Nghị định 187/2004/ND-CP

DECREE

ON CONVERSION OF STATE OWNED COMPANIES INTO SHAREHOLDING COMPANIES

THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated 25 December 2001;
Pursuant to the Law on Enterprises dated 12 June 1999;
Pursuant to the Law on State Owned Enterprises dated 26 November 2003; On the proposal of the Minister of Finance;

DECREES:

Chapter I

GENERAL PROVISIONS

Article 1. The objectives of and requirements for conversion of State owned companies into shareholding companies (hereinafter referred to as equitization) shall be:

1. To convert those State owned companies in which it is not necessary for the State to continue to hold one hundred (100) per cent of charter capital into shareholding companies with many owners; to mobilize capital from both domestic and foreign individuals, economic organizations and social organizations for the purpose of increasing financial capacity and renovating technology and management methods in order to raise the efficiency and competitiveness of the economy.

2. To ensure harmony between the interests of the State, the enterprise, the investor and employees of the enterprise.

3. To ensure public notification and transparency on market principles; to overcome the situation of equitization taking place in secret within enterprises; and to ensure that development runs parallel with development of the capital market and the securities market.

Article 2. Applicable subjects

1. This Decree shall apply to State owned companies not in the category of those in which it is necessary for the State to hold one hundred (100) per cent of charter capital, which shall undergo equitization, comprising: State corporations (including State commercial banks and State finance institutions); independent State owned companies; enterprises which are members of corporations, which maintain an independent cost accounting system and for which the State made the decision on investment and establishment; and dependently accounting affiliates of State corporations (hereinafter all referred to as enterprises undergoing equitization).

The Prime Minister of the Government shall make decisions from time to time on the list of State owned companies in which it is necessary for the State to hold one hundred (100) per cent of charter capital.

2. Equitization of the State owned companies prescribed in clause 1 of this article may be carried out when they still have State capital (excluding the value of land use rights) after deducting the value of assets not required to be used, assets awaiting liquidation, losses caused by [annual] losses, reduction in the value of assets, bad debts and equitization expenses.

3. Equitization of dependently accounting affiliates of State corporations prescribed in clause 1 of this article may only be carried out when:

(a) The dependently accounting affiliate of an enterprise satisfies all conditions for maintaining an independent cost accounting system;

(b) It does not cause difficulties or have adverse consequences on the production and business results of the enterprise or the remaining part of the enterprise.

Article 3. Forms of equitization of State owned companies

1. Maintaining the existing State owned capital in an enterprise and issuing shares in order to mobilize additional capital applicable to enterprises to be equitized which have a requirement to increase charter capital. The level of additional capital to be mobilized shall depend on the scale of the company undergoing equitization and its capital requirements. The structure of charter capital in a company undergoing equitization shall be set out in the equitization plan.

2. Selling part of the existing State owned capital in an enterprise, or combining the sale at discount of part of the existing State owned capital in the enterprise with issuing shares in order to mobilize additional capital.

3. Selling the whole part of the existing State owned capital in an enterprise, or combining the sale of the whole part of the existing State owned capital in the enterprise with issuing shares in order to mobilize additional capital.

Article 4. Who may purchase shares and conditions for purchasing

1. Economic organizations and social organizations operating pursuant to the law of Vietnam and individuals being Vietnamese residing in Vietnam (hereinafter all referred to as domestic investors) shall have the right to purchase an unlimited number of shares in an equitized enterprise.

2. Enterprises with foreign owned capital and foreign individuals lawfully operating in Vietnam and Vietnamese residing overseas (hereinafter all referred to as foreign investors) shall have the right to purchase shares in an equitized enterprise in accordance with the law of Vietnam.

Foreign investors wishing to purchase shares in an equitized enterprise must open an account at an organization providing payment services which is currently operating in the territory of Vietnam, and must comply with the law of Vietnam. All activities of purchasing and selling shares, receiving and using dividends and other income from investments in the purchase of shares must be conducted via that account.

Article 5. Both domestic investors and foreign investors must purchase shares in an equitized enterprise in Vietnamese dong.

Article 6. Equitization expenses

The expenses of conducting equitization shall be deducted from the existing State owned capital in the enterprise undergoing equitization. The contents and level of equitization expenses shall be implemented in accordance with guidelines issued by the Ministry of Finance.

