ASEAN-JAPAN CENTRE Vietnam Equitisation

March 2017

Linh Bui – Partner Allens – Ho Chi Minh Branch

1. Overview of equitisation and strategic investors 2. Legal issues to consider Overview of Equitisation and Strategic Investors Equitisation shareholding structure

• State retention: The State may decide to retain 100%, more than 65% or 50% • External investors (including strategic & non-strategic investors):  Subject to State’s retention stake in each case, no general cap on the number of shares offered to strategic investors.

 Subject to decision of Prime Minister in special cases • Trade union: may acquire not more than 3% of the total charter capital. • Employees: Employees have the statutory right to acquire 100 shares per each year of service at 40% discount. Strategic investors

• Investors may purchase shares as strategic or non strategic investors:  Non-strategic investors: To purchase shares through the public auction  Strategic investors: To purchase shares through direct negotiation with the State before or after the public auction (close auction among potential strategic investors may be conducted, if necessary) • General requirements for strategic investors:  having sufficient financial capacity;  undertaking to stay closely connected with the long-term interests of the target company;  assisting the target company to improve its management and operation; and  not to transfer its shares for 5 years after equitisation. • Number: maximum of 3 strategic investors Equitisation process General process (without strategic investors)

The Prime The relevant Valuation Declaration of the Verification and IPO GMS/ Minister’s Minister/ (asset method value of the approval of the (public Charter/ New ERC decision on Chairman of or DCF) by target company detailed equitisation auction) equitisation of provincial independent plan the target People’s valuer(s) company Committee to set up the 6/9 months for asset Steering method/DCP Committee 18 months Equitisation process

General process (with strategic investors) Strategic shareholders Shortlist to register the Negotiation Negotiation strategic purchase or auction or auction investors and volume and amongst the amongst the DD starts make 10% strategic strategic Invitation to and registration of deposit investors investors strategic investors

The Prime The relevant Valuation Declaration Verification IPO GMS/ Minister’s Minister/ (asset of the value and approval (public Charter/ decision on Chairman of method or of the target of the detailed auction) New ERC equitisation of provincial DCF) by company equitisation plan and the the target People’s independent list of company Committee to valuer(s) strategic set up the shareholders Steering Committee PV OIL CASE Preliminary legal issues Valuation

• Valuation is an extremely important step • External investors, including foreign strategic investors, may have limited ability to negotiate on the valuation process. • Valuers: • External valuers selected and appointed from the MOF’s list of 66 qualified local entities. • Lack of international valuers - low value work and high professional liability. • International valuers can partner with local valuers. • International valuers may provide valuation services but disclaim from equitisation process. • Methods: • Assets valuation; • DCF; or • Other suitable and commonly used international valuation approach. Percentage of shares to be sold to strategic investors

• Previous regulations: The percentage of shares sold to strategic investors was capped at 50% of the total shares to be sold to external investors. The ratio may be adjusted in certain special cases with approval from the Prime Minister. • Current regulations:  The 50% cap is no longer applied.  The ratio is now subject to the approved equitisation plan and, in certain special cases, subject to Prime Minister’s decision. • Practice: In practice, the ratio of shares earmarked to be sold to one or more strategic investors usually ranges from 10% to 35% For example: Mizuho Corporate Bank holding 15% in Vietcombank, ANA Holdings Inc holding 8.77% in Vietnam Airlines, the Bank of Tokyo-Mitsubishi UFJ, Ltd holding 19.73% in Vietinbank Post-equitisation management control • Strategic investors may not be able to acquire the level of shares enough to have some degree of control in the management of the company following its equitisation.

Approval Matters thresholds Special Majority • Classes of shares and total number of shares of each class, including any increase or (65%) decrease in the charter capital; • Change in business lines; • Change in the organizational and management structure; • Investment projects or sale of assets equal to or more than 35% of the total value of assets; and • Reorganization or dissolution **Can block all special majority decisions with 35% + 1 share Simple Majority • Other matters (51%) **Can block all simple majority decisions with 49% + 1 share • Shareholders may enter into agreements/shareholders’ agreement to agree on management and control of the company. Pricing

Strategic investors can buy before or after IPO:

• Before IPO: Strategic investor’s price must be higher than the starting price (ie. the price determined by the Government based on the valuation results and prospects of the SOE)

• After IPO: Strategic investor’s price must be higher than the IPO minimum price (ie. the cut-off price determining successful bids at the IPO) Timing

• Equitisation processes are usually lengthy (especially in cases of large scale of State capital, international presences, foreign ownership restrictions or anti-trust issues). • This means:

• Company status (including value) at time of decision to invest and the time of closing may be different;

• Loss of investment opportunities during the pending time (especially after deposit has been made). Contacts

Linh Bui Bill Magennis Partner, Ho Chi Minh City Head of Vietnam, Hanoi T +84 8 3822 1717 T +84 4 3936 0990 [email protected] [email protected] Allens is an independent partnership operating in alliance with Linklaters LLP.