Under Decree 91/2015 and an Official Letter 10791 of the Ministry of Finance (MOF) in August 2016, it is no longer clear whether the Prime Minister can authorise the sale of shares held by the State in an unlisted joint stock company to a private investor without holding a public auction of such shares first. In practice, many investors (especially those who want to acquire control or a substantial stake in a joint stock company from the State) prefer to being able to deal directly with the State-seller rather than going through a complicated public auction process.

In the past, Decree 71/2013 provides that for an unlisted joint stock company (which is majority owned by the State), if (1) there is only one bidder registering to purchase shares from the State or (2) the Prime Minister authorises in writing, then the State-seller may sell shares by way direct negotiation with the investors”. So it is quite clear that the Prime Minister may authorise a direct sale of State shares in an unlisted joint stock company without having a public auction.

Decree 91/2015 replacing Decree 71/2013 provides that sale by way of direct negotiation between the State-seller and the investor is permitted when a block sale by way of public auction fails (only one investor registers to purchase or the Prime Minister authorises [such sale] in writing). The wording in brackets result in different interpretation:

The first interpretation is that the Prime Minister may only permit direct negotiation for sale of State shares after the block sale by way of public auction fails. This is because the word “the Prime Minister authorises such sale in writing’ sit inside the brackets. This interpretation will limit the authority of the Prime Minister to authorise a direct sale of State shares before the public auction; and
The second interpretation is that the placement of the second bracket is wrong and it should have been put after the word “purchase”. This is because the words in the brackets are supposed to explain what constitutes a failure to conduct block sale by way of public auction. And authorisation by the Prime Minister cannot constitute a failure to conduct block sale by way of public auction. The second interpretation is also consistent with the regulation on block sale of State shares under Decision 41/2015 of the Prime Minister and the fact that the Prime Minister often has broad power when dealing with State-owned (or controlled) enterprises in Vietnam.

However, in a recent Official Letter from the MOF to the Prime Minister in which the MOF gives its interpretation of the relevant article in Decree 91/2015, the MOF repeatedly cites the exact wording of Decree 91/2015. This suggests that the MOF does not consider the placement of the second bracket is a drafting mistake. The content of the Official Letter also suggests that the Prime Minister no longer has a clear power to authorise a direct sale of State shares before the public auction.

This post is contributed by Mai Chi, an associate of VILAF.

Vietnam Business Law