Summary of the equitisation process of a Vietnamese State-owned Enterprise
Below is a
quick summary of the process to equities a wholly State-owned enterprise (SOE) in Vietnam. The summary is taken
from my book “Equitisation
of Vietnamese State-owned Enterprises”, which is currently available in the
Amazon
Kindle Store. I will make this book available for free download on 15 December
2012. Anyone interested in the book should open an Amazon account (credit card
is required) and download it. Kindle books can be read by Amazon Kindle
e-reader or free
Kindle reading apps on smartphones, tablets,
web browser, PC or Mac computers.
·
Definition: Generally, equitisation is the
process of privatising an SOE (the Equitised
SOE) by (1) setting up a new joint stock company (the Equitised JSC), (2) transferring assets and liabilities of the Equitised
SOE to the Equitised JSC and (3) selling shares in the to-be-established Equitised
JSC to private sectors in the meantime.
·
Authorities involved: Various Government authorities will
be involved in the equitisation of an Equitised SOE, including (1) the
Equitisation Authority, who decides the most important issues relating to the
equitisation, (2) the Valuation Authority, who determines the valuation of the
Equitised SOE, and (3) the Steering Committee, who is in charge of the
day-to-day operation. The law does not clearly provide powers and
responsibilities of Government authorities with respect to an equitisation, as
such, it may sometimes be difficult to determine the powers or even identity the
Government authorities involved in the equitisation.
·
Investors: Investors purchasing shares during
the equitisation of an Equitised SOE may be classified as (1) Vietnamese or
foreign investors; (2) Strategic Investors or Non-strategic Investors; or (3)
employees of the Equitised SOE and “outside” investors.
·
Preparation for sale of shares: During this
step, various preparatory tasks need to be completed to commence the equitation
and to prepare for next steps. This step includes (1) establishment of the
Steering Committee, (2) appointment of Equitisation Advisors, and (3) collection
of information and documents regarding the Equitised SOE.
·
Valuation of the Equitised SOE: During this step, the Equitised
SOE must (1) take an inventory of its assets and liabilities, (2) restructure
its assets and liabilities and (3) determine the value of the Equitised SOE. Through
the restructuring of assets and liabilities, the Equitisation Authority and the
Equitised SOE will do their homework in shaping and, potentially, cleaning up the
balance sheet of the Equitised JSC and, to the extent possible, resolving any
past issues or mistakes before making the Equitised SOE available to the public.
The Equitised SOE can be valued by the following valuation methods: assets
method, discounted cash flow method or other valuation method. However, the
valuation result obtained from the assets method is the minimum threshold. The
valuation of a Special SOE may need to be verified by the State Auditor.
·
Equitisation Plan: Based on the valuation result, the
Equitised SOE will prepare an Equitisation Plan, which covers many important
issues regarding the Equitised JSC, including the Minimum Offer Price, the
proposed capital and shareholding structure of the Equitised JSC.
·
Sale of shares - investors: During this step, the Equitised SOE
will arrange to sell shares in the Equitised JSC to (1) public investors
through a public auction (Equitisation
IPO), (2) Strategic Investors either directly or through a strategic sale
auction, and/or (3) employees and trade unions of the Equitised SOE. The shares
to be sold during this step could come from the State’s existing capital in the
Equitised SOE (equivalent to existing shares) and/or through new shares to be
issued by the Equitised JSC at a later stage.
·
Sale of shares – sale conditions: The number of shares in the
Equitisation JSC that an investor is allowed to subscribe to during the
equitisation will depend on the proposed shareholding structure of the
Equitised JSC set out in the Equitisation Plan. A public investor purchasing
shares in the Equitisation IPO or a Strategic Investor purchasing shares before
the Equitisation IPO must pay a price higher than the Minimum Offer Price. A
Strategic Investor purchasing shares after the Equitisation IPO must pay a
price higher than the lowest successful auction price. The shares purchased by
a Strategic Investor cannot be transferred in the first five years of
incorporation of the Equitised JSC unless otherwise approved by the General
Meeting of Shareholders of the Equitised JSC.
·
Sale of shares – allocation of
proceeds: Normally,
when an existing shareholder sells its shares in a joint stock company, the
existing shareholder will keep all profits, including the difference between
the sale price and par value of the shares sold. Similarly, when a joint stock
company issues new shares, the company will be entitled to profits arising from
such issuance, including any premium paid for the shares. However, under
equitisation regulations, where new shares of the Equitised JSC are issued, the
State and the Equitised JSC will “share” the aggregate sale premium obtained
from the sale of both new shares and existing shares in proportion to their
respective percentage in the charter capital of the Equitised JSC.
·
Sale of shares – delay in delivery of
shares: The Equitised
SOE is not a joint stock company and therefore cannot issue shares of its own. As
such, shares in the Equitised JSC
can only be issued after the Equitised JSC has been incorporated. This results
in a substantial delay between the time of payment for shares by the investors participating
in equitisation of an Equitised SOE and the time when the shares are actually
issued to investors.
·
Conversion and hand-over process: During this
step, various tasks are taken so that the Equitised JSC can be up and running,
including (1) holding the first General Meeting of Shareholders, (2) incorporating
the Equitised JSC, (3) issuance of shares, (4) re-evaluating the State’s
capital in the Equitised JSC, (5) preparing an Opening Account of the Equitised
JSC, and (6) handing over the assets and liabilities of the Equitised SOE to
the Equitised JSC.
·
Conversion and hand-over – potential
adverse effects: The actions taken by the Equitised SOE and
the equitisation authorities during the hand-over may have an adverse effect on
investors purchasing shares in the Equitised JSC. These actions include (1) tax
finalisation of the Equitised SOE and (2) revaluation of State’s capital in the
Equitised JSC.
·
Timing: The law does not provide a clear timeline for
the equitisation process, but does stipulate certain time limits for specific
steps. The Prime Minister, however, is given broad authority in determining the
schedule and process for the equitisation of a special SOE.