Article 7. Shareholding, shares and founding shareholders

1. Charter capital divided into a number of equal parts is referred to as shareholding. The par value of each unit of shareholding shall be uniformly regulated at ten thousand (10,000) Vietnamese dong.

2. A share means a certificate issued by a shareholding company confirming the ownership of one or a number of shares of a shareholder who contributes capital to the company. Shares may be named or bearer shares but must contain all of the basic items stipulated in article 59 of the Law on Enterprises.

The Ministry of Finance shall provide guidelines on unified sample forms for shares in order for enterprises to print and manage them in accordance with regulations.

3. Founding shareholders of an equitized enterprise means shareholders who satisfy all of the following conditions:

(a) They participate in approving the first charter of the shareholding company;

(b) They together hold at least twenty (20) per cent of the number of ordinary shares which are freely transferable;

(c) They comply with the provisions of the charter of the company on ownership of a minimum number of shares.

The general meeting of shareholders shall decide the minimum number of shares which each founding shareholder must own, and the minimum number of founding shareholders, and these items shall be provided for in the charter of the company.

Article 8. Principles for inheritance of rights and obligations by a shareholding company after conversion from a State owned company

1. Equitized enterprises shall be responsible for restructure, for employing the maximum number of employees as at the time of equitization, and for resolving regimes for employees in accordance with current regulations.

A shareholding company shall be responsible to inherit all obligations in respect of employees from the converted State owned company; and shall have the right to select, arrange and employ employees and to co-ordinate with the relevant authorities in resolving regimes for employees in accordance with regulations.

2. A shareholding company shall be entitled, on its own initiative, to use the whole of the assets and capital funds which have been equitized in order to organize production and business; and shall inherit all interests, obligations and liabilities of the State owned company prior to equitization, and shall have other rights and obligations in accordance with law.

Chapter II

DEALING WITH FINANCES ON EQUITIZATION

Article 9. Responsibilities of enterprises undergoing equitization to deal with existing financial issues

An enterprise undergoing equitization shall be responsible, on its own initiative, to co-ordinate with the relevant agencies to deal in accordance with authority and in accordance with regulations with existing financial issues prior to valuing the enterprise to be equitized and throughout the equitization process. In cases of difficulties or in cases outside authority, the enterprise undergoing equitization must report to the competent agency for the latter's consideration and resolution.

Article 10. Dealing with leased or borrowed assets, assets received as joint venture capital contribution, joint assets, assets not required to be used and investments funded by the reward and welfare funds

1. Assets which an enterprise leases, borrows or receives as joint venture capital contribution, and joint assets and other assets which do not belong to the enterprise shall not be included in the value of the enterprise to be equitized. Prior to conversion to a shareholding company, an enterprise must liquidate contracts or agreements with owners of assets in order for the equitized company to inherit the previously-signed contracts or sign new ones.

2. With respect to assets of an enterprise which are not required to be used, idle stock and assets awaiting liquidation, the enterprise shall liquidate, transfer or sell them, or report to the competent agency to transfer them to another unit in accordance with current regulations. If these assets have not been dealt with by the time of valuation of the enterprise, they shall not be included in the value of the enterprise. During the equitization process the enterprise shall continue to deal with these assets, and if these assets have still not been dealt with by the time of the decision announcing the valuation of the enterprise then they shall be transferred to a company specializing in the purchase and sale of debts and idle stock for such company to realize in accordance with law.

3. With respect to assets belonging to welfare buildings such as kindergartens, nurseries, dispensaries and other welfare assets from investments funded by the reward and welfare funds, they shall be transferred to the shareholding company for management and use for the benefit of the labour collective of the enterprise.

In particular with respect to residences of staff and officials, including residences funded by the State budget, they shall be transferred to the local land and housing authority for management or sold to their current users in accordance with current regulations.

4. With respect to assets of the enterprise being investments funded by the reward and welfare funds and which the shareholding company continues to use for production and business, they shall be included in the value of the enterprise undergoing equitization and converted into shareholding to be divided amongst employees of the enterprise at the time of equitization in accordance with the actual period of work of each person at the enterprise.

Article 11. Debts receivable

1. An enterprise undergoing equitization shall be responsible to review, confirm and recover debts which are due and receivable prior to equitization. If, by the time of valuation of the enterprise, there are still arrears of bad debts, they shall be dealt with in accordance with current regulations of the State on dealing with arrears of bad debts.

