When the state ownership ratio diminishes, Toyota’s rivals will likely acquire VEAM stocks, creating a conflict of interest with the Japanese automaker.
At the annual general meeting of Vietnam Engine and Agricultural Machinery Corporation (VEAM) held on June 30, the Ministry of Industry and Trade (MoIT) has reinstated its divestment plan at the company.
The ministry, in particular, seeks to reduce the state holding at VEAM from 88.5 per cent to 35 per cent by 2020. VEAM will also be listed on the Ho Chi Minh Stock Exchange in 2019, despite no specific plan for the listing has been released.
The company is currently listed on the Unlisted Public Company Market (UPCoM).
VEAM’s board of directors has nevertheless noted that the state holding of below 51 per cent could likely affect its joint ventures with Toyota and other automakers like Honda.
Toyota Vietnam, meanwhile, is a joint venture between Toyota Japan (70 per cent), VEAM (20 per cent) and KUO Singapore (10 per cent).
Under the agreement initiated in 1995 and to be ended in 2035 between VEAM and Toyota, the latter has a specific clause regarding the acquisition of VEAM stakes should the state reduce its holding at VEAM down below 51 per cent.
Honda Vietnam, likewise, is another joint venture between VEAM, holding 30 per cent, and Honda Motor Japan (42 per cent) and Asian Honda Motor Thailand (28 per cent).
While there is no specific provision on the acquisition of VEAM stakes inked by both parties upon the state divestment, should buyers of these stakes operate in the same business line as Honda’s and could become a potential threat to Honda’s activities in Vietnam, the same provision applied to Toyota may be activated.
Toyota, in this case, is anxious that if the Ministry of Trade and Industry lowers the state holding at VEAM, its rivals will obtain VEAM stakes, thus causing a conflict of interests between the parties.
VEAM, as a result, is considering a sound divestment plan, to ensure the benefits of all parties, or its joint ventures, are not shattered.
VEAM has positive business results in the first quarter, with post-tax profit of $55.3 million, an up of 22 per cent on-year.
VEAM’s profit growth came as part of the contribution of its joint ventures. Apart from the joint ventures with Toyota and Honda, VEAM also holds 25 per cent in the joint venture Ford Vietnam through its subsidiary of Song Cong Diesel Company.
In 2019, VEAM expected to make profits of $278.43 million, an increase of 22 per cent on-year. Contributions from its joint ventures are projected to reach $289 million.
The company has plans to divest of some inefficient subsidiaries in order to focus on developing the supporting industries segments. These plans will help VEAM cut ineffective costs and optimise the entire operation.
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