Director duties in Vietnam

The recent arrests of three former directors of ACB, one of the largest private commercial joint stock banks, have demonstrated that how vulnerable a director (or former director) of a public company is exposed to criminal liability when the law is enforced. The Vietnamese Penal Code contains a number of crimes that may be relevant to the activities of a director of a public joint stock company including:

·         A person who unintentionally causes damage to another person’s property valued at VND 50 million or above may be subject to a criminal penalty. Arguably, this provision can be used against a director, who makes a decision resulting in loss for the public joint stock company even if such director can prove that his/her decision is made with good faith and for the best interest of the public joint stock company when it was made.

·         If a person (1) knows information relating to a public company which has not been disclosed and if disclosed would affect materially the price of the public company’s securities, (2) uses such information to trade securities or provides such information to other persons or advises other persons to trade securities on the basis of such information and (3) gains large illegal profit then such person may be subject to a criminal penalty. This provision can be used against a director who violates the insider trading restriction under Vietnamese law.

·         A person who commits various money laundering activities may be subject to criminal liability of up to 5 years or 15 years in serious cases. Monies laundering activities include, among other things, (i) directly involving in financial transactions intended to conceal the illegality of monies or assets obtained from criminal liability, (ii) using monies or assets obtained from criminal liability for business activities or other activities, and (iii) conceal information regarding original, nature or movement of monies or assets obtained from criminal liability.

·         A person who is directly responsible for managing State property but neglects that responsibility causing damage to the State’s property valued at more than VND 50 million may be subject to criminal penalties. This provision could be used against a director of a public joint stock company in which the State owns certain shares.

·         A person who abuses his/her positions and/or powers to deliberately act against the State’s regulations on economic management, causing a loss of more than VND 100 million may be subject to a criminal penalty.

·         A person who negligently fails to perform an assigned task and causes serious consequences may be subject to a criminal penalty.

·       The Penal Code imposes criminal liability on the act of receiving bribes, which is defined as an act, among others, of a person who holds an official position or power and directly or indirectly has received or will receive money, properties or other “material benefit” in any form, which has a value of VND 2,000,000 (approx. USD100) or more “with the intent of taking advantage of his/her official position or power in order to perform or refrain from performing certain acts for the benefit of, or as requested by, the person who offers the bribe”.

The crimes listed in the last four bullet points above in principle should apply only to those who are State officials under the Law on State officials or those who are otherwise entrusted with State power. However, in practice, Government authorities have applied these provisions to staffs or personnel of companies especially State-owned companies. In case a Public joint stock company is a private company, the possibility that these provisions may apply to the company’s staff and personnel is lower than with respect to State-owned companies. However, one cannot rule out the risks from these provisions. If the report on the recent arrest of a construction engineer by Vietnamese police on the ground of bribery action taken by the engineer is correct then such arrest now seems to confirm that the anti-bribery provision under the Penal Code also applies to private companies at least from the police’s point of view.

Amended Law on Lawyers causing potential troubles for foreign law firms in Vietnam

Last week, the National Assembly just passed the amended Law on Lawyers, which amends various provisions regarding the scope of operation of foreign law firms and foreign lawyers in Vietnam. Before being adopted, the amendments have raised alarms to foreign law firms in Vietnam (see this Article) although technically the amendments just repeat what were passed 5 years ago when Vietnam joined the WTO.

Under the WTO Commitments of Vietnam, foreign law firms are not allowed (1)    participation in legal proceedings in the capacity of defenders or representatives of their clients before the courts of Viet Nam; and (2) legal documentation and certification services of the laws of Viet Nam. While foreign law firms have widely accepted restriction (1) regarding appearing before the courts, no one pays attention to restriction (2) on “legal documentation and certificate” and what that means.

The repeat of the same restrictions in the amended Law on Lawyers has brought up this matter. In particular, one could make an argument that restriction (2) on legal documentation and certification services could prevent a foreign law firm in Vietnam from drafting or giving opinions Vietnamese governing law contracts. If this interpretation is taken by the Government and the MOJ then it will substantially restrict the scope of operation of foreign law firms in Vietnam unless they can find a local associated firm. It will be interesting to see what will happen when the implementing decree and circular are issued. 

Vietnam WTO Commitment for service sectors

Below is a table summarising certain market access commitments relating various service sectors of Vietnam to the World Trade Organisation (WTO). For ease of reference, I have calculated (1) all the timing commitments by Vietnam using the date that Vietnam joined WTO (i.e. 11 January 2007) and (2) all the foreign ownership limits applicable to the relevant service sectors.  Reference to CPC number is reference to the Provisional Central Product Classification.

