Circular No. 80/2002/TT-BTC dated September 12, 2002 of the Ministry of Finance guiding the issuance underwriting and auction of equitized state enterprises shares to the outside

CIRCULAR

GUIDING THE ISSUANCE UNDERWRITING AND AUCTION OF EQUITIZED STATE ENTERPRISES SHARES TO THE OUTSIDE

In furtherance of the Government’s Decree No. 64/2002/ND-CP of June 19, 2002 on transforming State enterprises into joint-stock companies, the Ministry of Finance hereby guides the procedures and method of selling the equitized State enterprises shares to the outside in the form of auction or issuance underwriting as follows:

Part I

GENERAL PROVISIONS

1. Scope and subjects of application

When selling shares for the first time to the outside

2. The words and phrases referred to in this Circular are construed as follows:

2.1. Share auction is the form of public sale of shares of equitized State enterprises to the outside subjects with competitive prices.

2.2. Issuance underwriting (in case of first-time sale of shares of equitized State enterprises) means an act whereby the underwriting organizations guarantee the implementation of the plans on the sale of shares of equitized State enterprises to the outside subjects in the form of auction. If shares cannot be sold out, the underwriting organizations must buy up the quantities of unsold shares at the reserve price.

2.3. An underwriting organization may be a single intermediary financial institution or a group of intermediary financial institutions coordinating with one another so as to meet all conditions for underwriting the share issuance for enterprises according to the provisions of the legislation on securities and securities market.

2.4. Organizations that conduct the auction of shares are equitized enterprises or intermediary financial institutions selected by the equitization-deciding agencies to conduct the auction of shares of first-time issuance of equitized enterprises to the outside subjects.

2.5. Intermediary financial institutions that may participate in performing underwriting operation or organizing the auction of shares are securities companies, financial companies, commercial banks and other credit and financial institutions.

2.6. Auction participants are economic organizations and individuals inside and outside the country as prescribed by law.

2.7. Deposits are sums of money advanced by auction participants to secure their right to participate in auctions.

2.8. The reserve price is the initial price level of a share offered for sale to the outside subjects set by the auction councils for holding the auctions, which, however, must not be lower than the floor price.

2.9. The floor price of a share is determined to be Vietnam dong 100,000.

3.Expenses for auction and issuance-underwriting activities shall be agreed upon by the equitized enterprises and the auction-conducting agencies or underwriting organizations, which, however, must not exceed the limit of equitization expenditure the State

Part II

SPECIFIC PROVISIONS

1. The auction of shares issued for the first time to the subjects outside the equitized enterprises shall be conducted through intermediary financial institutions or by the enterprises themselves (if they are so assigned by the equitization-deciding agencies), and must ensure publicity, transparency, equality and protect the rights and legitimate interests of the involved parties.

2. The auction councils.

2.1. The auction councils shall be set up by the equitization-deciding agencies to guide and oversee the share-auction activities.

2.2. The composition of an auction council is determined as follows:

- The director or authorized person of the intermediary financial institution assigned to auction shares, as the auction council’s chairman.

- The representative of the agency that has decided to equitize the enterprise.

- The representative of the corporation or company (if the member unit or enterprise’s section is equitized).

- The representative of the enterprise finance agency of the same level.

- The representative of the equitized enterprise.

- The director of the equitized enterprise or the person authorized by the director, as the auction council’s chairman.

- The representative of the agency that has decided to equitize the enterprise.

- The representative of the enterprise finance agency of the same level.

- The representative of the parent company or corporation (if any).

2.3. Responsibilities and powers of the auction councils:

3. Responsibilities of the share auction-conducting organizations

3.1. To coordinate with the concerned agencies in setting up the auction councils under the provisions at Point 2, Part II of this Circular.

3.2. To draft the share-auction regulations and submit them to the auction council for promulgation.

3.3. To formulate and propose the reserve price and report it to the auction councils for decision and official publicization.

3.4. To post up information on the auction of shares of the equitized enterprises at the auction places or at the head offices of the equitized enterprises and publish such information on five consecutive issues of a central daily and a newspaper of the locality where the equitized enterprises are headquartered at least 30 days before the auction is organized.

3.5. To examine the auction participation conditions, notify the individuals and legal persons of their eligibility and organize their registration to participate in the auction.

