the debt service requirements will be maintained at least 1.5 times in its fiscal year during the Project implementation period and thereafter.
Schedule 4 Financial Matters
Complied with
18. VINATEX will continue to generate funds from internal sources equivalent to not less than 25% of the annual average of VINATEX's capital expenditures incurred, or expected to be incurred, for all fiscal years during the Project implementation period and thereafter.
Schedule 4 Financial Matters
Complied with
19. VINATEX's ratio of debt to equity will continue to be maintained maximum of 75:25 during the Project implementation period and thereafter
Schedule 4 Financial Matters
Complied with
20. Ratio of current assets to current liabilities of all the Implementing Agencies will continue to be maintained more than 1.
Schedule 4 Financial Matters
Complied with
21. Before December 31 in each of its fiscal years, the implementing agencies will be on the basis of forecasts satisfactory to ADB, review whether it would meet the requirements set forth in paragraphs 9(a)(i) to (x) above in respect of such year and the next following fiscal year and will furnish to ADB a copy of such review upon its completion.
Schedule 4 Financial Matters
Not complied with
36 Appendix 7
Covenant Reference in Loan Agreement
Status of Compliance
22. If any such review shows that the implementing agencies would not meet the requirements set forth in paragraphs 9(a) (i) to (x) above for their fiscal years covered by such review, t h e Borrower will promptly take all necessary measures to enable the Implementing Agencies to meet their requirements, including but not limited to, adjustments of financial and institutional restructuring.
Schedule 4 Financial Matters
Not complied with
23. The Borrower shall monitor the reduction of volume of the short-term debts for long-term assets of the implementing agencies, as agreed with each of the implementing agencies. For the purpose of this paragraph, the term “short-term debts” means any indebtedness of the concerned implementing agency maturing by its terms not more than one year after the date on which it is originally incurred, and the term “long-term asset” means a long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time.
Schedule 4 Financial Matters
Complied with
24. The Borrower and the implementing agencies shall (a) comply with ADB’s Anticorruption Policy (1998, as amended to date) and acknowledge that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the project; and (b) cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation.
Schedule 4 Governance and Anticorruption
Complied with
25. The Borrower and the implementing agencies shall ensure that the anticorruption provisions acceptable to ADB are included in all bidding documents and contracts, including provisions specifying the right of ADB to audit and examine the records and accounts of the executing and implementing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the project.
Schedule 4 Governance and Anticorruption
Complied with
L3242-VIE Project Agreement
1. The implementing agencies shall carry out the project with due diligence and efficiency, and in conformity with sound applicable technical, financial, business, and development practices.
Section 2.01 Complied with
2. In the carrying out of the project and operation of the project facilities, the implementing agencies shall perform all obligations set forth in the loan agreements to the extent that they are applicable to the implementing agencies, and all obligations set forth in this project agreement.
Section 2.01 Complied with
3. The implementing agencies shall make available, promptly as needed, the funds, facilities, services, and other resources as required, in addition to the proceeds of the loan, for the carrying out of the project.
Section 2.02 Complied with
4. In the carrying out of the project, the implementing agencies shall employ competent and qualified consultants and contractors, acceptable to ADB, to an extent and upon terms and conditions satisfactory to ADB.
Section 2.03 Complied with
5. Except as ADB may otherwise agree, the implementing agencies shall procure all items of expenditures to be financed
Section 2.03 Complied with
Appendix 7 37
Covenant Reference in Loan Agreement
Status of Compliance
out of the proceeds of the Loan in accordance with the provisions of Schedule 3 to the special operations loan agreement. ADB may refuse to finance a contract where any such item has not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.
6. The implementing agencies shall carry out the project in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. The implementing agencies shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.
Section 2.04 Complied with
7. The implementing agencies shall take out and maintain with responsible insurers, or make other arrangements satisfactory to ADB for, insurance against such risks and in such amounts as shall be consistent with sound practice.
Section 2.05 Complied with
8. Without limiting the generality of the foregoing, the implementing agencies undertake to insure, or cause to be insured, the goods to be imported for the project against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods.
Section 2.05 Complied with
9. The implementing agencies shall maintain, or cause to be maintained, records and accounts adequate to identify the items of expenditure financed out of the proceeds of the loans, to disclose the use thereof in the project, to record the progress of the project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.
Section 2.06 Complied with
10. ADB and the implementing agencies shall cooperate fully to ensure that the purposes of the loans will be accomplished.
Section 2.07 Complied with
11. The implementing agencies shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the project, the performance of their obligations under this project agreement or the subsidiary loan agreements, or the accomplishment of the purposes of the loans.