2. By the time of the decision announcing the valuation of the enterprise, the enterprise undergoing equitization shall be responsible to transfer all irrecoverable debts which have been excluded from the valuation of the enterprise (together with files on the debts and other relevant data) to a company specializing in the purchase and sale of debts and idle stock from enterprises in order for such company to realize in accordance with law.

3. With respect to items paid in advance to suppliers of goods and services such as rent for housing or land, purchase price of goods and wages, these items must be reviewed and included in the value of the enterprise.

Article 12. Debts payable

1. An enterprise must mobilize funds to pay debts which mature prior to conducting equitization, or it must agree with creditors on the method of dealing with the debts or on the conversion thereof into shareholding capital contribution.

The conversion of debts into shareholding capital contribution shall be determined on the results of a share auction, or the enterprise and a creditor shall reach agreement in order to fix a price for participating in an auction.

2. If during the equitization process the enterprise is in difficulty regarding ability to pay overdue debts because business incurred losses, the debts shall be dealt with in accordance with current regulations of the State on dealing with arrears of bad debts.

Article 13. Reserves, losses or profits

1. Reserves for reduction of price of goods in stock, for bad debts, for reduction of value of securities, and for exchange rate differences shall be accounted for in the business results of the enterprise.

2. The enterprise undergoing equitization shall use reserves for retrenchment allowances to pay to employees who are retrenched during the equitization process, and if not so paid then such reserves shall be accounted for in the business results of the enterprise.

3. Reserves for risks and professional reserves within the banking and insurance systems or of financial organizations shall be transferred to the shareholding company to continue to manage.

4. The balance in financial reserves to cover losses (if any) and in financial reserves to cover damage to assets and irrecoverable debts shall be included in the value of the portion of State owned capital in the enterprise undergoing equitization.

5. The balance in reserves of profits generated in order to cover previous years' losses (if any) and in reserves to cover losses being assets not required to be used, assets awaiting liquidation, reduction in the value of assets, and debts which the enterprise does not have the ability to collect shall be distributed in accordance with current regulations prior to valuation of the enterprise to be equitized.

6. The enterprise undergoing equitization shall use financial reserves and pre-tax profits to cover losses calculated up until the time of equitization and conversion of the enterprise into a shareholding company. If the enterprise lacks [such reserves] then it shall take measures to write off its debts to the State budget, bank debts and debts to the Development Assistance Fund in accordance with current regulations of the State on dealing with arrears of bad debts.

If after applying all the above measures an enterprise still suffers a loss, the enterprise shall deduct the loss from the portion of State owned capital.

Article 14. Long-term investment capital in other enterprises such as joint venture capital contribution, associated ventures, shareholding capital contribution, capital contribution to establishment of limited liability companies and other forms of long-term investment

1. If the enterprise undergoing equitization inherited long-term investment capital which a State owned company invested in other enterprises, then the whole of such capital shall be included in the value of the enterprise undergoing equitization in accordance with the principles stipulated in article 20 of this Decree.

2. If the enterprise undergoing equitization does not inherit the long-term investments made in other enterprises, then the enterprise must report [such investments] to the competent agency to deal with them as follows:

(a) Reach agreement on sale of the investment capital to another partner/entity or to other investors;

(b) Transfer them to another enterprise to act as partner/entity.

Article 15. Cash balance in reward funds and welfare funds

Any cash balance in reward funds and welfare funds shall be distributed to the current workforce in the enterprise for the purpose of purchase of shares. Employees shall not be required to pay income tax on such item of income.

Chapter III

VALUATION OF AN ENTERPRISE TO BE EQUITIZED

Section 1. METHODS OF VALUATION OF AN ENTERPRISE

Article 16. When any State owned company undergoes equitization, it shall apply one of the following methods of valuation of the enterprise:

1. The asset method.

2. The discounted currency method.

3. Other methods.

The Ministry of Finance shall provide guidelines on valuation of an enterprise undergoing equitization in accordance with the above methods.

