New decree streamlines equitisation

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The Decree 59/2011/ND-CP, introduced last week to replace the Decree 109/2007/ND-CP on the conversion of state-owned enterprises (SOEs) into shareholding companies, will take effect on September 5, 2011.

Nguyen Duy Long, head of the Ministry of Finance’s (MoF) Department for Enterprises Development, said the new decree’s key aspect was its regulation on selling stakes to strategic investors.

The Decree 59 widens a mechanism to rubber-stamp SOE stake sales to strategic shareholders before an initial public offerings (IPO). The sale must be agreed or auctioned among strategic investors and not be lower than the approved initial price.

If enterprises sell stakes to strategic investors after an IPO, the Decree 59 stipulates that the selling price must not be lower than the lowest  IPO price.

Under the Decree 109, strategic investors could buy up shares at a price not lower than the average  IPO price. This rule hampered the efforts of some enterprises to equitise because their average IPO price was too high.

In addition, Long said the new decree also regulated that each enterprise would not be allowed to have more than three strategic investors  and the time for these investors to hold their stake would be five years instead of three years as regulated in the Decree 109.

The new decree also allows enterprises to morph into a shareholding company if their IPOs do not result in a full sell-off.

Shareholders can pass a resolution at the first post-IPO meeting making the enterprise sell off the remaining stakes to ensure stakeholders’ rights.

“This aims to overcome the current slow pace of equitisation. Under the current regulations, if the stakes sold does not account for over  30 per cent of the total offered stakes, enterprises have to hold an additional auction to possibly be allowed to converse into shareholding companies,” said Long.

The new decree also regulates that based on charter capital and business sectors, the Steering Committee for Equitisation of companies  would ask competent authorities for approval of equitisation plans and initial stakes sold to strategic investors.

Another new point is a specific regulation for large-scale SOEs with state capital of VND500 billion ($24 million), operating in some specific sectors such as insurance, banking, and parent companies of economic groups.

If these enterprises choose strategic investors before IPOs, competent authorities must approve the equitisation plans and report to the prime minister to select strategic investors, selling method and size of the stakes to be sold.