3.6. To conduct the auction and sell shares according to the auction results.

3.7. To reimburse the deposits to the auction participants that fail to win the auction.

3.8. To carry out other activities related to the share auction or issuance underwriting.

4. Essential information on share auctions which must be posted up and publicly announced includes:

4.1. The name and address of the equitized enterprise.

4.2. The quantity of shares for auction.

4.3. The enterprise’s essential economic and financial information in the three years prior to its equitization (including matters related to its products and business lines, outlets, labor skills) and the production and business plan for three subsequent years.

4.4. Time and venue of the auction.

4.5. The name and address of the auction-conducting agency.

4.6. Auction participation conditions.

4.7. Deadline and mode of submission of applications to register for auction participation.

4.8. The date, time and place for auction participation registration.

4.9. The initial offer price of the auction (the reserve price).

4.10 Payment mode.

5. Auction participation conditions

5.1 Economic organizations and individuals that fully meet the following conditions may participate in an auction:

a/ Having the legal person or natural entity status, specific and clear addresses; if the legal person’s representative is not the unit’s head, he/she must have an authorization letter; individuals must have people’s identity cards, valid identity papers or be guaranteed by persons with full civil rights.

For foreign organizations and individuals, they must open accounts at payment service-providing organizations currently operating in Vietnam and abide by the laws of Vietnam.

5.2. The following subjects shall not be allowed to participate in auction:

6. Registration to participate in auction

Three days before the share auction takes place, the auction-conducting organizations must complete the procedures for participation registration and payment of deposits, and issue auction participation cards to organizations and individuals whose applications for auction participation have been accepted.

Auction participation cards shall be ordinally numbered, clearly inscribed with the names of the participating units or individuals, the quantities of shares registered to buy, the deposited sums of money, and affixed with the seal of the auction-conducting organization.

7. Conducting auction

7.1. Before the auction starts, the auction-conducting organizations must report to the auction councils on the conditions for conducting the auction and the list of organizations and individuals eligible to participate in the auction.

7.2. An auction shall be considered having fully satisfied the conditions for being conducted if it is

The parties which have registered to participate in the auction but do not directly participate or do not participate in the auction in the absentia form as stated above shall not be reimbursed their deposits.

7.3. Where only less than two eligible persons participate in the auction, the auction council shall declare that the auction has failed, reimburse deposits to the parties having registered and participated in the auction. It shall have to consider and reduce the reserve price so as to re-organize the auction within 15 days after the date of announcement of the auction’s failure.

Where the reserve price has been adjusted to be equal to the floor price but the auction still fails:

- If the equitized enterprises apply the issuance-underwriting form, the underwriting organizations must buy all shares at the reserve price and enjoy the deposits for this quantity of shares.

- If the equitized enterprises do not apply the issuance-underwriting form, the auction councils shall have to report such to the equitization-deciding agencies for consideration and decision to adjust the value of the equitized enterprise and permit the auction re-organization. The auction must be re-organized within 30 days after the date of receipt of the decision permitting the auction re-organization.

If, at the second auction, the expected quantity of shares cannot be sold out, the auction council shall report such to the equitization-deciding agency for consideration and decision to reduce the charter capital in the equitization plan (for cases where new shares are additionally issued) or increase the State capital in the structure of the charter capital so as to continue implementing the plan on transforming the State enterprise into a joint-stock company.

7.4. At the beginning of the auction, the chairman of the auction council or his/her authorized person shall announce essential information on the auction such as:

- The name of be-equitized enterprise, the expected charter capital and quantity of shares to be sold to the outside.

- The reserve price of shares offered for sale and acts regarded as violations of auction regulations and, therefore, the violators shall be excluded from the auction and their deposits shall not be reimbursed.

- Steps of the auction process and principles for determining the right to buy shares by auction.

- Answering the auction

7.5. The share auction shall be conducted in form of secret bid casting. The auction participants shall record their expected buying prices of the already registered quantities of shares in the auction participation cards and take them to the auction council for examination and approval.

8. Determination of the selling price and announcement of the auction results:

8.1. The results of the share auction shall be determined on the following principles:

a/ Those who offer high prices shall have the priority to buy shares on the basis of the quantities of shares they have registered to buy and the quantity of shares offered for sale. Where the person who offers the highest price has registered to buy a quantity of shares lower than the quantity of shares offered for sale, the remaining quantity of shares (after the sale to the highest price offeror has been approved) shall be considered and sold to the offeror of the second highest price. If there are still some shares, they shall be sold out on the above principle.

For example:

The total number of shares sold to the outside of the enterprise is 20,000 and equal to 20% of its charter capital. The reserve price fixed by the auction council is VND 102,000/share.