Section 2. VALUATION OF AN ENTERPRISE IN ACCORDANCE WITH THE ASSET METHOD

Article 17. Value of an enterprise undergoing equitization in accordance with the asset method

1. The actual value of an enterprise undergoing equitization shall be the total value of all existing assets of the enterprise at the time of equitization, including the profitability of the enterprise, as accepted by both the purchaser and the seller of shareholding.

The actual value of the portion of State owned capital in an enterprise shall be the actual value of the enterprise minus (-) debts payable, including balances in reward and welfare funds and balance in the professional funding source (if any).

In the case of equitization of the whole of a corporation for which the State made the decision on investment and establishment, the value of the portion of State owned capital in the whole of the corporation undergoing equitization shall be the actual value of the portion of State owned capital in the office of the corporation, in the member companies, and in the professional units belonging to the corporation (if any).

In the case of equitization of the whole of a corporation for which companies made their own [f on] investment and establishment, the value of the portion of State owned capital [in the whole of the corporation] undergoing equitization shall be the actual value of the portion of State owned capital in the parent company.

2. The following items shall not be included in the value of an enterprise undergoing equitization:

(a) Value of the assets stipulated in clauses 1, 2 and 3 of article 10 of this Decree;

(b) Debts receivable but which the enterprise does not have the ability to collect;

(c) Expenses of unfinished capital construction works in abeyance prior to the time of valuation of the enterprise;

(dd) Long-term investments in other enterprises stipulated in clause 2(b) of article 14 of this Decree.

Article 18. Bases for determining actual value of an enterprise

1. Data from books of account of the enterprise at the time of equitization.

2. Data on the inventory, classification and assessment of quality of assets of the enterprise at the time of equitization.

3. Market value of assets at the time of equitization.

Article 19. Value of land use rights and value of business advantages of enterprise

1. With respect to areas of land which the enterprise undergoing equitization is currently using as land for construction of its head office, transaction office and production and business establishment; or land for the purposes of agriculture, forestry, aquaculture and salt production (including land which has been allocated by the State with or without collection of land use fees), then the enterprise undergoing equitization shall be entitled to select the form of land lease or the form of land allocation pursuant to the Law on Land.

(a) If the enterprise undergoing equitization selects the form of land lease then the value of the land use right shall not be included in the value of the enterprise undergoing equitization;

(b) If the enterprise undergoing equitization selects the form of land allocation then the value of the land use right must be included in the value of the enterprise undergoing equitization. The value of a land use right which is included in the value of an enterprise undergoing equitization shall be the price stipulated by the people’s committee of the province or city under central authority, close to the actual market prices of assignment of land use rights and announced annually on 1 January in accordance with regulations of the Government. The order and procedures for land allocation, payment of land use fees, and issuance of certificates of land use right shall be implemented in accordance with the current law on land.

2. With respect to areas of land which the State has allocated to the enterprise for construction of residential housing for sale or lease, or for construction of infrastructure business for assignment or lease, the value of the land use right must be included in the value of the enterprise undergoing equitization. Such value of land use rights shall be determined in accordance with clause 1(b) of this article.

3. Business advantages of an enterprise shall comprise geographical position, the value of trade names, and the potential for development.

Value of business advantages of the enterprise shall be based on the ratio of after-tax profits over State owned capital in the enterprise prior to equitization and the pre-paid interest rate for long term Government bonds at the most recent date prior to the time of valuation of the enterprise.

Article 20. Determining value of long-term investment capital of the enterprise undergoing equitization in other enterprises

1. The value of the long-term investment capital of a State owned company in other enterprises shall be determined on the following bases:

(a) Value of the capital of the owner recorded in the most recent audited financial statements of the enterprise in which the State owned company made its investment;

(b) Investment capital ratio of the State owned company prior to equitization in other enterprises;

(c) Where the State owned company made its investment in foreign currency, when determining the investment capital it must be converted into Vietnamese dong at the average trading exchange rate on the inter-bank foreign exchange market as announced by the State Bank at the date of valuation.

2. If the value of the long-term investment capital of a State owned company in other enterprises is determined to be lower than the value in the books of account, then the value in the books of account shall be used as the basis for valuation of the enterprise to be equitized.

3. The value of the capital contribution of a State owned company in shareholding companies listed on the securities market shall be determined on the basis of the share trading price on the securities market at the time of valuation of the enterprise.

