Conditions for buying shares when converting a public non-business unit into a joint stock company in Vietnam

Conditions for buying shares when converting a public non-business unit into a joint stock company in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. Form of converting public non-business units into joint stock companies in Vietnam

Forms of converting public non-business units into joint stock companies according to Article 5 of Decree 150/2020/ND-CP are as follows:

- Maintain existing state capital in public non-business units, issue more shares to increase charter capital.

- Sell part of the existing state capital in public non-business units or combine selling part of the state capital with issuing more shares to increase charter capital.

2. Conditions for buying shares when converting a public non-business unit into a joint stock company in Vietnam

Subjects and conditions for buying shares when converting a public non-business unit into a joint stock company in Vietnam according to Article 6 of Decree 150/2020/ND-CP are as follows:

(1) Domestic investors:

- Domestic investors are individuals with Vietnamese nationality and economic organizations established under Vietnamese law that conduct investment and business activities in Vietnam;

- Domestic investors are entitled to buy shares of converted public non-business units in unlimited quantities, except for the case specified in Clause 4, Article 6 of Decree 150/2020/ND-CPv.

(2) Foreign investors:

- Foreign investor means an individual with foreign nationality or an organization established under foreign laws that conducts business investment activities in Vietnam;

- Foreign investors are entitled to purchase shares of converted public non-business units according to the provisions of Decree 150/2020/ND-CP and relevant legal documents.

Foreign investors wishing to buy shares must open an account at a credit institution in accordance with Vietnam's laws on foreign exchange.

(3) Strategic investors:

- Competent agencies specified in Article 39 of Decree 150/2020/ND-CP decide on the initial sale of shares to strategic investors for public non-business units on the list of the state, which continue to hold more than 50% of the charter capital according to the Prime Minister's Decision on the list of industries and fields to convert public non-business units into joint stock companies.

- Strategic investors are domestic investors and foreign investors who fully meet the following conditions:

+ Having full legal status as prescribed by law;

+ Having production and business results for the last 2 years up to the time of registration to buy shares with profit, no accumulated losses;

+ Having a business line suitable for the public non-business service provision field of the transformed public non-business unit;

+ Having a written commitment to register to become a strategic investor in the transformed public non-business unit, including the following contents:

++ The number of shares purchased is not allowed to be transferred within 03 years from the date the joint stock company is granted the certificate of joint-stock enterprise registration for the first time operating under the Enterprise Law 2014 and amended, supplemented, and replaced documents (if any).

++ Have a plan to support enterprises converted from public non-business units to improve their financial and corporate governance capacity.

++ Compensation obligations in case of breach of signed commitments, with the level of compensation according to actual damage, and the State has the right to decide for the entire number of shares purchased by strategic investors.

- Based on the size of the charter capital, the field of operation, and the requirements for expansion and development of the unit, the agency approving the plan for transformation of the public non-business unit shall decide the criteria for selecting strategic investors. and the percentage of shares sold to strategic investors.

- The order of selecting strategic investors at the converted public non-business units must ensure that the strategic investor's registration to buy shares is carried out before the time of announcement of the initial public offering of shares, specifically as follows:

+ Based on the size of charter capital, nature of business lines, and development plans of the unit, the Steering Committee for transformation of public non-business units (hereinafter referred to as the Steering Committee) directs the assisting team specified in Article 39 of Decree 150/2020/ND-CP to coordinate with:

The converted public non-business unit and the consulting organization (if any) develop selection criteria in accordance with the provisions of Points b and c, Clause 3, Article 6 of Decree 150/2020/ND-CP, including the percentage of shares offered and target of offering shares to strategic investors to include in the conversion plan;

+ The Steering Committee appraises the plan to sell shares to strategic investors, reports to the agency approving the conversion plan specified in Article 39 of Decree 150/2020/ND-CP;

+ Within 05 working days from the date the competent authority approves the transformation plan, the converted public non-business unit shall make a public announcement on the mass media (in both English and Vietnamese) of contents related to the offering of shares to strategic investors of the converted public non-business unit, including:

Information about the converted public non-business unit; the purpose of selecting strategic investors; criteria for selecting strategic investors; the share offering rate to strategic investors;

The rights and obligations when becoming a strategic investor; the application for registration as a strategic investor; the time and place to submit the application for registration. The Ministry of Finance shall guide the contents of the Decision approving the plan to convert public non-business units and the Information Disclosure on the transformation of public non-business units into joint-stock companies;

+ Within 30 days from the date of announcement, the converted public non-business unit shall review the application for registration as a strategic investor, compile a list of strategic investors eligible to participate in share purchase, and submit it to the Steering Committee to report to the competent authority as prescribed in Article 39 of Decree 150/2020/ND-CP.