* The prices offered by the auction participants are below:

- Legal person A has registered to buy 10,000 shares at the price of VND 110,000/share.

- Individual B has registered to buy 3,000 shares at the price of VND 125,000/share.

- Individual C has registered to buy 4,000 shares at the price of VND 115,000/share.

- Legal person D has registered to buy 8,000 shares at the price of VND 107,000/share.

- Individual E has registered to buy 4,000 shares at the price of VND 103,000/share.

- Individual G has registered to buy 1,000 shares at the price of VND 102,000/share.

* The auction result is determined as follows:

- Individual B is eligible to buy 3,000 shares at the price of VND 125,000/share

- Individual C is eligible to buy 4,000 shares at the price of VND 115, 000/share

- Legal person A is eligible to buy 10,000 shares at the price of VND 110,000/share

- Legal person D is eligible to buy 3,000 shares at the price of VND 107,000/share

* As a result, 4,000 shares which individual E has registered to buy at the price of VND 103,000/share; 1,000 shares which individual G has registered to buy at the price of VND 102,000/share and 5,000 out of a total of 8,000 shares which individual D has registered to buy at the price of VND 107,000/share were not accepted buy the seller.

c/ Where the auction participants have the same potentials and offer the equal prices but the quantity of shares offered for sale is smaller than the aggregate quantity of shares they have registered to buy, these auction participants right to buy shares shall be determined on the basis of the total quantity of shares offered for sale and the proportion of the quantity of shares registered by each participant to the aggregate quantity of shares registered by all participants.

8.2. All cases of offering prices lower than the reserve price shall be regarded invalid and excluded from the auction.

8.3. The auction results must be inscribed in the share auction reports signed by all members of the auction council. A share auction report must be made in at least three copies and kept at the agency competent to decide on the equitization, the auction-conducting organization and the equitized enterprise.

8.4. The auction councils shall have to publicly announce the share auction results at the end of the auctions.

9. On the basis of the auction results, the auction-conducting organizations and the concerned parties shall have to complete the share purchase and sale within 10 (working) days after the date of announcement of the auction results.

The share purchase and sale shall be Vietnam dong. Where shares are purchased in foreign currencies, such foreign currencies must be converted into Vietnam dong at the average transaction exchange rate on the inter-bank foreign currency market, announced by the State Bank of Vietnam at the time of auction. Payment can be made directly at the head offices of the auction-conducting organizations or via bank transfer according to the regulations of these organizations.

10. Where the auction participants do not buy all the quantities of shares they are entitled to buy according to the auction results, they shall not be entitled to get back the deposited amounts corresponding to the share quantities they refuse to buy. These share quantities shall be considered and decided to be sold to the offerors of the immediate lower prices who have the demand to buy.

Where all auction participants have no demand to buy more shares, the remaining quantity of shares shall be handled as follows:

b/ If the equitized enterprises do not apply the issuance-underwriting form, the auction councils shall report such to the equitization-deciding agencies for consideration and decision to permit the auction re-organization or to adjust the structure of the charter capital.

11. The share auction-conducting organizations shall not have to bear responsibility for the value of shares at auction, except where they fail to supply fully and accurately necessary information on the to be-auctioned shares to the auction participants.

Within 5 days after purchasing the auctioned shares, the purchasers shall be entitled to return such shares to the sellers and request the auction-conducting organizations to pay compensations if the information of the share-auctioning enterprises is untrue to what has been notified.

12. Deposit management:

- For the auction participants that are not entitled to buy shares, within 5 days (after the close of the auction) the auction-conducting organizations shall have to reimburse their deposits.

- For organizations and individuals entitled to buy shares according to the auction results, their deposits shall be deducted from the total payable sums corresponding to the quantities of shares they are eligible to buy through auction.

- For the deposits which shall not have to be reimbursed under the provisions at Item 7.2, Point 7 and Point 10 of this Circular, they shall be handled as follows:

+ In case of issuance underwriting, the underwriting organizations shall enjoy the deposited amounts corresponding to the remaining quantity of shares they are obliged to buy.

+ In other cases, the auction-conducting organizations shall have to remit the deposits into the enterprise re-organization fund of the same level.

Part III

ORGANIZATION OF IMPLEMENTATION

This Circular takes effect as from the date of its signing.

Should any problems arise in the course of implementation, the ministries, branches, localities and enterprises are requested to report them to the Ministry of Finance for study and settlement.