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

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Source: Ministry of Finance and others
Stages of Equitization

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Source: East Asian Development Network
Steps on Equitization

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Source: Ministry of Finance, legal documents on equitization, Deloitte
 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 credit5
organization, asset size at least $20 billion , experience, reputation, etc.
Source: Ministry of Finance
Equitization Process

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Source: Ministry of Finance, Doisongphapluat.com.vn, Deloitte and others
Equitization of SOEs in Vietnam

• Vietnam Airlines Corp. • Baoviet Insurance

• Affiliated enterprises • VNPT (SAM, Mobifone) • VietPetro Insurance
of Ministries/local government • Vinatex • Vietcombank
• SMEs • Vinashin (VSP, etc.) • Vietinbank
• Multiple sectors • EVN (PPC, VSH, etc.) • BIDV
• SCIC • PVN (DPM, PVC, etc.) • Mekong Housing bank
• Etc. • Agribank
• Etc.

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Source: From various sources
Equitization Schedule of SOEs

91 Corp.

(2003)

Financials

90 Corp.

1992 2006 2007 2008 2009 2010

3,756 116 74 948

(21% of plan) (28% of plan) (Out of 1,535 to be arranged)

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Source: From various sources
Number of Equitization Transactions

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Source: Ministry of Finance, Deloitte and others
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Vietnam Posts & Telecommunications Group (91 corp.)

• 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) Post Information Technology

•License for 3G service

•Award “Best telecom company in 2008”
• Vinaphone
•20% market share
•Equitization plan
Telecommunication Financial services

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

• 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%
Shipbuilding Civil Engineering
•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 Foreign trading Financial services
and form modern shipyards.

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

•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 Electricity production Electricity distribution

•Since 2009 :
•Reduction of current holding in its
listed subsidiaries (VSH, TBC, PPC)
•Preparing for equitization of its
subsidiaries and waiting for the stock
Telecommunication Financial services
market to recover => higher capital
surplus
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Source: From various sources
Vietnam Oil & Gas Group (91 corp.)

• 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 Gas Electricity Transportation
(Nicaragua, Peru, Indonesia, Algeria, etc.)
• Equitization plan:
• 2Q/2009: Hanoi oil & trading services
Co. ltd., PVN machines & accessories Co.
Oil /gas exploration,
ltd., Hue petrol & gas Co. ltd. exploitation, & refinery
• 2010: Dung Quat refinery: 2.6 mil tons
(30% national demand)

Fertilizer Financial services

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Source: From various sources
SCIC - State Capital Investment Corp.

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

Business Activities
• Representing State’s ownership Health Info
service Technology

• Financial investments Telecom

production Consumer
• Capital mobilizations goods

• Financial advisories
Investing companies 899 Consumer
staples
Divested companies 183
Newly setup companies 4
Current portfolio 754 Materials Financial
services
Total book value USD 473 million
Group A Group B Group C Networking
Strategic investment Flexible investment Divestment target

Quantity 11 105 638

- SCIC, SSC, MoF -
Capital
proportion 43% 29% 28%

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Source: SCIC and others
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 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

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
Source: Deloitte
Experienced foreign investors might significantly surpass the local investors in figuring out investment
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
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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”

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Source: Gide Loyrette Nouel
Q&A

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