Section 2.07 Complied with
12. ADB and the implementing agencies shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters relating to the project, the implementing agencies and the loans.
Section 2.07 Complied with
13. The implementing agencies shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (a) the loans and the expenditure of the proceeds thereof; (b) the items of expenditure financed out of such proceeds; (c) the project; (d) the administration, operations and financial condition of the implementing agencies; and (e) any other matters relating to the purposes of the loans.
Section 2.08 Complied with
38 Appendix 7
Covenant Reference in Loan Agreement
Status of Compliance
14. Without limiting the generality of the foregoing, the implementing agencies shall furnish to ADB periodic reports on the execution of the project. such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the period under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following period.
Section 2.08 Complied with
15. Promptly after physical completion of the project, but in any event not later than 3 months thereafter or such later date as ADB may agree for this purpose, the Implementing Agencies shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the project, including its cost, the performance by the implementing agencies of their obligations under this project agreement and the accomplishment of the purposes of the loans.
16. The implementing agencies shall (i) maintain separate accounts and records for the project; (ii) prepare annual financial statements for the project in accordance with accounting principles acceptable to ADB; (iii) have such financial statements for the project audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB; (iv) as part of each such audit, have the auditors prepare a report (which includes the auditors’ opinion on the financial statements, use of the loan proceeds and compliance with the financial covenants of the loan agreement as well as on the use of the procedures for imprest fund(s) and statement of expenditures) and a management letter (which sets out the deficiencies in the internal control of the project that were identified in the course of the audit, if any); and (v) furnish to ADB, no later than 6 months after the close of the fiscal year to which they relate, copies of such audited financial statements, audit report and management letter, all in the English language, and such other information concerning these documents and the audit thereof as ADB shall from time to time reasonably request.
Section 2.09 Complied with (i), (ii), (iii), and (iv) Not Complied with (v)
17. ADB shall disclose the annual audited financial statements for the project and the opinion of the auditors on the financial statements within 30 days of the date of their receipt by posting them on ADB’s website.
Section 2.09 Complied with
18. In addition to annual audited financial statements referred to in subsection hereinabove, the implementing agencies shall (i) provide its annual financial statements prepared in accordance with national accrual-based financing reporting standards acceptable to ADB; (ii) have its financial statements audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB; and (iii) furnish to ADB, no later than 1 month after approval by the relevant authority, copies of such audited financial statements in the English language and such other information concerning these
Section 2.09 Complied with
Appendix 7 39
Covenant Reference in Loan Agreement
Status of Compliance
documents and the audit thereof as ADB shall from time to time reasonably request.
19. The implementing agencies shall enable ADB, upon ADB's request, to discuss the financial statements for the project and the implementing agencies and their financial affairs where they relate to the project with the auditors appointed by the implementing agencies pursuant to subsections (a)(iii) and (c) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB. This is provided that such discussions shall be conducted only in the presence of authorized officers of the implementing agencies, unless the implementing agencies shall otherwise agree.
Section 2.09 Complied with
20. The implementing agencies shall enable ADB's representatives to inspect the project, the goods and any relevant records and documents.
Section 2.10 Complied with
21. The implementing agencies shall, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the project or in the conduct of its operations.
Section 2.11 Complied with
22. The implementing agencies shall at all times conduct its operations in accordance with sound applicable technical, financial, business development and operational practices, and under the supervision of competent and experienced management and personnel.
Section 2.11 Complied with
23. The implementing agencies shall at all times operate and maintain their plants, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound applicable technical, financial, business, development, operational and maintenance practices.
Section 2.11 Complied with
24. Except as ADB may otherwise agree, the implementing agencies shall not sell, lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on of its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this project agreement.
Section 2.12 Complied with
25. Except as ADB may otherwise agree, the implementing agencies shall apply the proceeds of the loan to the financing of expenditures on the project in accordance with the provisions of the loan agreements and this project agreement and shall ensure that all items of expenditures financed out of such proceeds are used exclusively in the carrying out of the project.
Section 2.13 Complied with
26. The implementing agencies shall promptly notify ADB of any proposal to amend, suspend or repeal any provision of their charters, which, if implemented, could adversely affect the carrying out of the Project. The implementing agencies shall afford ADB an adequate opportunity to comment on such proposal prior to taking any affirmative action thereon.
Section 2.15 Complied with
40 Appendix 7
Covenant Reference in Loan Agreement
Status of Compliance
27. Except as ADB may otherwise agree, the implementing agencies shall not sell, lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on of its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this project agreement.