                                                                                                                                                                                                                                                                                                                             

Sectors and sub-sectors	Foreign ownership   limitation
1.      BUSINESS SERVICES
A.     Professional Services
(a)    Legal services (CPC 861, excluding: -         participation   in legal proceedings in the capacity of defenders or representatives of their   clients before the courts of Viet Nam; -         legal   documentation and certification services of the laws of Viet Nam)	Unlimited
(b)    Accounting and auditing and bookkeeping services (CPC 862)	Unlimited
(c)     Taxation services          (CPC 863)	Unlimited
(d)    Architectural   services          (CPC   8671)	Unlimited
(e)     Engineering services          (CPC 8672) (f)     Integrated engineering services          (CPC 8673)	Unlimited
(g)     Urban planning and urban landscape architectural services (CPC   8674)	·           99.99%   until 11 January 2009 ·           Unlimited   from 11 January 2009
(i)      Veterinary services   (CPC 932)[1]	Not clear
B.     Computer and Related Services (CPC 841-845, CPC 849)	Unlimited
C.     Research   and Development Services
(a)    R&D services on natural sciences (CPC 851)	Unlimited
E.     Rental/Leasing   Services without Operators
(b)    Relating to aircraft (CPC 83104)	Unlimited
(d)    Relating to other machinery and equipment (CPC 83109)	30%
F.      Other Business Services
(a)    Advertising services (CPC 871, excluding advertising for   cigarettes)	·           51%   until 1 January 2009 ·           Unlimited   as from 1 January 2009
(b)    Market research services (CPC 864, excluding 86402)	·           51%   until 1 January 2009 ·           Unlimited   as from 1 January 2009
(c)     Management consultant services (CPC 865)	Unlimited
(d)    Services related to management consulting -     CPC 866, except CPC 86602 -     Arbitration   and conciliation services for commercial disputes between businesses                        (CPC   86602**)	Unlimited, except 30% for Arbitration and conciliation services for   commercial disputes between businesses (CPC 86602**) until 11 January 2010
(e)     Technical   testing and analysis services          (CPC   8676, excluding conformity testing of transport vehicles and certification of   transport vehicles)	Not   clear
(f)     Services incidental to agriculture, hunting and forestry (CPC   881)[2]	51%
(h)    Services incidental to   mining (CPC 883) 1.      The commitments specified hereunder are not understood to cover   the following activities: supply of equipment, materials and chemicals,   supply base services, offshore/marine support vessels, accommodation and   catering, helicopter services. 2.      The commitments specified hereunder are made without prejudice   to the rights of the Government of Viet Nam to set out the necessary   regulations and procedures to regulate the oil and gas related activities   carried out within the territory or jurisdiction of Viet Nam in full   conformity with the rights and obligations of Viet Nam under the GATS.	·           49%   until 11 January 2010 ·           51%   from 11 January 2010 until 11 January 2012 ·           Unlimited   as from 11 January 2012
(i)      Services incidental to manufacturing  (CPC 884 and 885)	·           30%   until 11 January 2010 ·           50%   from 11 January 2010 to 11 January 2015 ·           Unlimited   from 11 January 2015
(m)   Related scientific and technical consulting services[3]   (CPC 86751, 86752 and 86753 only)	·           49%   until 11 January 2009 ·           51%   from 11 January 2009 to 11 January 2011 ·           Unlimited   from 11 January 2011
(n)    Maintenance and repair of equipment (not including maritime   vessels, aircraft or other transport equipment)   (CPC 633)	·           49%   until 11 January 2010 ·           51%   from 11 January 2010 to 11 January 2012 ·           Unlimited   from 11 January 2012
2.      Communication services
B.     Courier Services (CPC 7512**) *  Express delivery services,[4]   i.e. services consisting of collection, sorting, transport and delivery,   whether for domestic or  foreign   destination, of: (a)    Written communication[5],   on any kind of physical medium, including:          -     Hybrid mail   service;          -     Direct mail.          Except for the handling of items of written communication   the price of which is less than:          -     10 times the tariff for the handling of a   standard domestic letter in the first weight level for domestic shipments;          -     US$9 for international shipments;          provided that the gross weight of these items is less than   2,000 grams. (b)    Parcels[6]   and other goods. * Handling of non-addressed items.	·           51%   until 11 January 2012 ·           Unlimited   from 11 January 2012
