CIRCULAR

PROVIDING GUIDELINES FOR IMPLEMENTATION OF DECREE 187-2004-ND-CP OF THE GOVERNMENT DATED 16 NOVEMBER 2004 ON CONVERSION OF STATE OWNED COMPANIES INTO SHAREHOLDING COMPANIES

To implement Decree 187-2004-ND-CP of the Government dated 16 November 2004 on Conversion of State Owned Capital into Shareholding Companies (hereinafter referred to as Decree 187-2004-ND-CP), the Ministry of Finance provides the following guidelines on financial issues:

I. GENERAL PROVISIONS

1. This Circular shall apply to State owned companies which undergo equitization as stipulated in article 2 of Decree 187-2004-ND-CP and Decision 155-2004-QD-TTg of the Prime Minister of the Government dated 24 August 2004 issuing the criteria and lists of classification of State owned companies and independent cost accounting member companies of State owned corporations (hereinafter referred to as enterprises).

2. Enterprises which satisfy all the conditions for equitization must still have State capital (excluding the value of land use rights) after dealing with financial issues in accordance with Section II of this Circular.

Enterprises which do not satisfy all the conditions for equitization shall be subject to other forms of restructuring in compliance with the laws; they shall not be provided with additional State owned capital for equitization.

3. Prior to equitization, the enterprise must deal with all outstanding financial issues in accordance with the applicable laws.

During equitization, the enterprise shall continue to deal with outstanding financial issues in accordance with Section II of this Circular until the date of official conversion into a shareholding company.

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5. Enterprises shall select a form of equitization specified in article 3 of Decree 187-2004- ND-CP. Any enterprises which have a requirement to raise additional capital for investment and development shall issue additional shares.

6. The date of valuation of an enterprise as the date of closing books of account and preparing financial statements in order to valuate the enterprise shall be:

- The end of the most recent quarter prior to the date of the decision on equitization but it shall not be earlier than six months prior to the date of announcement of a value of the enterprise in the case of utilization of the asset method to valuate an enterprise.

- The end of the most recent year prior to the date of the decision on equitization but it shall not be earlier than nine months prior to the time of announcement of a value of the enterprise in the case of utilization of the discounted currency flow method to valuate an enterprise.

7. The steps relating to equitization shall be taken in accordance with the procedures issued with this Circular (Appendix 1).

II. DEALING WITH FINANCIAL ISSUES UPON EQUITIZATION

A. INVENTORY AND CLASSIFICATION OF ASSETS AND DEBTS

Upon receipt of a decision on equitization from the competent body, an enterprise shall be responsible for organizing an inventory and classification of assets which the enterprise was currently managing and using at the date of evaluation of the enterprise in accordance with the following provisions:

1. Inventory and classification of assets:

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1.2 The assets in the inventory shall be classified into the following groups:

(a) Assets of the enterprise which are required to be used.

(b) Assets of the enterprise which are not required to be used, idle stock, assets awaiting liquidation in accordance with the decision of the representative of the owner of State owned capital in the enterprise.

(c) Assets formed from reward and welfare funds (if any).

(d) Assets leased to outsiders, supplies and goods held on trust, materials received for processing, goods received to sell as an agent, and goods held on bailment.

2. Verification, confirmation and classification of debts, and preparation of a detailed list of each type of debt shall be carried out in accordance with the following provisions:

2.1. Debts payable:

Analysing clearly debts which have not yet fallen due, overdue debts, interest payable and debts payable which are not required to be paid.

Debts payable which are not required to be paid due to the creditor (dissolved or bankrupt enterprise, deceased creditor) no longer existing or due to the creditor not attending to verify its claim despite [the debts] having been overdue.

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(a) Analysing clearly debts receivable which are recoverable and which are irrecoverable.

Debts receivable which are irrecoverable must be supported by adequate evidence that they are irrecoverable in accordance with the applicable State regulations on dealing with outstanding debts.

(b) Checking all economic contracts to calculate items paid in advance to suppliers of goods and services which were included fully in costs of business such as rent for housing or land, purchase price of goods, premiums paid for long-term insurance and salaries or wages etc. so that they are included in the value of the enterprise undergoing equitization in accordance with article 11.3 of Decree 187-2004-ND-CP.

3. Organization of an assessment and valuation of its assets which are required to be used in accordance with Part A of Section III of this Circular.