Section 2.12 Complied with
ADB = Asian Development Bank, CC1 = Construction Corporation No. 1 Company Limited, ESMS = environment and social management systems, MOF= Ministry of Finance, PAM = project administration manual, SOE= state-owned enterprise, VIE = Viet Nam, VINATEX = Vietnam National Textile and Garment Group. Sources: Construction Corporation No. 1 Company Limited and Vietnam National Textile and Garment Group.
Appendix 8 41
TECHNICAL ASSISTANCE COMPLETION REPORT TA 8016-VIE: Strengthening Support for State-Owned Enterprise Reform and Corporate
Governance Facilitation Program
TA Number, Country, and Name: Amount Approved: $1,200,000
TA 8016-VIE: Strengthening Support for State-Owned Enterprise Reform and Corporate Governance Facilitation Program
Revised Amount: Not Applicable
Executing Agency: Ministry of Finance Source of Funding: TASF-V
Amount Undisbursed: $7,265.67
Amount Utilized: $1,192,734.33
TA Approval Date: 22 December 2011
TA Signing Date: 12 January 2012
Fielding of First Consultants: 9 August 2012
TA Completion Date Original: 31 Jan 2014
Actual: 31 Dec 2014
Account Closing Date Original: 31 Jan 2014
Actual: 30 Jan 2015
Description. SOEs were a major obstacle to Viet Nam’s economic development. After decades of preferential treatment, incentives, and subsidies, SOEs failed to compete effectively, and their financial problems created significant fiscal risks. The government as well as ADB’s Country Program and Strategy: Viet Nam, 2007-20101 recognized the critical importance of transforming and reforming SOEs for reducing dominant inefficient state production, promoting private sector development, and boosting economic growth. To address this development challenge, ADB in partnership with the government approved in 2009 a MFF that would undertake a step-by-step approach to SOE reform.2 The MFF supported the corporate, operational, and financial restructuring of selected individual SOEs on a pilot basis, with a view to developing a generalized approach to the reform and restructuring of large SOEs. Tranche 1 launched the pilot testing of this systematic approach and supported two SOEs.3 This capacity development TA was approved in 2011 to support the MFF’s implementation. It was to monitor the progress of tranche 1, draw lessons from its implementation, and support the broader institutional and policy framework for SOE restructuring and reform. Additionally, the TA would support the design of tranche 2 under the MFF. Expected Impact, Outcome, and Outputs. The expected impact of the TA was improved efficiency and accountability of restructured SOEs. The expected outcome was the adoption of an updated institutional and policy framework for SOE reform with the target indicator being the number of large SOEs undergoing operational and financial restructuring increases by at least 2 by 2014. The expected outputs of the TA were (i) establishment of a monitoring system for assessing progress on SOE reform and restructuring, (ii) update approach to SOE restructuring building on lessons learned from implementation of the program, and (iii) development of knowledge products and related capacity to update the institutional and policy framework for SOE reform. The TA was relevant. It was strategically aligned with ADB’s Country Partnership Strategy: Viet Nam, 2012-20154 and the COBP, 2012–2014.5 ADB’s country assistance program evaluation also recommended continued support for SOE reform.6 The TA was strategic to Viet Nam given the economic size and underperformance of SOEs. The TA design was appropriate. It monitored and evaluated the implementation of ongoing tranche 1, helped update the general approach to SOE restructuring, and prepared for tranche 2. The impact, outcome, and outputs were logical, comprehensive, and aligned with the MFF’s DMF. All stakeholders and the three general corporations (CC1, Vinatex and Song Da) selected to participate in tranche 2 were clearly defined.7 The TA modality was appropriate, as the complexity of SOE restructuring required significant capacity development for SOE management and government agencies.
1 ADB. 2006. Country Program and Strategy: Viet Nam, 2007–2010. Viet Nam. 2 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing
Facility to the Socialist Republic of Viet Nam for the State-Owned Enterprise Reform and Corporate Governance Facilitation Program. Manila.
3 Song Da Corporation and Southern Waterborne Transport Corporation. 4 ADB. 2012. Country Partnership and Strategy: Viet Nam, 2012–2015. Manila. 5 ADB. 2011. Country Operations Business Plan: Viet Nam, 2012–2014. Manila. 6 ADB. 2009–2012. Country Assistance Program Evaluation: Viet Nam. Manila 7 Construction Corporation No1, Song Da Corporation, and the Vietnam National Textile and Garment Corporation
were selected after going through tranche 2’s rigorous two-stage selection process.
