The Vietnam Rubber Group (VRG) cannot delay its plan to divest by June 2017, said Deputy Minister of Agriculture and Rural Development Ha Cong Tuan.

VRG must also ensure it makes available its initial public offering (IPO) during the first quarter of 2017, Tuan said, adding that he would submit a report for the Government to review VRG’s divestment from member companies, to assure the divestment is carried out efficiently.

Most of the VRG’s rubber producers are located in remote and disadvantaged areas where living conditions are poor, therefore, the divestment must assure local people are cared for and the land is managed effectively, according to Tuan.

Tuan was responding to the VRG’s proposal, sent to the Steering Committee for Business Renovation and Development under the Ministry of Agriculture and Rural Development, to extend the deadline for the equitisation of the group by three months.

The proposal is aimed at avoiding the re-evaluation of the group’s value in case the equitisation cannot be completed by the end of June 2017. If the proposal is approved, the VRG would have to complete the equitisation of the parent and member companies by the end of the third quarter this year, instead of the initially approved deadline that is for the end of June 2017.

According to Tran Thoai, Deputy General Director of VRG, the group has completed all necessary parts of the equitisation plan, however, it would take the group more time to resolve unexpected problems that may occur when they try to match its work with the requirements stated in Decree 59/2011/ND-CP on transforming a 100-per cent State-funded business to a joint stock company.

VRG also proposed that the steering committee allow the group to sell the stakes in its member companies after the group completes equitisation so that the divestment could be completed more efficiently, and allow VRG to seek potential buyers for its subsidiaries in Cambodia.

The Law of Business 2014 states that a State-owned group and its member companies cannot share ownership in the same business, so VRG will have to complete divestment before July 1, 2017, Thoai said.

VRG owns most of the capital in its member rubber companies, therefore, the group will sell its stakes in those companies to recover its investment. But if the divestment starts now, it would be difficult for VRG to look for buyers, and the divestment could be handled more efficiently.

Thoai said that most of those companies started in 2007 and their products have just been introduced into the market. In the first three years of operation, rubber producers often have low margins of profit, given that the rubber price remains very low in global trading.

Further, it would become a sensitive topic for the group to divest from member firms in Cambodia, because the group is uncertain about who could be buyers, while the local public and media might misunderstand the purposes of the divestment.

According to the decision of the Prime Minister, VRG will have to equitise the group and 20 member companies. In 2016, the rubber group successfully sold stakes in two subsidiaries, the Tan Bien and Ba Ria limited companies. The group has complete evaluating its own value, as well as that of its member companies, and is preparing reports for the steering committee to approve.

On December 31, 2016, VRG sold its stakes in 24 non-administrative units and collected more than VND2.9 trillion (US$128.9 million).

VRG earns 51 per cent gain in pre-tax profit

In 2016, VRG registered a revenue of VND15.4 trillion, an increase of 14.4 per cent from its targeted figure for last year.

That helped increase its pre-tax profit by 51 per cent to VND2.36 trillion, including VND378 billion from rubber production and VND418 billion from wood production.

According to Trần Ngọc Thuận, VRG’s general director, last year was the toughest for the agriculture sector due the impact of the climate change. The rubber industry, in particular, was affected by some factors such as rising global supply and lower rubber trading price.

VRG this year has set a target of VND4.18 trillion in pre-tax profits, a year-on-year increase of 47 per cent, though the rubber industry is forecast to face a lot of challenges, especially the unpredictable impact of climate change. — VNS