4. State owned commercial banks, apart from the implementation of the above provisions, shall:

4.1. Carry out an inventory and verification of loans provided to clients and monies deposited by clients, certificates of savings (securities, bonds, treasury notes) as follows:

(a) Detailed inventory of each item on the basis of books of account.

(b) Verification and confirmation of the balance of deposits in cases of clients being a legal entity; verification of each file of a loan and confirmation with creditors about amounts of money which the bank still owes.

(c) With respect to savings, monies deposited by individuals and certificates of savings, no verification with clients shall be required, but a verification shall be conducted on the basis of kept cards. In a number of specific cases (where the amount of a deposit is large or there is a difference between data shown in books of account and in the kept card), a verification shall be conducted directly with respective clients.

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(a) Preparation of a list of clients which incur a credit outstanding debt, credit outstanding debts of respective clients and details of each credit line contract on the basis of the credit file of each client.

(b) Verification of data specified in credit files on the basis of the data in books of account of the commercial bank; verification of the credit outstanding debt with each client in order to obtain the confirmation of such credit outstanding debt from the client.

Where there is a difference between data in the credit file and in books of account and the confirmation from the client, the commercial bank must clarify the reasons for the difference and fix the liability on any relevant organizations and individuals so that they shall be dealt with in accordance with the applicable State regulations.

4.3. Classification of outstanding debts receivable which satisfy all conditions for disposal in accordance with guidelines provided by the State Bank of Vietnam.

B. DEALING WITH FINANCIAL [ISSUES]

1. Before valuation of an enterprise

1.1. Assets:

Based on the results of the inventory and classification of assets, the enterprise shall deal with its assets in accordance with article 10 of Decree 187-2004-ND-CP, including:

(a) With respect to any excess or deficit of assets, the enterprise shall analyse clearly the reasons therefor and deal with them as follows:

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- Excess assets shall be recorded as an increase in State owned capital if the reasons for such excess are unable to be clarified and the owner of the assets is unable to be identified.

(b) Assets not required to be used, idle stock or assets awaiting liquidation, upon obtaining a written approval from the representative of the owner of State owned capital, shall be dealt with as follows:

- Liquidation or disposal: the director of the enterprise shall be responsible for directing the liquidation or disposal of the assets in accordance with the applicable laws.

Any revenue from and expenses for the liquidation or disposal of the assets shall be accounted for in income and expenses of the enterprise.

- Such assets shall be transferred to another entity in accordance with the decision of the representative of the owner of capital. If they are transferred to an entity outside a ministry, locality or corporation, an agreement with the representative of the owner of capital as the recipient shall be required.

Based on the minutes of hand-over of assets, the enterprises delivering or receiving the assets shall record a capital increase or decrease on the basis of the book value recorded by the transferor. Where the transferee does not accept the price shown in the books of account of the transferor, both parties shall agree on a price for transfer. Any difference compared to the price shown in the books of account shall be accounted for in the business results of the enterprise.

-  Any assets not required to be used, idle stock or assets awaiting liquidation which have not yet been dealt with up until the date of valuation of the enterprise shall not be included in the value of the enterprise. The enterprise shall continue to deal with such assets [during the period] prior to issuance of a decision on a value of the enterprise. If there are any assets which have yet been dealt with at the time of issuance of the decision on a value of the enterprise, the enterprise shall be responsible for preserving and transferring such assets to a company specializing in the purchase and sale of debts and idle stock from enterprises for disposal in accordance with the applicable regulations. The company specializing in the purchase and sale of debts and idle stock from enterprises shall not resell such assets to the enterprise.

(c) Assets belonging to welfare works which were funded by reward and welfare funds shall be dealt with in accordance with article 10.3 of Decree 187-2004- ND-CP.

(d) The valuation and distribution of shareholding among employees with respect to assets used in production and business being investments funded by the reward and welfare funds shall be subject to article 10.4 of Decree 187-2004- ND-CP. The shareholding to be divided amongst employees shall be calculated on the basis of the average auction price1.

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1.2. Debts receivable:

Debts receivable shall be dealt with in accordance with clauses 1, 2 and 3 of article 11 of Decree 187-2004-ND-CP, including:

(a) With respect to debts receivable for which there are adequate documents evidencing that such debts receivable are irrecoverable in accordance with the applicable State regulations on dealing with outstanding debts, [the enterprise] shall clarify the reasons therefor and fix the liability on any organization or individual to pay compensation in accordance with the applicable regulations.

