What are regulations on open auction approach in case transfer of outward investment of state enterprises at joint-stock companies in Vietnam?

What are regulations on open auction approach in case transfer of outward investment of state enterprises at joint-stock companies in Vietnam? - image from internet

Pursuant to Clause 13 Article 1 of the Decree 32/2018/ND-CP (amending the Decree 91/2015/ND-CP) on state capital investment in enterprises, use and management of capital and assets in enterprises, the regulations on open auction approach in case transfer of outward investment of state enterprises at joint-stock companies in Vietnam are as follows:

a) Preparing documents for participation in auctions:

- Decision granted by a competent authority on approval of the plan for restructuring of state enterprise and decision on approval of the capital transfer plan;

- Information declaration according to the form given in Appendix I hereto attached;

- Documents evidencing that the enterprise having shares auctioned for capital transfer purposes are the legal owner of the number of shares listed for sale.

- Rules for auctioning shares.

b) Organizing auction activities:

- After a competent authority grants a decision on the capital transfer plan, state enterprises inform the plan for transfer of their shares to joint-stock companies having investments of these state enterprises; state enterprises then prepare necessary documents for participation in an open auction in accordance with regulations in force.

- State enterprises sign a contract to hire a stock exchange, securities company, service center and property auctioning enterprise in accordance with laws on property auction (hereinafter referred to as auctioneer) to organize capital transfer activities according to the following principles:

+ If the face value of shares held at auction for the purpose of outward capital transfer is at least VND 10 billion, state enterprises may hire the Stock Exchange to act as an auctioneer.

+ If the face value of shares held at auction for the purpose of outward capital transfer is less than VND 10 billion, state enterprises may have such options as the Stock Exchange, securities companies, property auctioning companies that they can designate as an auctioneer.

The auction shall be held at the office of the auctioneer, state enterprise having shares to be transferred or any other location depending on arrangements between state enterprises and the auctioneer.

- The auctioneer shall be responsible for issuing rules of auctioning of shares and relevant sample documents prior to an auction after receipt of consent from state enterprises; these rules must ensure that capital transfer conforms to laws on management and use of state capital invested in manufacturing and business operations as well as other relevant regulations; the rules must clearly specify responsibilities and authority of parties concerned in the process of auctioning of shares for capital transfer purposes; the rules must prescribe disclosure of information about the auction (e.g. which information to be revealed and which means of communications to be used); the rules must prescribe eligible bidders, procedures for participation and notification of auctioning results (e.g. such information as duration of payment, payment details, receiving entity, address and account number), procedures for transfer of ownership of auctioned shares, penalties for violations and other regulations to be issued to meet managerial demands and must be aimed at ensuring public awareness, transparency and legality of such auction.

- State enterprises/auctioneers shall disclose auctioning documents which have been prepared in accordance with regulations in force to investors within the period of at least 20 days before the auction date at the main office of state enterprise or the main office of joint-stock company having capital transferred by state enterprises, and auction location through mass media (on three successive articles of a newspaper published nationwide and a newspaper of a locality where main offices of state enterprises and joint-stock companies are located) and post these information on the website of the share auctioneer, state enterprise and joint-stock company having capital transferred by state enterprise (if any).

- State enterprise/auctioneer shall, while disclosing information about auctioning of shares for capital transfer, send auctioning documents that they have prepared in accordance with regulations in force to the owner's representative entity and the Ministry of Finance (Department of Corporate Finance).

- Within the duration specified in auction rules, state enterprise, auctioneer and investors shall implement procedures for participation in auction; (both organizational and individual) investors who are qualified for participation in auction shall receive the participation registration form from state enterprise/auctioneer to register the amount of shares that they can buy and pay advance sums. Investors shall receive the auction participation slip from state enterprise/auctioneer (after paying advance sums) to be able to make a bid.

- Within the duration specified in auctioning rules, investors shall write down their bid in the auction participation slip and send it through to state enterprise/auctioneer by voting directly at the auction venue or voting by post as per rules for auctioning of shares.

- Open auction shall be carried out only if there are at least 02 investors qualified for participation who have submitted valid documents and implemented all required procedures for participation in auction under auctioning rules.

c) Determining auctioning results and transferring ownership of shares and reporting on capital transfer.

- Auction winning result shall be determined according to the principle of selection of bids in ascending order to the last transferrable share but shall not be less than the starting price.

- Where, at the lowest winning price, there are various investors (including foreign ones) submitting different bids, but the remaining number of shares is less than total amount of shares that these investors have registered to buy at the lowest winning price, the number of shares that each investor is entitled to buy shall be determined according to the following formula:

Where the maximum rate of shares that a foreign investor is entitled to buy is prescribed, determination of the auctioning result shall be subject to the aforesaid principles, but the number of shares that a foreign investor is entitled to buy shall not exceed the maximum rate stipulated in applicable regulations, and the excess number of shares (if any) shall be distributed for sale to other investors according to the abovementioned formula.

