Equitization Process

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Equitization Process
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Introduction

• Vietnam launched the privatization program in
  1992
• Equitization is a process of transforming an SOE
  into a joint-stock company
• The government states that the equitization is
  not always privatization
• The government continues to hold controlling role
  through investment management in some large SOEs
  ( in some special industries. E.g. Electricity,
  Oil and Gas, etc)
• Equitization in Vietnam is considered as partial
  privatization

Source Ministry of Finance and others
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Stages of Equitization
Source East Asian Development Network
4
Steps on Equitization
Source Ministry of Finance, legal documents on
equitization, Deloitte
5
Market Regulation Foreign Strategic Investors

• Decree No.109/2007/ND-CP (26/06/2007)
• Fundamental distinction between foreign investors
  and domestic investors
• Foreign investors are defined as "foreign
  organizations and individuals injecting capital
  to carry out investment activities in Vietnam
• Companies established and operating in Vietnam
  are treated as domestic investors for the purpose
  of investment in SOEs being equitized with a
  restriction
• Restriction in investing on state-owned banks are
  more stringent and detailed foreign credit
  organization, asset size at least 20 billion ,
  experience, reputation, etc.

Source Ministry of Finance
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Equitization Process
Source Ministry of Finance, Doisongphapluat.com.v
n, Deloitte and others
7
Equitization of SOEs in Vietnam

• Affiliated enterprises
• of Ministries/local government
• SMEs
• Multiple sectors
• SCIC

• Vietnam Airlines Corp.
• VNPT (SAM, Mobifone)
• Vinatex
• Vinashin (VSP, etc.)
• EVN (PPC, VSH, etc.)
• PVN (DPM, PVC, etc.)
• Etc.

• Baoviet Insurance
• VietPetro Insurance
• Vietcombank
• Vietinbank
• BIDV
• Mekong Housing bank
• Agribank
• Etc.

Source From various sources
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Equitization Schedule of SOEs
Source From various sources
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Number of Equitization Transactions
Source Ministry of Finance, Deloitte and others
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(No Transcript)
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Vietnam Posts Telecommunications Group (91
corp.)

• Decision 06/2006/QD-TTg gt VNPT Group
• Chartered capital 2 bil
• 67 subsidiaries (40 equitized)
• Well-known brands EMS, Vietnamnet, 1080, and
• Mobifone
• 41 market share
• Revenue 1 bil, profit margin 35 (2008)
• Equitization plan
• Market value 2 bil (Credit Suisse)
• License for 3G service
• Award Best telecom company in 2008
• Vinaphone
• 20 market share
• Equitization plan

Source From various sources
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Vinashin Ship Building Group (91 corp.)

• Decision 69/QD-TTg gt Vinashin Group
• 76 subsidiaries 12 allied companies
• 4 JVs Huyndai-Vinashin shipyard joint venture
  (160 mil)
• Revenue 1.7 bil in 2008 (48 growth) est.
  2.5 bil in 2009
• 2006-2010 plan
• Upgrading ship building technology and
  equipments, increasing the localization to 60-70
• 2010 building ships of 100,000 DWT, repairing
  ships of 400,000 DWT, manufacturing and
  assembling the equipments for shipbuilding
• Looking for foreign partners which possess high
  technology of shipbuilding to cooperate and form
  modern shipyards.

Source From various sources
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Vietnam Electricity Group (91 corp.)

• Decision 48/2006/QD-TTg gt EVN Group (53
  subsidiaries) - the only electricity distributor
  in VN
• EVNs capacity of 12,000 MW, generating 57.44 bn
  kWh/year (70 of national demand)
• Increasing capacity to 15,000 MW in 2009
• Son La hydropower plan capacity 2,400 MW,
  providing 10 bn kWh/year (biggest plant in Asean
  area) gt start operating in 2010
• Equitization process
• 2008-2008 29 subsidiaries equitized
• Since 2009
• Reduction of current holding in its listed
  subsidiaries (VSH, TBC, PPC)
• Preparing for equitization of its subsidiaries
  and waiting for the stock market to recover gt
  higher capital surplus

Source From various sources
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Vietnam Oil Gas Group (91 corp.)

• Decision 199/2006/QD-TTg gt PVN Group
• 20 subsidiaries (13 equitized)
• 5 allied companies
• 2008 Revenue of 16 bil (20 GDP), export of
  11.15 bil
• 2009 Revenue of 3 bil, export of 1.45 bil
• Exploration activities in many other countries
  (Nicaragua, Peru, Indonesia, Algeria, etc.)
• Equitization plan
• 2Q/2009 Hanoi oil trading services Co. ltd.,
  PVN machines accessories Co. ltd., Hue petrol
  gas Co. ltd.
• 2010 Dung Quat refinery 2.6 mil tons (30
  national demand)

Source From various sources
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SCIC - State Capital Investment Corp.
Decision 151 152/2005/QD-TTg gt SCIC

• Business Activities
• Representing States ownership
• Financial investments
• Capital mobilizations
• Financial advisories

Networking - SCIC, SSC, MoF -
Source SCIC and others
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Opportunities for Investors

• Clear commitments to equitized State Owned
  Enterprises in to Limited Liability or Joint
  Stock Companies and operate under the Enterprise
  Law by July 20
• The process is supervised strictly with a
  directive enforcing equitization plans needed to
  be submitted to the Prime Minister by the third
  quarter of 2009
• The State Owned Companies will be evaluated at
  the fair price to reflect its true value with
  consideration of advantage value, i.e. geography
  location, brand name and development potential.
• Plans for pilot projects have been discussed to
  establish holding groups of corporations from the
  existing State Owned Companies
• The State Capital Investment Corporation (SCIC)
  has targeted the reduction of interests in some
  enterprises so that by2012, SCIC will hold
  controlling takes interests in about 100
  enterprises indispensable to the State
• 90 percent of more than 332,500 small and medium
  sized Vietnamese Companies are in need of the
  capital injection to further their operations
• Vietnam was less affected by previous financial
  crisis because of the Governments good economic
  management
• Health and education sectors would be expected to
  appeal to foreign investors
• Ongoing reforms to speed up the approval
  procedures for investors investment.
• WTOs commitments provide more opportunities for
  foreign investors

Source Deloitte
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Challenges for Investors

• Less opportunity for foreign investors to invest
  in some industries
• The State continues to maintain controlling
  interest in some equitized companies
• Foreign investment in certain industries remain
  restricted
• Equitization agenda was not conducted on time and
  not committed to be on time
• Complicated procedures within the equitization
  process
• Most of equitized companies are Small, Medium
  Enterprises that are not attractive to foreign
  investors
• Transparency is the main issue in terms of
  company valuation, information providing, etc
• Economic uncertainties postponing or
  re-negotiating of proposed equitization plan

Source Deloitte
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Problems of MA in Vietnam

• Arbitrary and time consuming procedures to
  determine permitted scope of activities for
  acquisition
• Unclear and absence of uniform practice in
  issuance of a new Investment Certificate or
  modification of Business Certificate
• Post acquisition pertaining to Land Use Rights of
  acquired companies
• Registration for amendment of investment
  certificate/business registration certificate of
  LLC with two or more members in case of changing
  of membership arising from assignment of equity
  interest
• Funding sources and related tax treatment
• Restructuring
• Listing protection

Source Gide Loyrette Nouel
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