If any losses remain after such recoveries, the enterprise shall use the reserve for bad debts to off-set them. If the above source is insufficient, the deficiency shall be accounted for in business costs of the enterprise.

(b) With respect to other overdue debts receivable, the enterprise shall continue to claim recovery of them or sell them to a company specializing in the purchase and sale of debts and idle stock from enterprises but shall not directly sell debts to debtors. Any losses from the sale of debts shall be accounted for in business costs.

(c) With respect to items paid by the enterprise in advance to suppliers of goods and services such as rent for housing or land, purchase price of goods and wages, where such items have been fully accounted for in business costs, the enterprise shall verify and account for them as a decrease in costs corresponding to the portion of goods or services which has not yet been supplied or period of lease which has not yet been realized and account for them as an increase in costs paid in advance (or costs awaiting allocation).

1.3. Debts payable:

The principles of dealing with debts payable shall be performed in accordance with article 12 of Decree 187-2004-ND-CP, including:

(a) Debts payable which are not required to be paid shall be accounted for as an increase in State owned capital.

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Where [such debts] are unable to be paid because [the enterprise incurred] losses, the enterprise shall prepare an application file for rescheduling or writing off debts to a maximum extent of losses accumulated up to the date of valuation of the enterprise in accordance with the applicable laws.

Where an enterprise satisfies all the conditions for writing off debts and has performed all procedures and submitted an application file for writing off debts, but up until the date of valuation of the enterprise, it has not yet received a decision writing off the debts, the competent body making the decision on valuation of the enterprise shall consider and temporarily deduct debts or losses in order to value the enterprise.

The enterprise shall be responsible for continuing to co-ordinate with the financial authority in dealing with them. Upon obtaining a decision on such matter from the Ministry of Finance, where there is any difference compared to the temporarily deducted debts, the enterprise shall record it as an adjustment in financial statements at the date of official conversion into a shareholding company.

(c) With respect to overdue debts being loans provided by State owned commercial banks and the Development Assistance Fund:

- Where overdue debts are unable to be paid because [the enterprise incurred] losses, the enterprise shall carry out the procedures for application for rescheduling, freezing, or writing off debts in accordance with the applicable laws.

State owned commercial banks and the Development Assistance Fund may consider and write off debts being unpaid loan interest (including capitalized interest) at a level not exceeding the amount of remaining losses (after dealing with tax and State Budget debts).

With the maximum period of twenty (20) working days from the date of receipt of the file from the enterprise, the lending commercial banks and the Development Assistance Fund shall notify the enterprise in writing of their opinion on dealing with debts.        Where no opinion on dealing with debts from the creditors has been received up until the date of valuation of the enterprise, the enterprise shall be allowed to temporarily exclude debts being [unpaid] loan interest which are requested to be written off from the value of the enterprise for the purpose of equitization. Upon obtaining a decision writing off debts, where there is any difference compared to the debts temporarily excluded from the value, the enterprise shall record it as an adjustment in financial statements before official conversion into a shareholding company.

- Overdue debts being principal which can not be written off shall be dealt with as follows:

+ The enterprise shall perform all the procedures for transfer of them to a shareholding company for repayment.

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+ It shall co-ordinate with commercial banks being creditors and the Development Assistance Fund to deal with the debts by way of selling debts to a company specializing in the purchase and sale of debts and idle stock from enterprises at an agreed price.

(d) With respect to any overdue debts being guaranteed foreign loans, the enterprise and the guarantor shall negotiate with the creditors a plan for dealing with [such debts] in accordance with the laws on control of foreign loans and loan repayments.

(dd) An enterprise shall be responsible to pay fully any social insurance or staff debts prior to conversion into a shareholding company in order to ensure that employees will receive their benefits.

(e) The conversion of debts payable (including debts payable to employees) into capital contribution in an equitized enterprise shall comply with State regulations on the right to purchase initial shares and the right of the State to hold controlling shares in enterprises.            The price of shares shall be fixed through an auction.

1.4. Reserves, profits and losses:

Reserves for reduction of price of goods in stock, for bad debts, for reduction of value of securities, for exchange rate differences and for retrenchment allowances and financial reserves and profits and losses shall be dealt with in accordance with article 13 of Decree 187-2004-ND-CP, including:

(a) The balance in reserves for reduction of price of goods in stock shall be used to cover any reduction of prices of goods in stock (including the reductions of prices due to re-valuation of goods in stock at the date of valuation of the enterprise) and the remainder shall be accounted for in the business results of the enterprise.