- Right after completion of an auction, based on the auctioning result, the auctioneer shall be responsible for making a record of determination of the auctioning result; the auctioneer, state enterprise and representative of the auctioning council (if any) shall endorse this record by using the form given in the Appendix II hereto attached.

- Within the maximum period of 05 working days from the date of preparation of the record, state enterprise/auctioneer shall collaborate in publicly releasing the auctioning result at the auctioning venue and on the website of the auctioneer and state enterprise having transferrable capital, and informing investors of the auction winning result and full payment for purchase of shares within the maximum duration of 07 days from the date of announcement of the result of auctioning of shares. The winning investor shall pay for shares an amount from which their advance sum has been deducted.

Payment amount for purchase of shares with respect to transfer of capital at joint-stock companies listed or registering their transactions on stock exchanges, but performing their trades out of stock exchanges, shall be subject to the principles of payment price referred to in Clause 1 of this Article.

- After an investor has finished paying for shares, within the duration of 05 working days, state enterprise shall send documents including the decision on approval of the plan for capital transfer, granted by competent authorities, the written request and the record of determination of the winning investor, to the Vietnam Securities Depository (applicable to the case in which capital transfer occurs at joint-stock companies already registering shares at the Vietnam Securities Depository) for completion of procedures for transfer of ownership of securities. Within the duration of 05 days of receipt of the application documents for capital transfer from state enterprises, the Vietnam Securities Depository shall be responsible for transferring ownership of shares that state enterprises wish to transfer to other individuals or organization according to the documents submitted by state enterprises to the Vietnam Securities Depository.

- Where state enterprises transfer their capital at joint-stock companies which have not yet registered their shares with the Vietnam Securities Depository, procedures for transferring ownership of shares between state enterprises and investors after investors’ completion of payment for purchase of shares shall be subject to the Law on Enterprises and joint-stock company’s statutes. State enterprises shall have the burden of collaborating with joint-stock companies in completing procedures for transfer of ownership of shares to investors, and informing investors of procedures and specific time of completion of transfer of ownership of shares to investors when organizing capital transfer activities.

- Within the maximum duration of 15 days after completion of a capital transfer, state enterprises shall report on the result of auctioning of shares for outward capital transfer to the owner’s representative entity and the Ministry of Finance (Department of Corporate Finance).

d) Lot-type auction:

- Cases in which the lot-type auction for capital transfer is needed:

Transfer of shares/shares of capital subject to transfer restrictions imposed as per the Law on Enterprises.

+ Transferring capital associated with guarantee for borrowing of funds.

+ Transferring all of shares that are held at enterprises in an auction if the open auction approach is difficult to be taken. In this case, the plan for capital transfer must provide analysis and assessment of efficiency compared with the plan for sale of shares according to the open auction approach and shall be subject to approval granted by competent authorities.

+ Transferring capital and receivables with respect to state enterprises having competence in buying and selling debts. The Ministry of Finance shall be authorized to provide guidance on this case.

+ Carrying out other transfer under the Prime Minister's decision.

- Preparation and submission of documents, implementation, determination of results, transfer of ownership of shares and report on capital transfer in case of a lot-type auction shall be carried out in the similar manner to regulations on the open auction performed at Point a, Point b and Point C Clause 3 of this Article. The following provisions shall be obeyed:

+ Capital to be transferred must be in the list approved by competent authorities under Article 29 of this Decree.

+ Total amount of shares out of capital amount to be transferred according to the lot-type auction may be divided into different lots to be auctioned, based on value of transferrable capital and market conditions existing at the time of development of the plan for capital transfer.

+ Investors participating in a lot-type auction shall be required to bid for at least one lot (or all of shares in a lot to be auctioned).

dd) Open auction (ordinary or lot-type auction) which is unsuccessful:

Cases in which open auctions (ordinary or lot-type auctions) are unsuccessful include the followings: No investors or only one investor registers their participation after the registration deadline expires; there is no investors submitting auction participation slips within the period from the time of payment of advance sum to expiration of the deadline for submission of auction participation slips; there is no investors making bids at auctions or the investor’s highest bid is lower than the start price; either one or all of investors who win the auction has refused to buy shares; all of investors violate auctioning rules.

e) If an open auction (ordinary or lot-type auction) is unsuccessful or successful but there is still the remaining number of shares to be sold for capital transfer, the competitive bidding approach shall be used instead.

Above are regulations on open auction approach in case transfer of outward investment of state enterprises at joint-stock companies in Vietnam. Please refer to the Decree 32/2018/ND-CP for more details.

Thank you!