42 Appendix 8
Delivery of Inputs and Conduct of Activities. TA implementation was supported by a consulting firm and 7 individual
consultants that provided 24 person-months of international consultant input and 54.5 person-months of national
consultant input. There were minor changes in scope to increase international consultant inputs by 6 person-months
and national consultants inputs by 23 person-months to assist the government in monitoring and evaluating SOE
restructuring, to provide independent advice on the selection of SOEs for PFR2 and PFR3, and to evaluate the
adequacy of the approach under PFR1. The disbursed amount for consulting services was $1,038,485 (118% of the
TA budget allocation of $880,000).
The TA’s support was provided through five focused work streams: (i) design of selection criteria for tranche 2 candidates, (ii) application of selection criteria to tranche 2 candidates, (iii) detailed diagnostic (due diligence) of tranche 2 candidates, (iv) monitoring and evaluation of the implementation of the on-going tranche 1 to update the general approach to SOE restructuring, and (v) production of knowledge products and capacity building workshops.
The inception period was longer than anticipated due to changes to the consultants’ terms of reference to strengthen the selection process for tranche 2 candidates and changes to the consulting team. A contract variation also added a review of tranche 1 implementation to determine a suitable monitoring and evaluation framework for SOEs going through restructuring. MOF and the target group of general corporations were satisfied with the consultant inputs. The capacity of the general corporations’ management was enhanced considerably during the diagnostic stages. ADB’s inputs were comprehensive, consistent, and helped the TA both to monitor tranche 1 implementation and to prepare for tranche 2. The performance of ADB is rated satisfactory. MOF committed to ensure the outputs and outcome were realized and used these outputs as the basis for wider SOE reforms. The performance of MOF is rated satisfactory. The TA was extended for 11 months (from 31 January 2014 to 31 December 2014) to (i) allow sufficient time for Vinatex to undertake due diligence of additional debts, (ii) assist the government to address some technical queries relating to financial analysis and debts to be refinanced under tranche 2, and (iii) support a high-level workshop on finalization of a draft law on management of state investment in enterprises. Evaluation of Outputs and Achievement of Outcome. Output 1 was achieved. An important focus of the TA was to establish an M&E framework that could be used to drive the broader reform program. This work commenced with a review of the ongoing restructuring progress being undertaken by tranche 1. The review resulted in recommendations and examples of how monitoring and evaluation could be applied to restructuring SOEs. Building on this initial study, a comprehensive M&E framework was developed with the support of the consultants and implemented by MOF with the issuance of Decision No.9 /QD-BQL dated 15 October 2014. A three-day training programme on the M&E framework was delivered to tranche 2 SOE candidates and government agencies in December 2013. Output 2 was achieved. A diagnostic review was undertaken for the general corporations, including Vinatex, CC1 and Song Da, that had been selected to participate in tranche 2. The diagnostic reviews were successfully produced despite initial difficulties resulting from the quality of the general corporations’ original restructuring plans and the lack of management capacity to absorb new concepts, particularly Vinatex and CC1.8 These diagnostic reviews provided a basis for developing a generalized approach to SOE reform and supported the issuance of Prime Minister Decision 929 and Decree 71/2013 which mirrored the project’s approach in terms of focusing on core businesses and divesting noncore and nonessential businesses. Output 3 was achieved. The TA prepared seven knowledge products: (i) input to the legal framework for management of state capital in SOEs, (ii) international comparison of managing state capital in SOEs, (iii) SOE reform roadmap, (iv) commentary on Draft Law on Management of State Capital in Corporations, (v) recommendations on corporate governance and specifically financial information disclosures, (vi) lessons learned from restructuring of Sowatco, and (vii) selection criteria and methodology for selecting general corporations for potential inclusion in subsequent tranches. All knowledge products are available on the ADB website.9 The related capacity building consisted of 5 workshops which had 320 participants and 1 training event on the M&E framework, which had 59 participants. The TA’s outcome of two additional large SOEs undergoing restructuring was achieved. By 2014, Vinatex and CC1 were both undergoing restructuring. By TA completion, the general corporations were able to satisfy ADB and MOF’s
8 The management capacity of both were ultimately enhanced by the in-depth assistance provided by the consultants. 9 ADB. 2012. Strengthening Support for State-owned Enterprise Reform and Corporate Governance Facilitation
Program: Knowledge Products. Manila (TA 8016-VIE).