(b) The balance in reserves for bad debts shall be used to cover debts receivable which are irrecoverable and the remainder shall be accounted for in the business results of the enterprise.

(c) The balance in reserves for reduction of value of securities shall be used to cover any reduction of the actual value of securities and the remainder shall be accounted for in the business results of the enterprise.

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(dd) The reserves for retrenchment allowances (to which full contributions are made in accordance with the stipulated regime) shall be used to pay allowances to employees who are retrenched during the equitization process and if not so paid up until the date of official conversion into a shareholding company, then the remainder shall be accounted for in the business results of the enterprise.

(e) Reserves for risks and professional reserves:

- The balance in reserves for risks of State owned commercial banks shall be dealt with in accordance with guidelines provided by the State Bank of Vietnam and the Ministry of Finance.

- The balance in professional reserves of insurers shall be dealt with in accordance with guidelines provided by the Ministry of Finance.

(g) The balance in financial reserves shall be used to off-set losses (if any) and cover damage to assets (including the book value of assets not required to be used or awaiting liquidation which is not included in the value of the enterprise) and irrecoverable debts and the remainder shall be paid into the portion of State owned capital in the enterprise.

(h) The profits generated shall be used to off-set previous years' losses (if any) and cover damage to assets (including the book value of assets not required to be used, assets awaiting liquidation which are not included in the value of the enterprise), reduction of the value of assets, and irrecoverable debts and the remainder shall be distributed in accordance with the applicable regulations.

(i) Financial reserves and pre-tax profits shall be used to cover losses incurred by the enterprise. If the enterprise lacks [such reserves] then it shall take measures to write off the State budget debts and debts to State owned commercial banks in accordance with Part B.1.3 of Section II of this Circular.

If after applying all the above measures an enterprise undergoing equitization still suffers a loss, the body making the decision on valuation of the enterprise shall consider a reduction in the portion of State owned capital.

1.5. Long-term investment capital in other enterprises such as joint venture capital contribution, associated ventures, shareholding capital contribution, capital contribution to establishment of limited liability companies and other forms of long- term investment shall be dealt with in accordance with article 14 of Decree 187-

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(a) Where the enterprise inherits the joint venture [capital contribution], the value of joint venture capital contribution shall be included in the value of the enterprise in accordance with article 20 of Decree 187-2004-ND-CP.

(b) Where the enterprise does not inherit the joint venture [capital contribution] the competent body making the decision on equitization shall consider and deal with as follows:

- Sell the capital contribution made by the enterprise to another partner/entity or to other investors. The selling price must be close to the market price, but shall not be lower than the value of the portion of capital contribution shown in the audited financial statements as at the most recent date prior to the date of sale.

- Transfer them to another enterprise to act as partner/entity upon agreement with the other joint venture party(ies).

- If the enterprise and the joint venture party(ies) agree to terminate the joint venture contract, it shall be dealt with in accordance with the applicable laws for dealing with financial issues in respect of State owned companies upon termination of operation of joint venture enterprises.

1.6. Reward funds and welfare funds:

(a) Any cash balance in reward funds and welfare funds shall be distributed to employees named on the list of the regular employees of the enterprise at the date of the decision on equitization for the purpose of purchase of shares. After reaching agreement with the labour union, the director of an enterprise shall decide the distribution.

(b) Where the enterprise paid out more than the funds in the reward and welfare funds, [any excessive payment] shall be deducted from the actual value of assets currently being used for production or business and being investments funded by the reward and welfare funds. After so deducted, any deficit shall be dealt with as follows:

- The enterprise shall recover payments which were made directly to employees named on the list of the regular employees of the enterprise at the date of the decision on equitization prior to sales of shares at incentive rates.

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2. The period from the date of valuation of an enterprise to the date of official conversion into a shareholding company.

2.1. The period for dealing with financial issues within these two dates shall not exceed six months from the date of announcement of a value of the enterprise.

2.2. Upon obtaining the decision announcing its value, the enterprise shall be responsible for:

(a) Correcting its books of account and balance sheet in accordance with the stipulated State accounting regime.

(b) Preserving and handing over debts and assets excluded when determining the value of the enterprise (accompanied by relevant documents) to a company specializing in the purchase and sale of debts and idle stock from enterprises within a maximum period of thirty (30) days.

