Equitised Enterprise Evaluation: Let Buyers Decide

Equitised Enterprise Evaluation: Let Buyers Decide

Interview with Le Hoang Hai, head of the Equitisation Bureau under the Corporate Finance Department of the Ministry of Finance.

Which method has been applied to evaluate enterprises before they are equitised?

According to the existing regulations, there are three methods for enterprise evaluation. The first method is based on enterprises’ existing assets. The second method is based on profitability of enterprises (or their cash flow discount). The third is based on the auction of enterprises’ shares (in combination with the stock market). In the past, a council was in charge of evaluating enterprises that did not take part in the stock market. However, now the State encourages enterprises to list on the stock market and their shares must be auctioned for the buyers to decide based on minimum floor prices. Unprofitable enterprises cannot be floated on the stock market, so the State should consider the selling and leasing of these enterprises.  

Will small-sized enterprises with a total asset value of less than VND20 billion (US$1.273 million) be allowed to evaluate themselves?

We have planned to adjust our enterprise evaluation method by evaluating enterprises via auditing and securities firms, price evaluation centres and eligible domestic and foreign price evaluation organisations in Vietnam. This, I think, will increase objectiveness, transparency and professionalism in enterprise evaluation. This will also increase the responsibility of agencies that analyse equitisation to evaluate, appraise and announce the value of enterprises before they are equitised (without a need of auction). Accordingly, small-sized enterprises with total asset value of less than VND20 billion can evaluate themselves without having to hire an evaluating organisation.

In the past, the value of land was not included in the value of enterprises, making it difficult for enterprises when they are equitised. Will the value of land now be included into the value of enterprises?

Even though, I think that the addition of the value of land to the value of enterprises before they are equitised when enterprises are allocated with land or volunteer to choose land allocation methods during the equitisation.  Accordingly, the value of long-term investment in other enterprises (including the value of land and assets contributed to joint ventures with foreign partners) will be identified no lower than the value of contributed capital in the accounting book. This will help ensure that the evaluation result will be close to the market price and the real value of enterprises.

Is the adjustment of a mechanism for selling shares of equitised enterprise in combination with the stock market aimed at getting rid of internal equitisation and shortcomings during enterprise evaluation?

The new adjustment stipulates that enterprises must sell at least 20 per cent of their charter capital to people outside enterprises via auctions. Enterprises must sell 20 per cent of their shares to strategic investors. They will have to organise open auctions for their initial public offering (IPO) at their offices, or intermediary financial organisations or the securities trading centre. The mechanism has also been added to help equitised enterprises to attract strategic investors. Another new feature is the mechanism for the management of the State’s capital in enterprises after they are equitised. Accordingly, representatives of the owner are allowed to decide to further sell the State’s share.

With such amendments, what are the new features of Decree 64/CP on arranging and converting joint stock companies?

We are amending and gathering inputs and comments of enterprises on the Decree. I think that the amendment must respect market rules and price fluctuations and buyers should be allowed to decide the value and not the State. Our aim when we draft the Decree is to combine our evaluation with the market so that investors have fairer option opportunities. Furthermore, when the equitisation range is expanded, equitised enterprises will be able to sell off more of the State’s shares.