Section 3. VALUATION OF AN ENTERPRISE IN ACCORDANCE WITH THE DISCOUNTED CURRENCY METHOD

Article 21. Value of an enterprise in accordance with the discounted currency method

1. The actual value of the portion of State owned capital in an enterprise undergoing equitization shall be determined by the discounted currency method based on the ability of the enterprise to be profitable in the future.

Where the whole of a State owned company is valued by this method, the ability of the State owned company to be profitable shall be determined on the basis of the profit of the State owned company pursuant to provisions in the financial regulations of [such] State owned company.

Where the State owned company made capital investments in other enterprises, then the basis for valuation of the enterprise to be equitized shall be the profit brought in from such capital investments in other enterprises.

2. The actual value of the enterprise shall comprise the actual value of the portion of State owned capital, debts payable1, cash balances in reward and welfare funds and balance in the professional funding source (if any).

If the enterprise selects the form of land allocation then the value of the land use right must also be included in the value of the enterprise undergoing equitization in accordance with clause 1 of article 19 of this Decree.

Article 22. Bases for determination

1. Financial statements of the enterprise for the five consecutive years prior to the time of valuation of the enterprise.

2. Plan for production and business operations of the enterprise for from three to five years after conversion to a shareholding company.

3. Interest rate for long term Government bonds at the most recent date prior to the time of valuation of the enterprise and the discounted currency indicator of the enterprise being valued.

Section 4. HOLDING A VALUATION OF AN ENTERPRISE

Article 23. Methods of holding a valuation of an enterprise undergoing equitization

1. If an enterprise undergoing equitization has total asset value in its books of account of thirty (30) billion Vietnamese dong or more then valuation of the enterprise shall be conducted by an organization specializing in valuations such as an auditing company, a securities company, a price evaluation organization or an investment bank, either domestic or foreign, with the capacity to make the valuation (hereinafter referred to as a valuation organization).

The agency authorized to make the decision valuing the enterprise undergoing equitization shall select a valuation organization from the list announced by the Ministry of Finance.

If a foreign valuation organization not yet operating in Vietnam is selected, it must be approved by the Ministry of Finance.

When the valuation organization holds a valuation of an enterprise undergoing equitization, it must comply with current regulations and complete the valuation within the time schedule stipulated in the signed contract, and the valuation organization shall be liable for the accuracy and legality of the results of the valuation.

2. If an enterprise undergoing equitization has total asset value in its books of account of less than thirty (30) billion Vietnamese dong then it shall not be absolutely necessary to hire a valuation organization to value such enterprise, and in such a case the enterprise shall be permitted to conduct its own valuation and shall notify the result to the agency authorized to make the decision valuing the enterprise.

3. The file giving the valuation of the enterprise undergoing equitization must be forwarded to the Ministry of Finance and to the agency authorized to make the decision valuing the enterprise. The agency authorized to make the decision valuing the enterprise shall check the file prior to issuing its decision and announcing the valuation of the enterprise.

Article 24. Use of results of valuation of enterprise

The results of a valuation of an enterprise carried out in accordance with the provisions of this Decree shall be the basis for fixing the scale of charter capital, the structure of shares for the initial issue, and a price as the starting point for holding an auction to sell shares.

Article 25. Adjustment of value of an enterprise undergoing equitization

Up until the time when an enterprise officially converts into a shareholding company, the agency authorized to make the decision valuing the enterprise shall be responsible to inspect and deal with any financial issues arising between the time of the valuation and the time when the business registration certificate is issued to the shareholding company, in order to adjust the value of the portion of State owned capital in the enterprise.

The difference between the actual value of the portion of State owned capital in the enterprise at the time when the enterprise converts into a shareholding company and the actual value of the portion of State owned capital in the enterprise at the time of the valuation shall be dealt with as follows:

1. Where the difference is an increase:

(a) It shall be paid to the State owned corporation or to the independent State owned company when a member of such State owned corporation or a section of such independent State owned company is equitized, and shall be used in accordance with article 35 of this Decree.

(b) It shall be paid to the Assistance Fund for Restructure of Enterprises under the Ministry of Finance when the whole of an independent State owned company or the whole of a State owned corporation is equitized, and shall be used in accordance with article 35 of this Decree.

