Sale of Shares to Strategic Investors During Equitisation
Below are some selected issues relating to the sale of shares to Strategic Investors during equitisation of a State-Owned Enterprise (Equitised SOE). These issues are discussed in more detail in my book on equitisation of Vietnamese SOEs.
Timing
Under Decree 59/2011, the proposed sale price for shares offered to Strategic Investors will be decided based on, among other things, the timing of the proposed sale (i.e. whether before or after the sale of shares to public investors in the equitisation (the Equitisation IPO)).
However, Decree 59/2011 also provides that for certain special Equitized SOE, if it is “absolutely necessary” to select Strategic Investors before the Equitisation IPO, the Prime Minister will decide the criteria for selecting Strategic Investors, the method of sale and the number of shares to be sold to Strategic Investors. This provision implies that the option to sell shares to Strategic Investors before the Equitisation IPO is only available to certain special Equitised SOE and is subject to approval by the Prime Minister.
Applicability of private placement rules
Decree 58/2012 implementing the Securities Law does not contain specific provisions stating that the sale of shares in the joint stock company established from the Equitised SOE (the Equitised JSC) to Strategic Investors by the Equitised SOEs is not subject to private placement regulations under Decree 58/2012. Instead, Decree 58/2012 states that a limited liability company privately issuing shares in order to convert to a joint stock company will be subject to private placement regulations. It is therefore not clear whether the private placement regulations under Decree 58/2012 will apply to a private placement of shares by an Equitised SOE to a Strategic Investor during the equitisation of such Equitised SOE. If the provisions of Decree 58/2012 applies then it would certainly make the situation much more complicated due to potential overlapping and conflicting requirements between two different sets of regulations.
For a sale of shares to Strategic Investors after the Equitisation IPO, the sale price must not be less than the lowest successful auction price in the Equitisation IPO (Minimum IPO Price). Decree 59/2011 provides that for the sale of shares to Strategic Investors “who have registered for purchase of shares” before the Equitisation IPO, the sale price to the Strategic Investor must not be lower than the Minimum Offer Price. The wording of this provision seems to suggest that a Strategic Investor needs only register to purchase shares before the Equitisation IPO in order to be entitled to the floor price, which is the Minimum Offer Price.
Previous equitisation regulations required that the sale price to Strategic Investors in an Equitised JSC must not be less than the average successful auction price of the Equitisation IPO. Compared to previous equitisation regulations, Decree 59/2011 provides more certainty and flexibility regarding the sale price to a Strategic Investor in the event that the sale occurs before the Equitisation IPO. This is because under Decree 59/2011, a potential Strategic Investor will be aware of the Minimum Offer Price before making a binding offer to the Equitised SOE. Under previous regulations, very few Strategic Investors could make a binding offer before the Equitisation IPO because the average successful auction price in the Equitisation IPO, and accordingly, the minimum purchase price, were still unknown and no sensible investors would write a blank check to the Equitised SOE.
Decree 59/2011 provides that the shares in an Equitised JSC sold to a Strategic Investor are not transferrable for at least 5 years from the incorporation of the Equitised JSC, unless otherwise approved by the General Meeting of Shareholders of the Equitised JSC.
Auction sale vs. direct negotiation
Decree 59/2011 provides that “in case of direct negotiation with or auction among Strategic Investors”. As such, Decree 59/2011 appears to allow the sale of shares to Strategic Investors to be conducted either through an auction process or through direct negotiation.
Circular 196/2011 provides that if there are more than three Strategic Investors registering to purchase shares in the Equitised JSC, then the Equitised SOE must hold an auction among the interested Strategic Investors. In addition, if there are up to three Strategic Investors registering to purchase shares in the Equitised JSC and the number of shares registered for purchase exceeds the number of shares allocated to interested Strategic Investors, then the Equitised SOE must also hold an auction among the interested Strategic Investors.
If there are less than three Strategic Investors registering to purchase shares in the Equitised JSC and the number of shares registered for purchase do not exceed the number of shares allocated to interested Strategic Investors, then the Equitised SOE can directly negotiate with each Strategic Investor for sale of shares in the Equitised JSC.