Cablegate: Saigontourist: State-Owned Enterprise Syndrome

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001403

SIPDIS

SENSITIVE

STATE PASS USTR FOR EBRYAN
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO AND OTEXA

E.O. 12958: N/A
TAGS: ECON EIND EINV ETRD PGOV VM SOE
SUBJECT: SAIGONTOURIST: STATE-OWNED ENTERPRISE SYNDROME

1. (SBU) SUMMARY: One of the largest tourism companies in
Vietnam, HCMC-based Saigontourist is struggling to develop its
tourism business to attract foreign visitors in particular.
Saigontourist owns or has an interest in 70 hotels all over
Vietnam and employs 15,000 people, but its General Director does
not appear to have a grasp of the market value of his company. In
addition to hotels, Saigontourist is involved in a web of
enterprises, including tour companies, transport companies,
airlines and banking. Saigontourist retains much of its
inefficient SOE character, despite being partially equitized. END
SUMMARY.

2. (SBU) Saigontourist General Director Nguyen Huu Tho described
his company to the Consul General as a small, formerly state-owned
enterprise (SOE) turned into a giant holding company with 45
affiliated companies, 70 hotels, 6 tour companies and interests in
Vietnam Airlines, Pacific Airlines, the Export-Import Bank of
Vietnam and more. Mr. Tho said company managers want
Saigontourist to be a "mother" company with subsidiary and
affiliate companies. The GVN, through the HCMC People's
Committee, still holds a 70 percent stake in Saigontourist.
According to Mr. Tho, the company undergoes an internal audit
annually. Shareholders owning 1,000 or more shares may participate
in shareholders' meetings and receive the annual report.
Saigontourist is in the process of equitizing its subsidiaries;
seven Saigontourist companies have been equitized in 2004.

3. (SBU) CG asked about the value of the company but Tho would say
only that the GVN values the company at 1,600 billion VND
(approximately $102 million). He noted, however, that this
valuation was based on profits and didn't include the "value" of
the company's fixed assets. Mr. Tho said the market value of
Saigontourist would be much higher than this valuation, since the
Rex Hotel in HCMC alone was worth 1,700 billion VND (approximately
$108 million).

4. (SBU) Saigontourist's hotel business is divided into three
categories: affiliated divisions, domestic investment, and
foreign joint ventures. The company has 15 hotels/resorts/hotel
groups that are affiliated divisions; they are 100 percent owned
and managed by Saigontourist. The affiliated division hotels
include the Rex, Continental and Majestic Hotels in HCMC.
Saigontourist lists about 14 hotels/resorts/hotel groups as
domestic investment. These hotels are joint-stock companies of
which Saigontourist owns a percentage and which Saigontourist
manages. Domestic investment hotels include many of the company's
hotels outside the HCMC area, like the Saigon-Can Tho Hotel and
the Saigon-Phu Quoc Resort. Saigontourist has some 5 foreign
joint venture hotels, in which the company shares ownership with
foreign investors and which Saigontourist does not manage. The
foreign joint venture hotels include three of HCMC's flagship
hotels - the Caravelle, the New World and the Sheraton.

5. (SBU) Mr. Tho acknowledged the challenge of foreign competition
and said Saigontourist would meet it through in part through
training. Saigontourist has started sending middle managers to
Singapore to study hotel/tourism management. Tho also acknowledged
HCMC's need for a convention center to develop the city's tourism
infrastructure. Saigontourist is looking for investors in a
planned convention center complex, but will only invite a few
partners to make proposals and does not plan to open the process
up to public bidding.

6. (SBU) ConGen contacts in the tourism industry agree that
Saigontourist is an inefficient SOE that does have a handle on the
requirements of the tourist market in the area. The expat manager
of one of Saigontourist's foreign joint venture hotels (protect
strictly) told the Consul General the company "doesn't have a
clue" of either a business strategy or how to run a world class
hotel. The general manager of another top HCMC hotel which is not
affiliated with Saigontourist (protect), described the company's
managers as incompetent and corrupt. Saigontourist's handling of
a recent travel fair in Europe epitomized the company's problems
in this manager's mind. During the fair, Saigontourist was
represented by older Communist Party-type managers, who neither
spoke English nor had any agenda beyond a junket. The officials
ignored visitors to the Saigontourist booth, including
representatives of travel publications anxious to do stories on
Vietnam. Both managers agreed, however, that anyone wanting to
get involved in the tourism business in southern Vietnam had no
choice but to work with Saigontourist.

7. (SBU) COMMENT: While Saigontourist and some of its
subsidiaries are partly equitized, the company retains its
inefficient SOE character. The company is too large, too complex
and involved in many non-tourism activities (e.g. banking) or
activities that are only partly tourism-focused (e.g. airlines).
It appears that Saigontourist managers do not have a clear picture
of their company's net worth; they are also secretive about the
company's balance sheet. Saigontourist is not subject to
independent audits, and only large shareholders are privy to
company meetings and reports. While control of the firm is in
state hands, it is not clear who represents the state's
shareholding and this job likely falls to the General Director
himself. It is unclear if the General Director reports to anyone,
though his selection is reportedly a joint decision by the HCMC
People's Committee and Hanoi. Saigontourist wants to be
competitive in the region, but for the most part the firm simply
sits on a large pile of potentially valuable assets and manages a
large group of second-rate hotels.
WINNICK

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