A recent change in policy mandates that State-Owned Enterprises (SOEs) must obtain approval from the Ministry of Finance before taking on any loans. This decision was formalised in a circular issued by the Privatization and Corporatization Board (PCB), which highlighted that the policy shift had been approved during a board meeting held on December 25.
Detailed Loan Application Process
Under the revised guidelines, before applying for a loan, the company’s board is responsible for conducting a technical assessment. This assessment must explain why the loan is needed, explore various financing options, and consider multiple lending sources. Additionally, companies must assess whether the proposed loan will affect the repayment of existing loans or complicate the servicing of current financial obligations.
Prioritising Government-Linked Financing
The new policy also stipulates that SOEs should give preference to loans from government-affiliated entities, where available. The guidelines further require SOEs to provide details on how the loan might influence the company’s reliance on the State Budget.
Board Approval and Submission to Ministry
Before an application for a loan can be sent to the Ministry of Finance, it must be reviewed and approved by the company’s board. Once the internal review process is complete, the assessment can then be submitted for Ministry approval.
Broader Corporate Governance Reforms
In addition to loan approval processes, the revised policy also extends to changes in salary structures, administrative reforms, and investment strategies. Going forward, these alterations will require approval from the Ministry of Finance, rather than the PCB. The new policy is seen as part of a wider effort to strengthen corporate governance within SOEs and ensure greater oversight and accountability.