The selection of qualified strategic investors to participate in the share purchase must be made before the public auction of shares is held;

+ On the basis of the list of strategic investors approved by the competent authority, the Steering Committee shall develop a plan to sell and organize an auction of shares for strategic investors;

+ Based on the results of the sale of shares to strategic investors, the converted public non-business unit shall summarize and report to the competent authority for consideration and the signing of an official commitment contract with strategic investors who win the auction and transfer the proceeds from the sale of shares to strategic investors according to the provisions of Article 34 of Decree 150/2020/ND-CP.

- In case there is only 1 strategic investor who meets the criteria when registering to buy shares and the subscription volume is less than or equal to the number of shares expected to be sold to the strategic investor according to the approved conversion plan, the Steering Committee shall report to the competent authority specified in Article 39 of Decree 150/2020/ND-CP to decide:

Selling shares to strategic investors by method of direct agreement with the selling price not lower than the average successful auction price according to the results of the public auction; In case the public auction fails, the selling price to strategic investors is determined according to the reserve price.

- In case there are 02 strategic investors who meet the selection criteria, register to buy shares, and the total number of shares registered to be bought is greater than the number of shares expected to be sold to strategic investors according to the approved conversion plan:

The Steering Committee shall report to the competent authority to decide whether to organize the auction between strategic investors on the Stock Exchange.

The organization of auctions among strategic investors is carried out after the public auction, with the starting price of:

Average successful bid according to the results of the public auction (in case the public auction fails, the starting price to organize the auction for strategic investors is determined according to the starting price specified in Clause 9 Article 3 of Decree 150/2020/ND-CP and ensure the principle of selecting investors with bid prices from high to low for a sufficient number of shares to be sold.

- In case there are 02 strategic investors who meet the criteria when registering to buy shares and the total number of shares registered by strategic investors to buy is equal to or less than the number of shares sold to strategic investors according to the approved conversion plan:

The Steering Committee shall agree on the number of shares to be sold and the share price for each strategic investor at a price not lower than the average successful auction price, according to the results of the public auction. In case the public auction fails, the selling price to strategic investors is determined according to the reserve price.

- In case the strategic investor fails to comply with its commitments, it must compensate for all losses that occur in accordance with the committed contract and current legal regulations.

- Strategic investors must deposit in cash or have a guarantee from credit institutions or foreign bank branches in Vietnam. The deposit and margin level are equal to 20% of the value of shares registered to be bought at the starting price.

In case of giving up the right to buy, strategic investors are not entitled to receive the deposit back or be fined an amount equivalent to the deposit value.

- The sale of shares to strategic investors must be completed before the first General Meeting of Shareholders in order to convert the public non-business unit into a joint stock company.

The remaining number of shares (the difference between the actual number of shares sold to strategic investors and the total number of shares registered to be purchased by strategic investors according to the approved conversion plan), the Steering Committee shall report to the competent authority specified in Article 39 of Decree 150/2020/ND-CP to decide on the adjustment of charter capital and charter capital structure before holding the first General Meeting of Shareholders.

(4) Organizations and individuals in Vietnam that are not allowed to buy shares issued for the first time of converted public non-business units include:

- Members of the Steering Committee, the team assisting in converting public non-business units into joint-stock companies (except for members who are representatives of the converted public non-business units);

- Financial intermediaries and their individuals shall participate in the implementation of consultancy on converting public non-business units into joint stock companies, auditing units of financial statements, and determining the value of public non-business units (except for underwriting organizations that buy undistributed shares under the guarantee contract);

- Organizing the auction of shares and individuals of this organization related to the auction;

- Persons related to organizations and individuals specified at Points a, b and c, Clause 4, Article 6 of Decree 150/2020/ND-CP according to the provisions of Clause 17, Article 4 of the Law on Enterprises 2014 or the amended, supplemented or replaced documents (if any).

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