The Vietnamese government said it has allowed national carrier Vietnam Airlines to privatise, but said the state will retain more than half of shares in the firm.

Deputy Prime Minister Vu Van Ninh told the Transport Ministry in a directive signed on Tuesday to draft a detailed plan for the airline's privatisation for government approval, with the state retaining more than 50 percent stake.

The directive, seen by Reuters, offers no timeframe for the privatisation or gives any details on possible strategic investor in the airline, a move supported by the government.

"In the process of privatising state owned enterprises, the government encourages the model of equitisation involving strategic partners, which are companies of international size," Deputy Prime Minister Hoang Trung Hai said on Tuesday.

He was speaking at a ceremony at which PVI Holdings handed a certificate of 25 percent stake ownership to its strategic investor HDI-Gerling Industrie Versicherung AG, a unit of Germany's third-biggest insurer, Talanx.

Vietnam has been selling off pieces of state-owned enterprises for the past two decades, dubbing the process "equitisation" rather than privatisation.

Stock Market Boost

Vietnam Airlines now joins the list of major state firms, including lender BIDV, top fuel distributor Petrolimex and the Vietnam Steel Corp (VNSteel), the country's biggest steel manufacturer, which has received the green light for privatisation.

Petrolimex and VNSteel have conducted initial public offerings earlier this year but neither of them has listed shares.

IPOs and share listing are two separate stages in Vietnam.

The government's renewed effort on its privatisation drive could help boost stock investors' sentiment after the country's main stock market has lost nearly a fifth of its value so far in 2011 due in part to economic instability at home and abroad.

The government will apply measures to boost the stock market by the year-end and in 2012, including adding new products to the market, Chairman Vu Bang of the State Securities Commission was quoted by Thursday's Vietnam Economic Times newspaper as saying.

The government will allow exchange-traded funds and open-end funds to operate and seek to monitor indirect investment inflows in an attempt to support the sliding stock market, the Finance Ministry said on Wednesday.