2. Where the difference is a decrease, the enterprise shall be responsible to report to the agency which made the decision on equitization in order for the latter to check and clarify the reasons, deal with liability to pay compensation for material loss (if such loss was due to subjective reasons), and the remaining difference shall be dealt with as follows:

(a) Money collected from equitization (including any difference in selling prices of shares) shall be used to cover the difference;

(b) If there is insufficient, then there shall be a reduction in the portion of State owned capital in the enterprise and the plan for share sales at incentive rates to employees of the enterprise, and at the same time there shall be an adjustment to the scale and structure of charter capital of the shareholding company;

(c) If after taking the action stipulated in sub-clauses (a) and (b) above there is still insufficient to cover the decrease, then:

- The agency which made the decision on equitization shall consider making a decision on conversion to the form of sale or bankruptcy of the enterprise (where business registration pursuant to the Law on Enterprises has not yet been conducted);

- The board of management shall convene an extraordinary general meeting of shareholders (in a case where business registration pursuant to the Law on Enterprises has already been conducted) in order to vote on:

+ Agreement to inheriting remaining losses so as to continue to operate;

+ Agreement to sell the enterprise on condition that the purchaser inherits debts and losses;

+ Declare bankruptcy and sell assets in order to pay debts.

- In the case of conversion to implementing a sale or bankruptcy, the enterprise shall be responsible to co-ordinate with the relevant authorities to return to all investors the money they paid to purchase shares, prior to paying any other creditors.

Chapter IV.

SALE OF SHARES, AND MANAGEMENT AND UTILIZATION OF PROCEEDS OF SALE OF PORTION OF STATE OWNED CAPITAL IN [EQUITIZED] ENTERPRISES

Section 1. INITIAL SALE OF SHARES

Article 26. Who may purchase initial shares

1. Employees of the enterprise.

2. Strategic investors being domestic investors such as producers and regular suppliers of raw materials to the enterprise; people who undertake to purchase the products of the enterprise on a long-term basis; people closely connected to the long-term strategic business interests [of the enterprise], with financial potential and management capability.

When an enterprise undergoing equitization formulates its equitization plan, such enterprise may select strategic investors and submit a list of them for approval to the agency which made the decision on equitization.

3. Other investors (including foreign investors).

Article 27. Initial share structure

1. Shares which the State shall hold.

2. Shares for sale at incentive rates for the employees of the enterprise as provided for in article 37 of this Decree.

3. Strategic investors shall be permitted to purchase a maximum of twenty (20) per cent of the number of shares for sale at incentive rates. The level of shares which may be sold to each strategic investor shall be implemented in accordance with the equitization plan approved by the agency which made the decision on equitization.

4. The initial shares to be sold at a publicly announced price to investors shall not be less than twenty (20) per cent of charter capital (including shares purchased additionally to incentive shares by strategic investors and employees of the enterprise).

Article 28. Selling price of initial shares

1. The selling price of incentive shares to employees of an enterprise shall be a reduction of forty (40) per cent compared to the average auction price.

2. The selling price of incentive shares to strategic investors shall be a reduction of twenty (20) per cent compared to the average auction price.

3. The selling price to entities prescribed in article 27.4 of this Decree shall be the successful auction bid of each such investor.

Article 29. Value of incentives to strategic investors and employees of an equitized enterprise

The total value of incentives to employees of an equitized enterprise and to strategic investors shall be taken from additional funding collected from share auctions, and if there is a deficiency then it shall be deducted from the portion of State owned capital in the equitized enterprise but shall not exceed the portion of State owned capital in the equitized enterprise after deducting shares held by the State and equitization expenses.

Article 30. Methods of holding initial share auction

1. Auction directly at the enterprise in the case of an enterprise undergoing equitization with a volume of shares for sale of one billion Vietnamese dong or less (the enterprise shall itself hold the share sale auction).

2. Auction at an intermediary financial organization in the case of an enterprise undergoing equitization with a volume of shares for sale above one billion Vietnamese dong.

In the case of an enterprise undergoing equitization with a volume of shares for sale above ten (10) billion Vietnamese dong, an auction shall be held at a Securities Trading Centre in order to attract investors.

The agency which made the decision on equitization of the State owned company shall make a selection in order to hire auctioneering organizations.

3. In the case of an enterprise in a remote area where there is no intermediary financial organization available to take on the sale of shares, the agency which made the decision on equitization shall reach agreement with the Ministry of Finance on a sale method.