Appendix 8 43
requirements for participation in tranche 2 of the MFF. Additionally, the institutional support framework for SOE reform was updated and enhanced through (i) the M&E framework that was adopted and implemented by MOF and (ii) knowledge products to develop the legal framework for managing state capital in SOEs and disclosure and transparency. These culminated in the Law on Management of State Capital in SOEs that was issued in November 2014 and MOF’s adoption of an SOE roadmap and selection criteria for future tranches under the MFF. The TA is rated efficient. TA activities were delivered within budget, although there could have been more resources allocated to further assist strengthening SOE’s management capacity. TA implementation was efficient in delivery, but the lack of capacity at the general corporations made the diagnostic reviews much more time consuming than anticipated. The TA is rated effective as all three outputs and the outcome were achieved and consistent with the TA DMF indicators. The capacity building activities of the TA were satisfactorily completed and enabled the general corporations to participate in tranche 2 of the MFF. Indeed, the change in understanding and, more importantly, mind-set within the general corporations and their respective line ministries was essential to the reform process. The limited capacity of SOE management, which was identified as a project constraint, was largely addressed through TA assistance. The TA catalyzed comprehensive restructuring of general corporations that participated in tranche 2 as well as for wider SOE reform. The three general corporations and the executing agency were satisfied with the TA’s support. Overall Assessment and Rating. The TA is rated successful. It was relevant as it aligned with the government and ADB’s objectives regarding SOE reform and was appropriately designed. It was efficient in delivering the outputs with minimal delay and was effective in that all outputs were achieved and adopted by the government and/or the target general corporations. The expected TA impact of improving efficiency and accountability of restructured SOEs was also achieved. According to the government report to the National Assembly in 2018, the average profitability of restructured large SOEs and general corporations has improved by 166.7%, increasing from 3% in 2011 to 8% in 2017.10 The TA is rated likely sustainable as many of its initiatives are set to continue. These include introduction of a comprehensive approach to SOE reform, adoption of an M&E framework for SOE reform, improvement of competitiveness and financial performance of the general corporations, commitment of leadership to further restructuring, introduction of enhanced management and corporate governance practices, and financial sustainability of the general corporations for the foreseeable future. The selection criteria that the TA developed to identify SOEs for tranche 2 can be adapted to similar projects. Major Lessons. The key lesson identified is the need to manage the disconnect between aspirations of government regarding SOE reform and the capacity of the general corporations’ management to implement such reforms. Capacity development of participating SOEs was critical to achieving the MFF targets under tranche 2 and the planned subsequent tranche. The government has invested significant resources in reforming the SOE framework, yet more investment is required to enhance the capacity of those tasked to deliver the reforms. Recommendations and Follow-Up Actions. The government and ADB could explore further phased support to SOEs. ADB should continue using TA resources to strengthen selected SOEs management capacity, corporate governance, and financial reporting to prepare the SOEs for ADB nonsovereign or commercial financing.
CC1 = Construction Corporation No.1, COBP = country operations business plan, DMF = design and monitoring framework, M&E = monitoring and evaluation, MFF = multitranche financing facility, MOF = Ministry of Finance, SOE = state-owned enterprise, Song Da = Song Da Corporation, TA = technical assistance, TOR = terms of reference, Vinatex = Vietnam National Textile and Garment Group.
Prepared by Dao Viet Dung Designation and Division: Senior Public Management Officer, VRM
10 Report No 217/BC-CP of the Government to Assembly, dated 24/5/2018.
44 Appendix 9
TECHNICAL ASSISTANCE COMPLETION REPORT
TA 8387-VIE: Strengthening Support for State-Owned Enterprise Reform and Corporate Governance Facilitation Program
TA Number, Country, and Name: Amount Approved: $800,000
TA 8387-VIE: Strengthening Support for State-owned Enterprise Reform and Corporate Governance Facilitation Program
Revised Amount: Not Applicable
Executing Agency: Ministry of Finance
Source of Funding: TASF-V
Amount Undisbursed: $18,650.88
Amount Utilized: $781,349.12
TA Approval Date: 19 June 2013
TA Signing Date: 13 February 2014
Fielding of First Consultants: 15 April 2014
TA Completion Date Original: 31 Dec 2014
Actual: 31 Dec 2015
Account Closing Date Original: 31 Dec 2014
Actual: 3 Oct 2016
Description. On 18 November 2009, ADB approved a MFF to implement the SOE Reform and Corporate Governance Facilitation Program. The MFF was to strengthen the performance of SOEs through holistic restructuring, both corporate and financial. This entailed reorienting operations to focus on core business lines, divestment of noncore businesses, debt restructuring, cost reduction, change management, new risk management measures, improvement of information technology, and strengthening staff skills. The MFF intended to support selected SOEs on a pilot basis in three tranches. These demonstration projects were then expected to provide a model for other SOEs to reform and restructure. Tranche 1 implementation, which was supported by TA 8016: Strengthening Support for State-owned Enterprise Reform and Corporate Governance Facilitation Program, underscored the need for technical support to enable the MFF to achieve its objectives. Although tranche 1 and TA 8016 strengthened management capacity, SOEs and MOF still lacked expertise on holistic financial and corporate restructuring. In