US embassy cable - 04HOCHIMINHCITY1403

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