(c) Accounting fully for equitization costs arising.

2.3. Within thirty (30) days after official conversion into a shareholding company, the enterprise shall prepare financial statements as at the date of issuance of a business registration certificate and submit them to the managing body in accordance with the laws on financial management regime of enterprises.

Within thirty (30) days from the date of receipt of the financial statements, the competent body making the decision on evaluation of the enterprise shall inspect and deal with financial issues arising in the period between the two dates; re- determine the value of the portion of State owned capital and make a decision on adjustment of State owned capital in the enterprise; conduct the handover between the enterprise and a shareholding company; and send the result of the re-valuation of the enterprise to the Ministry of Finance.

2.4. The difference between the actual value of the portion of State capital as at the date of conversion of a State owned company into a shareholding company and the actual value of the portion of State capital as at the date of valuation of the enterprise shall be dealt with in accordance with article 25 of Decree 187-2004-ND- CP. If the difference is a decrease (including business losses), an enterprise shall clarify the objective and subjective reasons for it before dealing with it, including:

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(b) Losses in other cases shall be fixed as having been caused by subjective reasons. The body making the decision on equitization shall not select individuals who are responsible for the difference being a decrease to act as a representative for the portion of State capital contribution in the shareholding company.

3. Hand-over of assets and capital

Based on the decision on adjustment of the value of the enterprise as at the date of business registration for conversion into a shareholding company, the steering committee for equitization shall direct the enterprise to correct its books of account, to prepare a file for hand-over and conduct the hand-over between the enterprise and the shareholding company.

3.1. The file for hand-over shall comprise:

(a) The file for valuation of the enterprise and decision announcing the value of the enterprise.

(b) Financial statements and tax finalization report as at the date of official conversion into a shareholding company.

(c) The decision of the competent body on the value of the enterprise as at the date of conversion into a shareholding company.

(d) The minutes of hand-over of assets and capital monies prepared on the date of hand-over.

3.2. Persons participating in the hand-over shall comprise:

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(b) A representative of the corporation, the chairman of the board of management (in cases of equitization of a member enterprise of the corporation), the director and chief accountant of the State owned company as representatives of the transferor.

(c) The chairman of the board of management, director, chief accountant and representative of the trade union of the shareholding company as representatives of the transferee.

3.3. The minutes shall be signed by all persons participating in the hand-over and specify:

(a) Current status of assets, capital and workforce at the date of hand-over.

(b) Rights and obligations which the shareholding company continues to take over.

(c) Existing issues which are the responsibility of the shareholding company to continue to resolve.

III. METHODS OF VALUATION OF AN ENTERPRISE A. ASSET METHOD

1. The asset method is a method of valuation of an enterprise on the basis of evaluation of the actual value of all existing assets of the enterprise at the date of valuation of the enterprise.

2. This method shall apply to enterprises undergoing equitization, except for enterprises subject to the discounted currency flow method as stipulated in Part B.2 of Section III of this Circular.

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The book value of the portion of State owned capital in the enterprise shall be the book value of the enterprise minus (-) debts payable, balances in reward and welfare funds and balance in the professional funding source (if any).

4. The actual value of an enterprise shall be the actual value of all existing assets of the enterprise at the date of valuation of the enterprise, including the profitability of the enterprise.

4.1 The actual value of the enterprise shall not include:

(a) Value of leased or borrowed assets, of assets received as joint venture capital contribution and of joint assets;

(b) Value of assets not required to be used, idle assets and assets awaiting liquidation;

(c) Debts receivable which are irrecoverable;

(d) Expenses of unfinished capital construction works in abeyance prior to the date of valuation of the enterprise in accordance with a decision of the authority;

(dd) Long-term investments in other enterprises which the competent body decides to transfer to another party;

(e) Assets belonging to welfare works funded by reward and welfare funds and residences of staff of the enterprise.

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(a) Data shown in books of account of the enterprise;

(b) Quantity and quality of actual assets in the inventory and classification;

(c) Technical functions of assets, need of utilization and market price;

(d) Value of land use rights and profitability of the enterprise (geographical position, goodwill of the enterprise, designs, trade names etc.)

5. Determination of the actual value of assets:

The actual value of assets shall be determined in Vietnamese Dong. Assets which are accounted for in foreign currency shall be converted into Vietnamese dong at the average trading exchange rate on the inter-bank foreign exchange market published by the State Bank at the date of valuation of the enterprise.