anticipation of tranche 2 approval, this capacity development TA was approved in June 2013. The TA was to help MOF (i) conduct due diligence of SOEs for tranche 3, (ii) finalize the restructuring and implementation plans of tranche 3 SOEs, and (iii) develop knowledge products to guide SOE reform in Viet Nam. The three SOEs selected to participate in tranche 3 were Licogi, Lilama and Sonadezi. Lilama is a large mechanical manufacturing company while Licogi and Sonadezi are construction and infrastructure development companies. Expected Impact, Outcome, and Outputs. The expected impact of the TA was greater profitability of restructured SOEs and better management of state-managed investments. The expected outcome was stronger capacity of MOF to ensure that selected SOEs are transformed into financially viable and efficiently managed enterprises with the performance targets being (i) at least 4-5 selected SOEs ready for restructuring by March 2014, and (ii) core principles of good corporate governance identified and implemented by selected SOEs. The expected outputs were (i) support to MOF in conducting due diligence of selected SOEs, (ii) finalization of the restructuring and implementation plans of selected SOEs, and (iii) developed knowledge products for future SOE reforms in Viet Nam. The TA is rated relevant. It was strategically aligned with Viet Nam’s Socio-Economic Development Strategy, 2011–2015,1 ADB’s Country Partnership Strategy 2012–2015,2 and ADB’s Country Operation Business Plan 2012–2014.3 The ADB country assistance program evaluation4 also recommended continued support for SOE reform. Moreover, Prime Minister Decision (339/QDD-TTg) of 19 February 20135 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. Although the government eventually cancelled tranche 3 because of fiscal constraints, the 3 SOEs selected for support were still able to pursue their restructuring plans.
1 National Assembly’s Resolution No.10 issued in November 2011. 2 ADB. 2012. Country Partnership and Strategy: Viet Nam, 2012–2015. Manila. 3 ADB. 2011. Country Operations Business Plan: Viet Nam, 2012–2014. Manila. 4 ADB. 2009–2012. Country Assistance Program Evaluation: Viet Nam. Manila. 5 Prime Minister Decision 339/2013/QD-TTg on the approval of the scheme “General restructuring of the economy in
combination with converting the growth model into one that improve quality, efficiency and competitiveness in the period of 2013-2020.”
Appendix 9 45
The issues that the TA was designed to address were clear. The expected outputs were integral to the MFF’s design, and there was a coherent results chain that consisted of piloting comprehensive SOE restructuring in selected SOEs and developing an institutional and policy framework for introducing a general approach to SOE reform. All stakeholders including MOF, the line ministries, and the target group of general corporations were clearly defined. The design of the TA was appropriate. Transformation of the SOE sector was important to the development of commercially focused and competitive businesses, reducing the dependency on the state budget and furthering economic growth. The government’s cancellation of tranche 3 could not have been anticipated at TA design stage. However, the TA’s DMF had errors. The output target indicators and related activities should have been associated with tranche 3 whereas the TA report and the DMF incorrectly referred to tranche 2. The TA modality was appropriate to deliver the outcome and outputs. Inadequate management capacity of the target group of general corporations, however, required extensive consultations for conducting due diligence and developing the restructuring plans. Moreover, the last-minute changes to one SOE restructuring plan significantly stressed implementation. Delivery of Inputs and Conduct of Activities. TA consultants were mobilized on 14 April 2014, more than a month before TA inception on 20 May 2014. The TA report envisaged 61 person-months of consultancy services: 18.5 person-months of international consultants and 42.5 person-months of national consultants to be provided through a consulting firm. Three minor changes in scope during implementation increased national consultant inputs to 66.5 person-months (equivalent to $75,526.35). Additional consulting services included a finance/SOE expert (12 person-months) to assist MOF prepare relevant technical documents and undertake assessment and analysis of business operation and financial statements of SOEs; and a project coordinator (12 person-months) to provide logistical support for effective TA implementation and to coordinate with 3 selected SOEs under tranche 3. As a result, the disbursed amount for consulting services was $761,083 (118% of the original cost estimate of $645,000). At TA closing, $18,651 was undisbursed (2.33% of total TA resources). MOF and the target group of general corporations were satisfied with the good quality of consultants’ inputs. Key deliverables were achieved despite initial difficulties resulting from the quality of the general corporations’ original restructuring plans and lack of management capacity within each general corporation, all of which were ultimately enhanced by the in-depth assistance provided by the consultants. The consultants’ performance is rated satisfactory. There was no increase in the TA amount. The original timeframe for completion of the diagnostic review was a major challenge largely due to the depth of detail required and the lack of information initially available. Further, the final acceptance of critical reports was often delayed due to multiple iterations and several rounds of reviews from the counterparts. This was exacerbated by the significant revision to Lilama’s restructuring plan in its final stages. Although the implementation period required a 1-year extension because of the initial lack of data and general corporations’ limited management capacity in absorbing new concepts, both constraints improved over time and their amelioration is one of the TA’s value additions. Although there were some errors in the DMF as described above, these did not undermine the TA’s positive contributions. The