In March 2018, the Government issued Decree 32/2018 containing major amendments to the regulations on sale of State capital in State-affiliated enterprises. The amendments will take effect from 1 May 2018. State-affiliated enterprises are joint stock companies (State-owned JSC) or limited liability companies with two members or more (State-owned LLC) a part of which is owned by the State or by a wholly State-owned enterprises (Wholly SOE). New amendments under Decree 32/2018 include:

Stricter pricing control

·        Decree 32/2018 requires the State-seller to retain licensed valuer to value the State’s capital and to determine an asking price before commencement of the sale process even if the State-affiliated enterprises are listed companies. Under Decree 91/2015, it appears that if a State-affiliated enterprise is a listed company, then there is no need to retain a licensed valuer. Decree 32/2018 also provides that the asking price is only valid for a period of six months from the date of the valuation report. This suggests that a re-valuation is required if a sale is not completed within six months of the date of the valuation report.

·        For a listed State-affiliated company, if the asking price determined by the valuer is lower than the average share price of the company during the period of 30 consecutive trading days before public announcement of the sale, then such average share price will be used as the asking price. It is not clear if the average share price is a arithmetic average or weighed average (which takes into account the trading volume each trading day).

·        The licensed valuer when valuing the State’s capital must take into account the value of land leased by the State-affiliated enterprise and “history” of such State-affiliated enterprise. Decree 91/2015 only requires the value of land granted (not leased) to the State-affiliated enterprise to be taken into account. However, Decree 32/2018 does not specifically require the valuer to take into account whether the sale stake is a minority stake or a control stake.

No exception for private direct sale

·        Under Decree 91/2015, there is an argument that the Prime Minister may authorise a private direct sale of State capital in an State-affiliated enterprise without going through a public auction first. Such an exception is no longer available under Decree 32/2018. However, the Prime Minister is authorised to allow a sale to be conducted via a “book build” process.

Clearer sale process

·        Under Decree 32/2018, subject to certain transfer restriction under the Enterprise Law 2014, sale of State-capital in an unlisted company or a listed company but not through the relevant exchange must be conducted via a public auction first. If the public auction fails, then the sale must be conducted via a competitive offer. If the competitive offering fails then the sale can be sale via private direct sale with interested buyers. A public auction could be a normal auction (where there is no restriction on the number of shares to bid by a bidder) or a block sale auction (where a bidder must bid for a specified block of shares). However, Decree 32/2018 does not make clear the difference between a public auction and a competitive offer.

·        Under Decree 91/2015, the order of priority of various sale methods including retail auction, block sale, competitive offer and direct sale is not clear.

Relationship with transfer provisions under the Enterprise Law 2014

·        Recognising the transfer provisions under Enterprise Law 2014, Decree 32/2018 allows the State-seller to comply with the shares transfer restriction contained in the Charter of a joint stock company. Decree 32/2018 also allows the State-seller in a limited liability company to comply with the statutory pre-emptive rights that other members in such limited liability company may have over the State-capital.

Public disclosure requirement

·        The State-seller must make public disclosure about the proposed sale of State-capital (including sale of State capital in a listed company) in a State-affiliated enterprise. The disclosure must be prepared in a  prescribed form, which contains information about the State-affiliated enterprise such as two year business performance.