Conditions for strategic investors to purchase shares from equitized enterprises in Vietnam

Conditions for strategic investors to purchase shares from equitized enterprises in Vietnam (Image from the Internet)

Conditions for strategic investors to purchase shares from equitized enterprises are specified in Clause 3, Article 6 of Decree 126/2017/ND-CP on conversion from state-owned enterprises and single-member limited liability companies with 100% of charter capital invested by state-owned enterprises into joint-stock companies, specifically as follows:

a) A strategic investor may be a domestic or foreign investor that:

- has the status of a legal entity;

- has adequate financial capacity and a profitable business in the past 2 years before the date of subscribing for shares without accumulated loss; and

- has a written commitment made by a competent person when registering to become the strategic investor of the equitized enterprise that:

+ The primary business line(s) and brand(s) of the equitized enterprise will be maintained for at least 3 years from the date officially becoming the strategic investor.

 The representative authority of an enterprise on the list of national brands shall request the Prime Minister to determine the specific time that the strategic investor have to make the commitment to continue maintaining the primary business line(s) and brand(s) of the equitized enterprise.

+ The purchased shares will not be transferred within 3 years from the day on which the JSC obtains the certification of first registration of JSC according to the Law on Enterprises.

+ There is a plan for assisting the enterprise after equitized in new technology exchange; provision of training for personnel; financial capacity enhancement; enterprise management; provision of materials; market development.

+ Compensation shall be paid for damage caused by any violation against the commitment and in which case the shares purchased by the strategic investor are at the State’s disposal.

b) The initial offering of shares to strategic investors is only available to the enterprises on the list of enterprises over 50% of shares of which has to be held by the State under the Prime Minister’s decision.

c) According to the amount of charter capital, nature of business lines and the need for enterprise expansion and development, a steering committee for enterprise equitization (hereinafter referred to as "steering committee") shall request the representative authority to make a decision on initial offering of shares to strategic investors, criteria for selecting strategic investors and amount of shares offered to strategic investors.

Procedures for selecting strategic investors in the equitized enterprise are provided in Appendix I attached hereto to ensure strategic investors are selected and shares are subscribed before initial public offering (IPO).

d) If there is only one strategic investor that is eligible to subscribe for shares and the quantity of subscribed shares is less than or equal to the shares offered to the strategic investor according to the approved equitization plan, the steering committee shall request the representative authority to make the decision on offering shares for the strategic investor through direct negotiation provided that the selling price is not less than the average successful bid according to public auction results; in case shares are offered to other investors as specified in Clause 2 Article 37 herein, the agreed price shall be at least equal to the price agreed with the investor subscribing for shares.

The steering authority shall request the representative authority to make a decision on revising the equitization plan to sell the remaining shares (difference between the number of shares offered to the strategic investor according to the approved equitization plan and the number of shares subscribed by the strategic investor) at public auction.

dd) If there are at least two strategic investors eligible to subscribe for shares and the total number of shares subscribed by strategic investors is more than the number of shares offered to strategic investors specified in the approved equitization plan, the steering committee shall request the representative authority to consider holding an auction for strategic investors at a stock exchange.

The auction between strategic investors shall be conducted after the public auction is held with the starting price equal to the average successful bid of the public auction (except for the case stated in Clause 2 Article 37 herein, in which the starting price shall be the agreed price to offer shares for the investor) Shares will be sold to investors in order of their offered prices from highest to lowest.

e) If there are at least two strategic investors that are eligible to subscribe for shares and the total number of subscribed shares is less than or equal to the shares offered to strategic investors according to the approved equitization plan, the steering committee shall reach an agreement on the number of offered shares and the selling price of shares for each strategic investor and request the representative authority for approval and the number of shares offered to each strategic investor shall be the quantity of shares subscribed by each strategic investor provided that the selling price is not less than the average successful bid according to public auction results (in case shares are offered to other investors specified in Clause 2 Article 37 herein, the agreed selling price shall be at least equal to the price agreed with investors subscribing for shares).

The steering authority shall request the representative authority to make a decision on revising the equitization plan to sell the remaining shares (difference between the number of shares offered to strategic investors according to the approved equitization plan and the number of shares subscribed by the strategic investor) at public auction.

g) The strategic investor that fails to comply with the commitment or violates against regulations on transfer of shares shall provide compensation for any damage in accordance with the commitment agreement and regulations of law.

h) The strategic investor has to pay a deposit or obtain a guarantee from a credit institution or branch of foreign bank that equals (=) 20% of value of the shares subscribed at the starting price that a competent authority decided through the approved equitization plan.

The strategic investor abandoning the right to purchase shares will lose the deposit (or incur a fine equal to the deposit in case of guarantee).

i) Offering of shares for the strategic investor shall be done before the first General meeting of shareholders is held to convert the enterprise into the JSC.

The steering authority shall request the representative authority to make a decision on recording unsold shares (difference between the number of shares offered to strategic investors according to the approved equitization plan and the number of shares subscribed by the strategic investor) as a decrease in charter capital before the first General meeting of shareholders is held.

Above is the consulting content.