performance of ADB is rated satisfactory for effectively assisting MOF to achieve all TA outputs. MOF went on to use the experience gained from the TA to lead broader reform of Viet Nam’s SOE sector. The performance of MOF is rated satisfactory. Evaluation of Outputs and Achievement of Outcome Output 1 was achieved. The consultants undertook diagnostic reviews of three general corporations that had been selected as potential participants in tranche 3: Licogi and Lilama (both of which are under the Ministry of Construction) and Sonadezi (under the Dong Nai Province People’s Committee). The diagnostic reviews were successfully produced despite initial shortcomings in the information available to the consultants. The consultants also completed a corporate safeguard audit in compliance with ADB’s Safeguard Policy Statement 2009 including the preparation of gender action plans for each general corporation. Output 2 was achieved. Despite initial difficulties resulting from the quality of the general corporations’ original restructuring plans and lack of management capacity within each general corporation, their restructuring plans (including gender action plans) were approved by their boards of directors and line ministries. These approvals facilitated the eligibility of these three general corporations for the proposed tranche 3 and more generally provided a framework to transform their operations.
46 Appendix 9
Output 3 was achieved. ADB and the MOF agreed on two knowledge products during the inception phase of the CDTA: (i) policy note on SOE reforms in Viet Nam which focused on the areas of corporate restructuring, financial restructuring, corporate governance, risk management, and the overall SOE reform process and (ii) comments on the Draft Law on Management of State Capital in SOEs which focused on the Decree on Financial Supervision of SOEs. The Law on Management of State Capital in SOEs was passed in November 2014, and subsequently, Decree 87 on Financial Supervision of SOEs was issued in October 2015. In addition, based on a request from MOF, the consultants prepared a concept paper on the divestment of SOE brands from a legal and accounting perspective. The expected outcome of stronger capacity of MOF to ensure that selected SOEs are transformed into financially viable and efficiently managed enterprises was substantially achieved. The first indicator: at least 4–5 selected SOEs ready for restructuring by March 2014 was substantially achieved. The TA assisted three SOEs (Lilama, Licogi and Sonadezi) to develop comprehensive restructuring plans. The second indicator was partially achieved. Core principles of good corporate governance for the three selected SOEs and corporate governance action plans were developed, but the plans were not fully implemented because of insufficient time and the government’s cancellation of tranche 3. The TA substantially delivered its outcome within budget, notwithstanding the 1-year extension. It enabled three general corporations qualify for participation in tranche 3 of the MFF. Although tranche 3 was eventually cancelled, the selected general corporations continued to implement TA-supported restructuring plans. Licogi, Lilama and Sonadezi undertook IPOs in April, November and December 2015, respectively, and have divested noncore businesses. The financial gains to the government from the IPOs and the efficiency gains to the general corporations from the divestments easily outweigh the TA’s costs. The TA is rated efficient. The TA is rated less than effective. Seven out of nine output indicators were achieved with direct support of the TA. TA capacity building activities were satisfactorily completed, involving 196 participants at 5 workshops. Capacity building was also successful in developing the understanding and capacity of the general corporations’ management in restructuring and managing SOEs. The TA was preparing these SOEs for participation in tranche 3, whose cancellation undermined full achievement of the outcome indicators. Overall Assessment and Rating. The TA is rated successful. It was relevant as it aligned with the government and ADB’s objectives regarding SOE reform; it was efficient in outcome delivery and unlocking financial benefits; but was less than effective in that the anticipated tranche 3 was not processed. The TA outcome is rated likely sustainable based on significant SOE restructuring progress. Key reform policies developed during the TA continue to facilitate SOE restructuring. Notably, TA knowledge products provided useful and timely support to develop key legislation, including the Law on Management of State Capital in SOEs which was passed in November 2014. This helped accelerate Viet Nam’s reduction in SOEs, which fell overall from 1,500 to 652 during 2011-2016. Major Lessons. The capacity of SOE management to absorb new concepts was a major constraint. In the context of SOE reform, the internal competency and capacity of senior management is critical. Moving from a controlled business environment to a more market-led and competitive environment in which the company does not have the privileges, benefits, and protection enjoyed by state enterprises requires very different business skills and mind-sets. This was reflected in the weak restructuring and implementation plans initially presented by the SOEs. The limited knowledge of concepts and lack of standardized key ratios proved to be challenging for SOE candidates. Sometimes important concepts were not appreciated because key personnel or decision-makers were only periodically involved and received feedback second or third hand. To address these issues, the TA implementation period should have been even longer and the regular personal involvement of senior management a precondition to eligibility for receiving TA support. Recommendations and Follow-Up Actions. The government should continue to accelerate the rate and depth of SOE restructuring at an individual and sector level. Moreover, given that management capacity of SOEs is critical for ensuring the success of reforms, the government should consider introducing results-based incentives to better motivate SOE management.