Article 31. Order for holding initial share auction

1. At least twenty (20) days prior to the auction, the organization holding the auction (the enterprise, or an intermediary financial organization, or a Securities Trading Centre) must make a public announcement at the enterprise, at the place where the auction will be held, and on the mass media about the time, location, form of sale, conditions for participation, number of shares proposed to be sold and other issues relevant to the share auction.

2. The auction to other investors shall be held in accordance with the methods prescribed in article 30 of this Decree.

3. The average auction price shall be determined in order to calculate the incentive price for strategic investors and employees of the enterprise.

4. There shall be distribution and sale of shares to each strategic investor and employee of the enterprise.

5. The enterprise must complete the sale of shares within a time-limit of four months from the date of the decision approving the equitization plan. If the shares are not all sold, then the enterprise shall report to the agency authorized to make the decision on equitization in order for the latter to adjust the scale or structure of charter capital in the equitization plan and to implement conversion of the State owned company into a shareholding company.

Article 32. Business registration by the shareholding company

After completion of the sale of shares and after holding a general meeting of shareholders correctly in accordance with the Law on Enterprises, the equitized enterprise must conduct business registration pursuant to Decree No. 109-2004-ND-CP of the Government dated 2 April 2004 on business registration.

Article 33. Ensuring public notification and transparency of information, listing on the securities market

1. An equitized enterprise must provide publicly notified financial statements to its shareholders and to the administrative agency correctly in accordance with the Law on Enterprises and other laws.

2. The State shall have a preferential policy in favour of equitized enterprises which satisfy the conditions for immediate listing on the securities market.

Article 34. Management of portion of State owned capital in a shareholding company

1. The portion of State owned capital in a shareholding company shall be managed in accordance with the law on management of the portion of State owned capital invested in other enterprises.

2. In the case of equitized enterprises not in the category of those in which it is necessary for the State to be the controlling shareholder, then depending on the particular conditions, the agency representing the owner of the portion of State owned capital in the shareholding company shall have the right to make decisions to on-sell the State shares in the shareholding company in accordance with current law and the charter of the shareholding company.

Article 35. Management and utilization of proceeds from equitization of a State owned company

The proceeds which the State collects from equitization of a State owned company (comprising proceeds from the sale of the portion of State owned capital and the difference being an increase resulting from the auction of additionally issued shares in an equitized enterprise), after deducting equitization expenses shall be used for the following purposes:

1. To assist the equitized enterprise to implement the policies applicable to people who were employees at the time of equitization;

(a) To assist the enterprise to pay subsidies to employees who cease work or lose their job upon conversion of the State owned company into the shareholding company.

(b) To assist the enterprise to train employees of the equitized enterprise so as to assign them to new work in the shareholding company.

2. The remaining sum of money shall be managed and used as follows:

(a) In the case of equitization of a member of a State owned corporation or equitization of a section of an independent State owned company, then such State owned corporation or independent State owned company shall use the proceeds for business operations and to assist equitized enterprises to continue to resolve the issue of retrenched employees in accordance with article 36.8 of this Decree;

(b) In the case of equitization of the whole of an independent State owned company or the whole of a State owned corporation, the remaining sum of money shall be transferred to the Assistance Fund for Restructure of Enterprises at the Ministry of Finance for investment in companies in which it is necessary for the State to hold one hundred (100) per cent of capital but which lack capital, in shareholding companies in which the State is the controlling shareholder where the State capital in such equitized enterprise is insufficient to ensure the full number of State shares, and to assist equitized enterprises to continue to resolve the issue of retrenched employees in accordance with article 36.8 of this Decree. The remaining sum of money shall be invested in enterprises via the State Capital Business and Investment Corporation.

Chapter V

POLICIES APPLICABLE TO ENTERPRISES AND TO EMPLOYEES AFTER EQUITIZATION

Article 36. Incentives applicable to enterprises after they have been equitized

1. Incentives shall be applicable as in the case of newly-established enterprises in accordance with the provisions of the law on encouragement of investment, and equitized enterprises shall not be required to carry out procedures for issuance of a certificate of investment incentives.

Equitized enterprises which are listed on the securities market shall, in addition to the above- mentioned incentives, also be entitled to incentives in accordance with the provisions of the law on securities and the securities market.