Asset revision to clarify FIE bourse entry

For those companies where there is a new issue of shares on conversion, Article 3 of the draft states that their value will include all tangible assets, debts, creditors, intangible

assets, capital contributions to other projects and the value of land use rights.
The circular, devised by the Ministries of

Planning and Investment (MPI) and Finance, provides detailed regulations for the implementation of Decree 38, dated April

2003, on the conversion of a number of foreign-invested enterprises into shareholding companies.
Article 3 of the draft

addresses what is perceived as a major problem for businesses preparing for conversion: how to define their value under Decree

38.
However, controversy still surrounds evaluation issues, especially for joint ventures where local partners contribute capital

via land use rights.
Under Decree 38, the value of land use rights shall be intact on conversion, meaning the ratio of shares held

by the two parties should reflect the ratio of legal capital contribution as stipulated in the investment licences. Representatives of

Vietnam-Korean Exchange, a joint venture specialising in the installation of switching systems, have said the new rule could

prove unfair to new investors, since the value of land use rights had been exaggerated in some joint ventures.
A senior partner

with PricewaterhouseCoopers Vietnam, Ian Lydall, said the MPI should clearly state that the government’s intention is for

normal market forces to apply in the determination of the prices at which shares will be bought and sold. The draft circular also

regulates the categories of projects which would not be selected for conversion in the first year of Decree 38.
These include

projects which have registered capital of more than $100 million, projects which have committed to transferring their assets

without any compensation after the expiry of their investment licence, projects implementing BT, BTO or BOT contracts, or

projects receiving pre-receipts.
According to the MPI, 20 to 25 foreign-invested enterprises would be selected for pilot

conversion, with applications to be submitted before May 5, 2004.
Within 30 days of receiving submissions, the MPI is to




lodge them with the prime minister, although the draft circular does not specify a period in which the prime minister must

evaluate the applications.
For those businesses whose conversion plans are approved, the circular requires them to proceed

with their conversion within six months of receiving written approval from the ministry and to send written reports to the MPI in

order for new licences to be issued.
The draft circular also specifies that after conversion enterprises will be obligated to

contribute corporate income tax and operate under the other rights and responsibilities put forward under the Law on Foreign

Investment and their investment licence.
In the case of conversion, including the transfer of part of the enterprise’s value to new

shareholders, any profit shall be subject to corporate income tax as specified in Decree 24 on implementing the regulations of the

Law on Foreign Investment.
Foreign investors have called for changes to either Decree 38 or Decision 146 (which caps the

foreign stakes in listed firms at 30 per cent), as under Decree 38 founding shareholders keep at least 30 per cent of the

chartered capital of the shareholding company.
The draft circular also does not specify whether foreign founding shareholders

can hold preference shares or are limited to ordinary shares, an issue of some concern to investors like Ian Lyndall.
MPI

representatives have stated that amongst the first companies to be selected for conversion will be Singapore’s Fortuna hotel, the

French Bourbon group’s $113-million sugar plant, Australian-backed Vinausteel, Ajinomoto, Scavi Vietnam, Mayfair Hanoi,

Dalat Hasfarm and Vina Tafong.