ADB = Asian Development Bank, CDTA = capacity building technical assistance, DMF = design and monitoring framework, IPO = initial public offering, Licogi = Infrastructure Development and Construction Corporation, Lilama = Vietnam Machinery Installation Corporation, MFF = multitranche financing facility, MOF = Ministry of Finance, Sonadezi = Corporation for the Development of Industrial Zones, Sowatco = Southern Waterborne Transport Corporation, SOE = state-owned enterprise, TA = technical assistance.
Prepared by Dao Viet Dung Designation and Division: Senior Public Management Officer, VRM
Appendix 10 47
ASPECTS OF GOVERNANCE AND TRANSPARENCY ADOPTED BY THE GENERAL CORPORATIONS
SOWATCO SONG DA
Audited financial accounts (from calendar year 2010) available at http://sowatco.com.vn
Audited financial accounts (from calendar year 2014) available at https://finance.vietstock.vn/SJG/tai-tai-
lieu.htm?doctype=1
Annual report available (from calendar year 2012) available on company website
Annual report available (from calendar year 2010) available at http://www.songda.vn
Company charter (articles of association) available on company website
Company charter (articles of association) available on company website
Other legal and corporate resolutions publicly available Other legal and corporate resolutions publicly available
Website in Vietnamese and English Separated BoD and BoM
Internal audit manuals and plans produced by 2013 and being used
Introduced four board committees: strategy and finance, risk management, HR, and control
Enterprise risk management commenced implementation by 2013
Introduced an internal audit department that is averaging 12 audits per year
Planning budgeting and forecasting has been put into practice. Monthly reporting has been implemented with reports used by leadership and to inform shareholders on a monthly basis
Introduced risk management department. Developed a framework of policies and processes; produced a manual and organized appropriate training and capacity building
Introduced two board committees Improved disclosure and transparency: strategy/business plan, performance, wages and bonuses are all publicly available on the website
Introduced non-executive directors Code of ethics and conduct has been developed and implemented
Separated BoD and BoM Introduced key performance indicators
Organized training on corporate governance, risk management, and internal audit
BoD = board of directors, BoM = board of management, HR = human resources. Sources: Song Da Corporation Joint Stock Company and Southern Waterborne Transport Corporation.
CC1 VINATEX
Audited financial accounts (from calendar year 2010) available at https://www.cc1jsc.com.vn
Audited financial accounts (from calendar year 2010) available at https://vinatex.com.vn
Annual report available (from calendar year 2012) available on company website
Audited financial accounts (from calendar year 2010) available on MPI website
Company charter (articles of association) available on website
Company charter (articles of association) available on website
Other legal and corporate resolutions publicly available Other legal and corporate resolutions publicly available
Website in Vietnamese and English Separated BoD and BoM
Internal audit manuals and plans produced by 2013 and being used
Introduced four board committees: strategy and finance, risk management, HR, and control
Enterprise risk management commenced implementation by 2013
Introduced an internal audit department that is averaging 12 audits per year
Planning budgeting and forecasting has been put into practice. Monthly reporting has been implemented with monthly reports for management and shareholders on
Introduced risk management department. Developed a framework of policies and processes; produced a manual and organized appropriate training and capacity building
48 Appendix 10
CC1 VINATEX
Introduced two board committees Improved disclosure and transparency: strategy/business plan, performance, wages and bonuses are all publicly available on the website
Introduced non-executive directors Code of ethics and conduct has been developed and implemented
Separated BoD and BoM Introduced key performance indicators
Organized training on corporate governance, risk management, and internal audit
BoD = board of directors, BoM = board of management, HR = human resources, MPI = Ministry of Planning and Investment. Sources: Construction Corporation No.1 and Vietnam National Textile and Garment Group.