Decree to shed light on SOE values

A new draft decree on conversion of state-owned enterprises into shareholding companies is expected to answer state-owned enterprise valuation questions.

The Ministry of Finance (MoF) has released the latest draft to replace Decree 109/2007/ND-CP on conversion of state-owned enterprises (SOEs) into shareholding companies.

Nguyen Duy Long, head of the enterprise reform, restructuring and development division at the MoF’s Business Finance Department, said the draft was likely to be approved this month.

Accordingly, geographical position advantage values will be excluded from the evaluation process.

Formerly, under Decree 109, a firm’s geographical position, the value of trade names and its potential for development were valued as business advantages.

The value of geographical position advantages was the difference between the market land prices and the prices announced by provincial people’s committees on January 1 of the year of the enterprise’s valuation

“This new regulation will address entanglements in determining the value of equitised SOEs which will step up the conversion progress of SOEs into joint stock companies,” said Long.

Long said in the past, the difference between the land price of the provincial people’s committee and the actual market price of the land use rights transfer had to be included to evaluate an enterprise’s value.

However, now when the land price of the provincial and municipal people’s committee was adjusted close to the actual market price under the new land price framework effective from January 1, 2011, there were no remarkable differences. Therefore, it was not necessary count geographical position values.

According to a National Assembly’s Standing Committee report, defining the value of geographical position advantages was considered the main reason for SOEs’ slow equitisation. The report said that it was difficult for enterprises to determine the value of geographical position advantages because there were no criteria to define “normal conditions”.

On the other hand, the actual market land price was often much higher than the price frame of provincial-municipal authorities.

“Therefore, if the difference between them was accounted for in enterprises’ value, it would be very difficult for the enterprises to attract investors,” said the report.

Another new draft decree point is that enterprises will be allowed to sell stakes to strategic investors before making an initial public offerings (IPO,) which will help enterprises find strategic investors.

Under Decree 109, strategic investors are entitled to purchase shares at a price not less than the average winning IPO price. This rule is a barrier to some big enterprises’ endeavors to find strategic investors as their average winning IPO price is too high.

Tags: Vietnam companies, Vietnam stock news