c.     Telecommunication Services For   the purpose of these commitments, a "non-facilities based service   supplier" means a service supplier which does not own transmission   capacity but contracts for such capacity including submarine cable capacity, including on a long-term basis,   from a facilities-based supplier. A non facilities-based supplier is not   otherwise excluded from owning telecommunications equipment within their   premises and permitted public service provision points (POP). Basic telecommunication   services (a)    Voice telephone services    (CPC 7521) (b)    Packet-switched data transmission services (CPC 7523**) (c)     Circuit-switched data transmission services (CPC 7523**) (d)    Telex services (CPC 7523**) (e)     Telegraph services (CPC 7523**) (f)     Facsimile services (CPC 7521** + 7529**) (g)     Private leased circuit services (CPC 7522** + 7523**) (o*)  Other services:Videoconference services          (CPC 75292); Video Transmission services, excluding   broadcasting;[7]   Radio based services includes: Mobile telephone (terrestrial and satellite),   Mobile data (terrestrial and satellite), Paging, PCS,  Trunking; Internet Exchange Service (IXP)[8]	Non facilities-based services:  ·           51%   until 11 January 2010 ·           65%   from 11 January 2010 Facilities-based services: 49%
Basic telecommunication   services: (o*)  Other services -        Virtual Private Network (VPN)[9]	Non facilities-based services:    70% Facilities-based services:  49%
Value-added services (h)    Electronic mail (CPC 7523 **) (i)      Voice mail (CPC 7523 **) (j)     On-line information and database retrieval (CPC 7523**) (k)    Electronic data interchange (EDI) (CPC 7523**) (l)      Enhance/value-added facsimile services, incl store and   forward, store and retrieve (CPC 7523**) (m)   Code and protocol conversion (n)    On-line information and data processing (incl. transaction   processing)          (CPC 843**)	Non facilities-based services: ·           51%   until 11 January 2010 ·           65%   from 11 January 2010 Facilities-based services: 50%
Value added services (o)    Other                                   16 Services       providing internet access to the end users   -        Internet Access Services IAS[10]	Non facilities-based services: ·           51%   until 11 January 2010 ·           65%   from 11 January 2010 Facilities-based services:    50%
D.     Audiovisual   Services  With   regard to motion picture production, distribution and projection services,   all films must have their content censored by Viet Nam's competent   authorities.
(a)    Motion picture production (CPC 96112, excl. video tape)	51%
-        Motion picture distribution (CPC 96113, excl. video tape)	51%
(b)    Motion picture projection service (CPC 96121)	51%
(e)     Sound recording	30%
3.      Construction and related engineering   services
A.     General construction work for building (CPC 512) B.     General construction work for civil engineering           (CPC 513) C.     Installation and assembly work    (CPC 514, 516) D.     Building completion and finishing work           (CPC 517) E.      Other (CPC 511, 515, 518)	Unlimited
4.      distribution services Measures applicable to all sub-sectors in   Distribution Services: Cigarettes   and cigars, books, newspapers and magazines, video records on whatever   medium, precious metals and stones, pharmaceutical products and drugs,[11]   explosives, processed oil and crude oil, rice, cane and beet sugar are   excluded from the commitments.
A.     Commission agents' services (CPC 621,   61111, 6113, 6121)  B.    Wholesale   trade services (CPC 622, 61111, 6113, 6121) C.     Retailing services (CPC 631 + 632,   61112, 6113, 6121)[12]	·           99.99%   until 1 January 2009 ·           Unlimited   as from 1 January 2009
D.     Franchising services   (CPC 8929)	·           99.99%   until 1 January 2009 ·           Unlimited   as from 1 January 2009
5       educationAL services Only in technical, natural sciences and technology, business   administration and business studies, economics, accounting, international law   and language training fields.
B.     Secondary education services (CPC 922)	30%
C.     Higher education services (CPC 923) D.     Adult education (CPC 924) E.      Other education services (CPC 929 including foreign language   training)	·           99.99%   until 1 January 2009 ·           Unlimited   from 1 January 2009
6.      ENVIRONMENTAL SERVICES
A.     Sewage   Services (CPC 9401)	·           51%   until 11 January 2011 ·           Unlimited   from 11 January 2011
B.     Refuse disposal services (CPC 9402)	·           51%   until 11 January 2011 ·           Unlimited   from 11 January 2011
D.     Other services -        Cleaning services of exhaust gases (CPC 94040) and noise   abatement services (CPC 94050)	·           51%   until 11 January 2011 ·           Unlimited   from 11 January 2011
-        Environmental impact assessment   services   (CPC  94090*)	·           51%   until 11 January 2011 ·           Unlimited   from 11 January 2011
7.      FINANCIAL SERVICES
A.     Insurance   and Insurance-Related Services a.      Direct insurance          (a) Life insurance, excl. health insurance services            (b) Non-life insurance services b.      Reinsurance and retrocession c.       Insurance   intermediation (such as brokerage and agency) d.      Services auxiliary to insurance (such as consultancy,   actuarial, risk assessment and claim settlement)	Unlimited
