Transcript Slide 1

Equitization Process
1
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
2
Stages of Equitization
Stage 1
•1992 – 1996: The Pilot Stage of the Equitization
program
Stage 2
•5/1996 - 5/1998: Expansion of the Pilot Program
Stage 3
•6/1998 – 5/2002: Acceleration of the Equitization
Program
Stage 4
•Continuing Equitization Program
Source: East Asian Development Network
3
Steps on Equitization
Equitization
plan
• Establishment of
Steering Committee
and Assistant team
• Documentation:
valuation method,
legal document,
audited financial
statements and
other related assets’
approval
• Equitization Plan:
Introduction, labor
planning, business
and equitization
plan, IPO method.
Initial Offering
• Association with a
financial institute to
IPO
• Auction at the
company/securities
companies/stock
exchange
Source: Ministry of Finance, legal documents on equitization, Deloitte
Completion
• Shareholders’
meeting
• Publicize
information about
the newly formed
joint-stock company
• Hand over from
State-owned
enterprise to jointstock company
• Registration and
Licensing
Post
Equitization
• Restructuring
Management
• Audit appointment
4
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
5
Equitization Process
About 3,500 SOEs represent 40% of GDP
2007: 82 SOEs were equitized (21% planned)
2008-2010: Planned to rearrange 1,535 SOEs
Of which, 948 will be equitized
2008: Most equitizations were delayed
Explanation: Decline in stock market
June 2009: IPOs with reasonable starting price
2009: Plan to equitize some large banks, corp.
The State will retain ownership in:
•100% - Public utilities, power transmission, oil and gas,
aviation and railways
•50% - Energy, mining, telecoms, infrastructure, cement and
steel production, sanitation and water supply, and banking
and insurance.
Source: Ministry of Finance, Doisongphapluat.com.vn, Deloitte and others
6
Equitization of SOEs in Vietnam
Equitization Target
State corporations
(90)
• Affiliated enterprises
of Ministries/local government
• SMEs
• Multiple sectors
• SCIC
Source: From various sources
State corporations
(91)
• Vietnam Airlines Corp.
• VNPT (SAM, Mobifone)
• Vinatex
• Vinashin (VSP, etc.)
• EVN (PPC, VSH, etc.)
• PVN (DPM, PVC, etc.)
• Etc.
Financials
• Baoviet Insurance
• VietPetro Insurance
• Vietcombank
• Vietinbank
• BIDV
• Mekong Housing bank
• Agribank
• Etc.
7
Equitization Schedule of SOEs
91 Corp.
(2003)
Financials
90 Corp.
1992
2006
3,756
Source: From various sources
2007
2008
2010
2009
116
74
948
(21% of plan)
(28% of plan)
(Out of 1,535 to be arranged)
8
Number of Equitization Transactions
800
715
724
700
600
539
500
400
300
255
251
211
205
200
164
123
116
100
74
20
0
1998
1999
2000
Source: Ministry of Finance, Deloitte and others
2001
2002
2003
2004
2005
2006
2007
2008
1H/2009
9
10
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
Source: From various sources
Telecommunication
Financial services
11
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 6070%
•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
Shipbuilding
Civil Engineering
Foreign trading
Financial services
12
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
market to recover => higher capital
surplus
Source: From various sources
Telecommunication
Financial services
13
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
(Nicaragua, Peru, Indonesia, Algeria, etc.)
Gas Electricity
Transportation
• Equitization plan:
• 2Q/2009: Hanoi oil & trading services
Co. ltd., PVN machines & accessories Co.
ltd., Hue petrol & gas Co. ltd.
Oil /gas exploration,
exploitation, & refinery
• 2010: Dung Quat refinery: 2.6 mil tons
(30% national demand)
Fertilizer
Source: From various sources
Financial services
14
SCIC - State Capital Investment Corp.
Decision 151 & 152/2005/QD-TTg => SCIC
Business Activities
• Representing State’s ownership
Health
service
Info
Technology
• Financial investments
Telecom
production
• Capital mobilizations
Consumer
goods
• Financial advisories
Investing companies
899
Divested companies
183
Newly setup companies
Consumer
staples
4
Current portfolio
754
Total book value
USD 473 million
Materials
Group A
Group B
Group C
Strategic investment
Flexible investment
Divestment target
11
105
638
43%
29%
28%
Quantity
Capital
proportion
Source: SCIC and others
Financial
services
Networking
- SCIC, SSC, MoF 15
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

Experienced foreign investors might significantly surpass the local investors in figuring out investment
opportunities
Source: Deloitte
16
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
17
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”
Source: Gide Loyrette Nouel
18
Q&A
19