Articles
New Decree hoped to improve privatization in Vietnam

30 - 09 - 2011
By Bui Ngoc Hong and Nguyen Thi Hong Dao*

On 18 July 2011 Vietnam Government issued Decree No. 59/2011/ND-CP (Decree 59) providing guidelines on conversion of state-owned enterprises (SOEs) into shareholding companies. Decree 59 repeals Decree No. 109/2007/ND-CP dated 26 June 2007 (Decree 109) on the same subject.

Learning from the practice of implementing Decree 109, Decree 59 provides more comprehensive and flexible regulations to improve and hopefully speed up the privatization of SOEs.

Decree 59 sets out three types of SOEs eligible for equitisation, which are

(1)  a limited liability company having 100% charter capital owned by an economic group or State-owned corporation (including the State commercial bank);

(2)  a limited liability company having 100% charter capital owned by the enterprises under ministerial bodies; equivalent ministerial bodies; Government's agencies; the provincial People's Committee; and

(3)  the SOEs wholly owned by the State which have not been converted into one member limited liability company.

Those SOEs shall proceed with equitisation upon satisfaction of the following conditions: (i) they are not enterprises in the category where the State deems necessary to maintain 100% State owned charter capital, and (ii) they still have the State-owned capital after their finances matters have been dealt with and they have been re-evaluated in accordance with relevant laws.

Decree 59 limits the number of strategic investors to three investors for each equitized SOE. These strategic investors are restricted from transferring their purchased shares for a period of at least 5 years, instead of 3 years under Decree 109, commencing from the issuance date of the initial enterprise registration certificate of such equitized SOE. Any transfer made prior to such time limit must be approved by the General Meeting Shareholders.

Another positive input of Decree 59 is that, the SOE is allowed to sell to its strategic investors/shareholders even before initial public offerings. The selling price in this case must be mutually agreed or successfully auctioned among strategic investors and must not be lower than the initial price as per the approved plan of equitisation. As to selling shares to strategic investors after an IPO, Decree 59 stipulates that the selling price must not be lower than the lowest IPO price. The stock unsold after the IPO or auction shall be subject to specific regulations also provided by this Decree 59.

Decree 59 comes into force from 5 September 2011. With its improvements, Decree 59 is hoped to speed up the delayed equitisation of many large SOEs, and on overall the country's privatization.

(*) Please contact the authors at hong.bui@indochinecounsel.com or our partners if you wish to have more information or specific advice for the topic of this article.

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