5.1. With respect to assets in kind:

(a) Only the assets of the enterprise which it continues to use shall be re-valued.

(b) The actual value of an asset shall be calculated by way of multiplying its market original price and its residual quality at the date of valuation.

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- The market price is:

+ The current purchase or selling price of a brand-new asset in the market plus costs of transportation and installation (if any). In the case of special assets which are not circulating in the market, the purchase price of a brand-new asset of the same type made in the same country, or of assets of similar output or function shall be used. Where no equivalent assets are available, the book value of the assets shall be used.

+ The unit prices for capital construction and investment costs stipulated by the competent body shall apply to assets being products of capital construction. Where no relevant regulations are available, the value shown in the finalization report for the construction works as approved by the authorized body shall be used.

In the case of construction works which were completed within a three year period prior to valuation of the enterprise, the value shown in the finalization report for the construction works which was approved by the authorized body shall be used.

- The quality of an asset shall be determined as a percentage of quality of the brand-new asset of the same type when purchased or when investment and construction was first implemented in compliance with the State regulations on conditions for safety of its operation and use and product quality and the environmental hygiene for which guidelines were provided by ministries responsible for respective economic-technical branches. Where such State regulations are not available, quality of an valued asset shall not be less than 20%.

(c) With respect to fixed assets whose value has been depreciated to recover full capital, or work tools and apparatus serving administration whose value has been fully allocated into business costs, but the company undergoing equitization continues to use them, they shall be re-valued in order to include them in the value of the enterprise in accordance with Part A.5.1(b) of Section III of this Circular.

5.2. Assets in cash including cash, deposits and valuable papers (namely securities, bonds etc.) of an enterprise shall be determined as follows:

(a) On the basis of the minutes of cash-count in the case of cash.

(b) As the balances confirmed and certified by banks in the case of deposits.

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5.3. Debts receivable which are included in the value of an enterprise shall be determined as the actual balance shown in the books of account in accordance with Part B.1.2 of Section II of this Circular.

5.4. Costs for unfinished works including costs of investment in capital construction, for production or business and professional costs shall be determined as the actual costs shown in the books of account.

5.5. Assets used as long or medium term security deposits or escrow deposits shall be determined as the actual balance shown in the account books which have been verified and certified.

5.6. Any intangible assets (if any) shall be determined at their residual value shown in the account books. The value of land use rights shall be determined in accordance with Part A.6 of Section III of this Circular.

5.7. Value of business advantages

The value of a business advantage shall be included in the value of an enterprise undergoing equitization in accordance with article 19.3 of Decree 187-2004-ND-CP and shall be calculated in accordance with the following formula:

Value of business advantage of an enterprise

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Book value of the portion of State owned capital at the date of valuation

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Average after-tax profit ratio on State owned capital in the last three years prior to the date of valuation of an enterprise

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Interest rate on Government bonds with a term of 10 year or more at the most recent time prior to the date of valuation of an enterprise

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In which:

Average after-tax profit ratio on State owned capital in the last three years prior to the time of valuation of an enterprise

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Average after-tax profit in the three most recent years prior to the date of valuation of an enterprise

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100%

State  owned  capital  as  shown  in  the  account  books  in  the three  most  recent  years  prior  to  the  date  of  valuation  of  an enterprise

5.8. Value of long-term investment capital of an enterprise in other enterprises shall be determined in accordance with article 20 of Decree 187-2004-ND-CP.

6. Value of land use rights

The value of land use rights which will be included in the value of an enterprise shall be calculated in accordance with articles 19.1 and 19.2 of Decree 187-2004-ND-CP, including:

6.1 In the case of the enterprise selecting the form of land lease:

(a) if it currently leases land, the value of land use rights shall not be included in the value of the enterprise; the shareholding company will continue to sign the land lease contract in accordance with the law and manage and use [the land] for the proper purpose and shall not be allowed to sell [the land].

(b) Where [the enterprise] has received an allocated area of land and paid a land use fee to the State Budget or purchased land use rights from other individuals or entities but now it selects the form of land lease, only expenses used to increase the use value of the land and the value of assets on the land such as expenses paid for compensation, for site clearance, for site levelling and so forth shall be included in the value of the enterprise.

