Divestment and equitisation become more and more difficult

22-Sep-2018 Intellasia | Dau tu Chung khoan | 6:00 AM Print This Post

Many new regulations in recently released documents, according to lawyers and foreign investors, make the process of divestment and equitisation become more difficult.

It’s hard to find strategic investors

At the seminar “What businesses need to do to attract strategic investors through mergers and acquisitions (M&A)” held by State Capital Investment Corporation (SCIC) at the end of last week, attorney Sung Mee Hong, M&A Lawyer at Lee & Ko Law Firm (Korea) commented that:

According to Decree No. 126/2017/ND-CP on transformation of State-owned enterprises (SOEs) and one-member limited liability companies 100 percent owned by SOEs into joint-stock companies, the deposit from strategic investors increase from 10 percent to 20 percent of the total value of shares registered under the equitisation regulations, which is too high compared to most international M&A transactions.

As per the regulation, if there are two or more strategic investors and they register to buy more than the number of shares proposed for sale to strategic investors in the approved equitisation plan, the sale of shares will be made through auctions on the stock exchanges.

This will, according to lawyer Sung Mee Hong, make it difficult for strategic investors to negotiate their rights and there will be no appraisal process that will hinder potential investors when they consider participating in the bidding process.

Also, according to Decree 126/2017, only the companies in which the State continues to hold more than 50 percent of chartered capital (after equitisation) are entitled to offer their shares to strategic investors and at least 20 percent of shares in an equitised SOE must be sold publicly; and one strategic investor cannot hold more than 30 percent of shares.

“This is a too low shareholding portion. Most Korean strategic investors, especially strategic investors operating in the same industry, are eager to gain majority shareholder rights,” said attorney Sung Mee Hong, added that

“Decree 126/2017 seems to exclude financial investors from the investment when requiring strategic investors to be profitable for at least two years and have plans to support the equitised company with new technologies transfer, human resources training, financial and management capability enhancement, etc.”

Vu Quang Thinh, general director of Dynam Capital said that to process an M&A deal, the cost is very expensive with hundred thousand of US dollars to hire attorney, auditor, and M&A advisory which costs from 2-8 percent of transaction value

“So, the real price to buy one share is not cheap, and it’s not easy for foreign investors to conclude on a deal. They normally review, discuss, and evaluate the business very thoroughly,” said Thinh.

Businesses when the State divest

While the regulations are tight and difficult for the process of seeking for large investors, the companies themselves are not ready for the divestment and equitisation. This was exhibited quite clearly in the conference on the representation of State capital in enterprises by SCIC held last week in Da Nang.

Doan Duy Khuong, Acting general director of Hau Giang Pharmaceutical Joint Stock Company, said that SCIC has made significant contributions to the development of the company. The modern management system that Hau Giang Pharmacy has applied is a great contribution of SCIC in initiating the ideas, implementing and developing.

According to Khuong, in the first phase of implementing the new strategy, Hau Giang Pharmaceutical needs stability. Therefore, Hau Giang Pharmaceutical is looking forward to extending the time of capital withdrawal process so that SCIC can continue to accompany with the firm.

In case of divestment, it is proposed that “SCIC supports the company to find appropriate partners that support the company’s strategy in medium and long-terms, so that the company will continue to develop in the right direction, being one of the top companies of Vietnam “.

In fact, it appears that foreign partners purchasing shares of businesses and convert the businesses into tools for them, resulting in the brand not being able to develop.

Le Van Thanh, general director of Bao Minh Joint Stock Company said that the State’s divestment of Bao Minh has made staffs worried about the future of the company.

“The staffs are very much worried, cannot concentrate on work, and hope that SCIC will provide more specific guidance,” Thanh said.

Le Hoang, Chair of the Board of directors of Vietnam Plastics Corporation, said the company is on the list that SCIC divest all its capital, therefore, the staffs concern and worry a lot.

“There was a time when the company was in a very difficult situation, being vague about the future. Sometimes, no one follows the directions of the Board of directors. The representative also has concerns and wants to resign from the work.

The leaders had to meet with employees and thoroughly deliver the message that the purpose of State divestment and equitisation is to allow the companies to operate more effectively, if not being hired by the new owner, the employees must accept. At present, workers basically calm down,” Hoang said.

According to Nguyen Duc Chi, Chair of SCIC’s Board of directors, the companies want SCIC to maintain long-term capital in the companies to comfort the representatives and employees, but SCIC must follow the government’s policy to divest from unnecessary segments.

According to Chi, in order not to be affected when the SCIC divest, the representative needs to become a professional.

The State or any other owner both needs a professional representative who always creates high value and effectiveness for the company. SCIC President also emphasized that the representative himself has to improve his skills and capacity to adapt to changes in the business.

Taste of “shark” investors

Commenting on taste of large investors on the divestment portfolio of SCIS, Le Thanh Tuan, Head of Investment Committee 4 (SCIC), said the companies owned more than 25 percent by SCIS are normally mergers and acquisitions (M&A) target of investors, since having this shareholding portion, the investors’ decisions can largely impact the strategies and capital raising direction of the companies.

In addition, those with a large market share are more likely to find investors.

For small businesses, according to Tuan, the interested ones are mainly financial investors, since they target on the assets of the business including land and real estates.

For businesses purchasing land use rights, the selling price may be much higher than the starting price with the expectation of being able to invest in that area.

Kim Lien Hotel, for example, had a starting price of 30,600 dong/share, but the successful price was up to 274,200 dong/share. Similarly, each share of Cultural Products Import and Export Joint Stock Company had a starting price of 13,000 dong, but the successful sale price was 255,000 dong/share.

“The factor that makes a business an attractive M&A target is either very good or very bad, for instance, the enterprise has a production advantage, but the potential is below the average; or the company has not gone public and has large debt, etc.,” said Le Thanh Tuan.


Category: Economy, Vietnam

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