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MPI plans to keep stricter control over equitized FIEs
The policy on equitizing foreign invested enterprises (FIEs) is being reconsidered, after experts gave warnings about the foreign capital withdrawal through the equitization, which may cause bad impacts on the national economy.
The Decree 38 promulgated in 2003 once set up strict regulations on the equitization and share listing of FIEs, which were established under the investment law as limited liability companies.
The legal document stipulates that in order to go equitized, FIEs must have had the committed legal capital, have been operating for at least three years, while the enterprises must make profit at least in the year latest to the equitized year.
Especially, the total value of shares held by foreign shareholders must be at least equal to 30 percent of the chartered capital during the whole life span of the enterprises.
However, after the 2005 Investment Law and the Decree 101 guiding the implementation of the law were promulgated, the above said required conditions have been removed. With the new law, the FIEs which want to shift to operate as joint stock companies just have to meet the requirements set on joint stock companies, as stipulated in the Enterprise Law.
However, observers have pointed out that the removal of the strict regulations has led to some consequences. First, a lot of equitized FIEs overvalued their assets in order to obtain the high value for their stakes when listing on the stock market.
Second, a lot of FIEs made the corrupt use of the equitization to capitalize their assets: they sold parts of their shares, or even transferred all of their capital out of Vietnam.
Third, the capital withdrawal has badly affected Vietnam’s payment balance.
The three big problems have been reported by the State Securities Commission (SSC) which believes that it is necessary to apply some measures to settle the problem. The same viewpoint has been shared by the Ministry of Planning and Investment, which is in charge of managing the foreign investment capital flow.
Thoi bao Kinh te Vietnam has quoted its sources as saying that stricter requirements would be set up on the FIEs which want to become joint stock companies. For example, Vietnam may stipulate the minimum ownership ratio of foreign shareholders for the whole life spans of projects, and set the requirements on the minimum operation duration in Vietnam.
It may also require the FIEs to meet the criteria on capital, profits, financial situation, debts, solvency and technology transfer.
The FIEs, especially the joint ventures between Vietnamese state owned enterprises and foreign partners, would have to have their enterprises appraised. The providing of information about the FIEs during the equitization and after the equitization would be required.
Vietnam began allowing FIEs to equitize in 2003 on a trial basis. In September 2004, the Foreign Investment Agency (FIA) approved the equitization plan of six FIEs, namely Taya Vietnam, International Food Processing Industry, Tungkuang, Taicera, Austnam and Hoang Gia International joint venture.
At that time, according to FIA, the above said enterprises all could meet the requirements: they had enough legal capital written down in the investment license; they had been operating for three years at least, and had made profits in the years before the equitization.
By the end of 2010, nine FIEs had listed their shares on the Hanoi and HCM City bourses. However, the majority of the enterprises continuously reported losses recently.
The noteworthy thing is that the enterprises have been trying to sell stakes many times. Bourbon Tay Ninh is an example. After listing its shares on the bourse in 20008, Bourbon group, the biggest shareholder of the company, had sold all of its stakes to domestic investors at the prices just equal to the face value of the stakes.
The move by the equitized FIEs has raised a question that if FIEs really want to be equitized in their long term development plan in Vietnam, or they just get equitized in order to more easily withdraw capital from the projects.
vietnanet, TBKTVN
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