B.     Banking and Other Financial Services
(a)    Acceptance of deposits and other repayable funds from the   public (b)    Lending of all types (c)     Financial leasing (d)    All payment and money transmission services, (e)     Guarantees and commitments (f)     Trading for own account or for account   of customers (h)    Money broking (i)      Asset management, such   as cash or portfolio          management,   all forms of collective investment          management,   pension fund management,          custodial,   depository and trust services (j)     Settlement and clearing   services for financial          assets (k)    Provision and transfer of   financial information,          and financial data processing and related          software by suppliers of other   financial services (l)      Advisory,   intermediation and other auxiliary          financial   services on all activities listed in          subparagraphs   from (a) to (k), including credit          reference   and analysis, investment and portfolio          research   and advice, advice on acquisitions and          on   corporate restructuring and strategy	·           30%   for joint stock banks ·           Not   clear for finance companies and  finance-leasing   companies
C.     Securities   (f)    Trading for own account or for account of customers (g)     Participation in issues of all kinds of securities incl.   under-writing and placement as an agent (publicly or privately), provision of   services related to such issues (i)      Asset management, such as portfolio management, all forms of   collective investment management, pension fund management, custodial   depository and trust services (j)     Settlement and clearing services for securities, derivative   products, and other securities-related instruments (k)    Provision and transfer of financial information, and related   software by suppliers of  securities   services (l)      Advisory, intermediation and other auxiliary   securities-related excluding (f), including investment and portfolio research   and advice, advice on acquisitions and on corporate restructuring and   strategy (for other services under (l), refer to (l) under banking sector)	·           49%   until 11 January 2012 ·           Unlimited   from 11 January 2012
8.      health related and social services
A.     Hospital services (CPC   9311) B.     Medical and dental   services (CPC 9312)	Unlimited
9.      tourism and TRAVEL related services
A.     Hotel and restaurant including (1) Lodging services (CPC   64110); (2) Catering food (CPC 642) and    (3) drink services (CPC 643)	Unlimited
B.     Travel agencies and tour operator services          (CPC 7471)	99.99%
10.    recreational, cultural and sporting   services
A.     Entertainment services   (including theatre, live bands and circus services)          (CPC 9619)	·           30%   until 11 January 2012 ·           49%   from 11 January 2012
D.     Other Electronic games business   (CPC 964**)	49%
11.    Transport SERVICES
A.     Maritime Transport Services (a)    Passenger transportation less cabotage(CPC 7211) (b)    Freight transportation less cabotage (CPC 7212)	(a)    Companies established the purpose of   operating a fleet under the national flag of Viet Nam: ·           30%   until 11 January 2009 ·           49%   from 11 January 2009
	(b)    Other forms of commercial presence for the supply of   international maritime transport services[13]:   ·           51%   until 11 January 2012 ·           Unlimited   from 11 January 2012.
Maritime Auxiliary Services -        Container handling services   (CPC 7411)[14]	50%
-        Customs Clearance   Services[15]	·           51%   until 11 January 2012 ·           99.99   from 11 January 2012
-        Container Station and Depot Services[16]	·           51%   until 11 January 2014 ·           Unlimited   from 11 January 2014
B   .     Internal Waterways Transport (a)    Passenger transport (CPC 7221) (b)    Freight transport (CPC 7222)	49%
C.       Air Transport Services (a)    Sales and marketing air products services	30%
(b)    Computer reservation services	Unlimited
(c)     Maintenance and repair of aircraft (CPC 8868**)	·           51%   until 11 January 2012 ·           Unlimited   from 11 January 2012
E.     Rail   Transport Services (a)    Passenger transportation (CPC 7111) (b)    Freight transportation (CPC 7112)	49%   for freight transportation.
F.      Road Transport   Services (a)    Passenger transportation (CPC 7121+7122) (b)    Freight transportation (CPC 7123)	·           49%   until 11 January 2010 ·           may   be 51% from 11 January 2010[17]
H.     Services   Auxiliary to all Modes of Transport  (a)    Container handling services, except services provided at   airports (part of CPC 7411)	50%.
(b)    Storage and warehouse services (CPC 742) (c)     Freight transport agency services (CPC 748)[18]	·           51%   until 11 January 2014 ·           Unlimited   from 11 January 2014
(d)    Other (part of CPC 749)[19]	·           49%   until 11 January 2010 ·           51%   from 11 January 2010 to 11 January 2014 ·           99.99%   from 11 January 2014

