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Equitization ProcessEquitization 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

Stages of Equitization

3Source: East Asian Development Network

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Steps on Equitization

Source: Ministry of Finance, legal documents on equitization, Deloitte

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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.vn, Deloitte and others

• 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.

Equitization of SOEs in Vietnam

7Source: From various sources

Equitization Schedule of SOEs

2006 2007 2008 2009 2010

Financials

91 Corp.

90 Corp.

1992

3,756 116 (21% of plan)

74 948 (Out of 1,535 to be arranged)

(2003)

(28% of plan)

8Source: From various sources

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Number of Equitization Transactions

Source: Ministry of Finance, Deloitte and others

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• Decision 06/2006/QD-TTg => 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 Telecommunication Financial services

Post Information Technology

Vietnam Posts & Telecommunications Group (91 corp.)

11Source: From various sources

• Decision 69/QD-TTg => 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.

Shipbuilding

Vinashin Ship Building Group (91 corp.)

Financial services

Civil Engineering

Foreign trading

12Source: From various sources

•Decision 48/2006/QD-TTg => EVN Group (53 subsidiaries) - the only electricity distributor in VN

•EVN’s 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) => 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 => higher capital surplus

Electricity production Electricity distribution

Telecommunication Financial services

Vietnam Electricity Group (91 corp.)

13Source: From various sources

• Decision 199/2006/QD-TTg => 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)

Financial services

Oil /gas exploration, exploitation, & refinery

Transportation

Fertilizer

Vietnam Oil & Gas Group (91 corp.)

Gas Electricity

14Source: From various sources

Decision 151 & 152/2005/QD-TTg => SCIC

Business Activities

• Representing State’s ownership

• Financial investments

• Capital mobilizations

• Financial advisories

production

Health service

Info Technology

Telecom

Consumer goods

Consumer staples

Financial services

Materials

SCIC - State Capital Investment Corp.

Investing companies 899

Divested companies 183

Newly setup companies 4

Current portfolio 754

Total book value USD 473 million

  Group A Group B Group C

  Strategic investment Flexible investment Divestment target

Quantity 11 105 638

Capital proportion 43% 29% 28%

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Networking

- SCIC, SSC, MoF -

Source: SCIC and others

Opportunities for Investors

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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 Government’s 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.

WTO’s commitments provide more opportunities for foreign investors

Experienced foreign investors might significantly surpass the local investors in figuring out investment opportunities

Source: Deloitte

Challenges for Investors

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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

Problems of M&A 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”

18Source: Gide Loyrette Nouel

Q & A

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