---

[1]      Excluding keeping micro-organism strain for veterinary.

[2] Excluding services relating to investigation, evaluation and exploitation for natural forest including exploitation of woods and wild, rare and precious animals hunting and trapping, aerial photographing, aerial seed planting and aerial chemicals spraying and dusting, micro-bial plant, animal genetic resource in agriculture.  For the avoidance of ambiguity, animal husbandry and the improvement of breeding stock are included in this commitment. 

[3] The supply of services related to prospecting, surveying, exploration and exploitation is subject to the applicable laws and regulations of Viet Nam.

[4] Express delivery services may include, in addition to greater speed and reliability, value added elements such as collection from point of origin, personal delivery to addressee, tracing and tracking, possibility of changing the destination and address in transit, confirmation of receipt.

[5] Written communication includes letters, postcards, hand writings, or printed matters such as books, newspapers, periodicals, magazines, or commercial documents such as bills and invoices, etc.

[6] Books, catalogues are included hereunder.

[7] Broadcasting is defined as the uninterrupted chain of transmission required for the distribution of TV and radio programme signals to the general public, but does not cover contribution links between operators.       

[8] Services providing internet access service (IAS) suppliers with connection between them and to the international Internet backbone.

[9] Services, provided on commercial terms, establishing and managing a private network over public (shared) networks for the purpose of carrying out, on a non-profit basis, voice and data telecommunications between members of a closed user group defined prior to the creation of the VPN.  Such group may include a corporate group or organization, or a group of legal entities with an established relationship affiliated through the pursuit of a common interest.  Initial members of a closed user group using VPN service must be listed in a dialling or routing plan approved by the Competent Authority and subject to its oversight.  VPN service suppliers shall notify to the Competent Authority changes of membership at least two working weeks prior to actually commencing commercial service and can commence commercial service provided that no objection from the Competent Authority is issued during these two weeks.  Members are not allowed to resell VPN services to unaffiliated third parties.  Virtual private networks are not allowed to carry/transfer traffic of/between unaffiliated third parties.  VPN services can be offered by licensed foreign-invested service suppliers bundled with Internet access service and value-added services from (h) to (n).

[10] Services providing internet access to the end users.

[11] For the purposes of this schedule "pharmaceuticals and drugs" do not include non-pharmaceutical nutritional supplements in tablet, capsule or powdered form.

[12] For transparency purposes, this commitment includes multi-level sales by properly trained and certified Vietnamese individual commission agents away from a fixed location for which remuneration is received both for the sales effort and for sales support services that result in additional sales by other contracted distributors.          

[13]    "Other forms of commercial presence for the supply of international maritime transport services" means the ability for foreign shipping companies to undertake locally activities which are related to the cargoes carried by them and necessary for the supply of the integrated transport service to their customers, within which the international maritime transport constitutes a substantial elements and is supplied by the concerned foreign shipping company.

[14] Public utility concession or licensing procedures may apply in case of occupation of the public domain.

[15] "Customs clearance services" (alternatively "customs house brokers’ services") means activities consisting in carrying out on behalf of another party customs formalities concerning import, export or through transport of cargoes, whether this service is the main activity of the service provider or a usual complement of its main activity.

[16] "Container station and depot services" means activities consisting in storing containers, whether in port areas or inland, with a view to their stuffing/stripping, repairing and making them available for shipments.

[17] subject to the needs of the market

[18] Including freight forwarding services.  These services mean the activities consisting of organizing and monitoring shipment operations on behalf of shippers, through the acquisition of transport and related services, preparation of documentation and provision of business information.

[19] Include the following activities: bill auditing; freight brokerage services; freight inspection, weighing and sampling services; freight receiving and acceptance services; transportation document preparation services. These services are provided on behalf of cargo owners.

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.