6.2. Where the enterprise selects the form of land allocation with collection of land use fees, the value of land use rights which shall be included in the value of the enterprise shall be determined as follows:

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(b) With respect to any areas of land which have been allocated to the enterprise and for which the enterprise has paid a land use fee to the State Budget, the value of land use rights shall be re-calculated at the price stipulated by the provincial people's committee. Any difference between the re-calculated value of land use rights and the book value shall be included in the actual value of the portion of State owned capital in the enterprise.

7. Actual value of the portion of State owned capital in an enterprise:

The actual value of the portion of State owned capital in an enterprise shall be the total actual value of the enterprise minus (-) actual debts payable, the balance in the welfare and reward funds, and the balance of the professional funding sources (if any) of which actual debts payable shall be the total value of payable debts of the enterprise minus (-) debts which are not required to be paid.

8. Actual value of a corporation:

In cases of equitization of the whole of a corporation, apart from implementation of the general provisions, the following guidelines shall be performed:

8.1. With respect to corporations in which the State makes the decision on investment and establishment:

(a) The actual value of the whole of a corporation shall comprise the actual value of all assets of the office of the corporation (including dependent cost accounting entities), independent cost accounting member companies and professional entities (if any).

(b) The actual value of the portion of State owned capital in the whole of a corporation shall comprise the actual value of the portion of State owned capital in the office of the corporation, in independent cost accounting member companies and professional entities (if any).

8.2. With respect to corporations invested in and established by companies:

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(b) The actual value of State owned capital shall be the actual value of State owned capital in the parent company.

8.3. The valuation of a State owned corporation shall be carried out in accordance with Part A of Section III of this Circular. Attention should be paid to the following points:

(a) Capital of the corporation in an one member limited liability company which was converted from a member company of the corporation or established by the corporation shall be treated as a long-term investment of the corporation as stipulated in article 20 of Decree 187-2004-ND-CP.

(b) Value of business advantage of the corporation shall comprise the value of business advantage of the office of the corporation and of independent cost accounting member companies.

Profits and State owned capital for calculation of profit ratio shall be determined in accordance with Decree 199-2004-ND-CP of the Government dated 7 December 2004 issuing Regulations on Financial Management of Enterprises and Management of Portion of State Owned Capital Invested in Other Enterprises and legal instruments of the Ministry of Finance providing guidelines.

B. DISCOUNTED CURRENCY FLOW METHOD

1. The discounted currency flow method (DCF) is the method of valuation of an enterprise on the basis of the profitability of the enterprise in the future.

2. This method shall apply to enterprises engaged in main line business in the industries being financial, banking, commercial or consultancy services, construction design, information technology, or technology transfer; and which have an average after-tax profit ratio on State owned capital in the last five years prior to equitization higher than the interest rate on Government bonds with a term of 10 years or more at the most recent time prior to the date of valuation of the enterprise.

3. Bases for determination of the actual value of an enterprise:

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3.2. Plans for manufacturing or trading activities of the enterprise for three to five years after conversion into a shareholding company.

3.3. The rate of interest paid in advance on Government bonds with a term of 10 years or more at the most recent time prior to the date of valuation of the enterprise and the cash flow discount coefficient of the enterprise.

3.4. Value of land use rights with respect to allocated areas of land.

4. The actual value of the portion of State owned capital in the enterprise shall be determined as follows:

Actual value of the portion of State owned capital

=

±

Difference between values of the right to use allocated areas of land

In which:

...

...

...

A.6.2(b) of Section III of this Circular.

Di

:  is the present value of the dividend for the nth year

(1 + K)i

Pn

is the present value of the portion of State owned capital in the nth year

(1 + K)n

i: is the order of the years continuing after the year of valuation of the enterprise (i: 1→ n).

...

...

...

n: is the number of future years selected (from 3 to 5 years).

Pn: is the value of the portion of State owned capital in the nth year and calculated according to the following formula:

P_n =

D_n+1

K-g

Dn+1: is the after-tax profit used to pay forecast dividends for the nth + 1 year.

K: is the necessary rate of discount or rate of capital return [required by] investors when they purchase shares and is calculated according to the following formula:

K = Rf + Rp

Rf: is the ratio of profit earned from non-risk investments which is calculated at the rate of interest paid in advance on Government bonds with a term of 10 years or more at the most recent time prior to the date of valuation of the enterprise.

...

...

...

g: is the annual growth rate of dividends and is determined as follows:

g = b x R

In which:

b: is the ratio of after-tax profit retained to supplement capital.

R: is the average after-tax profit ratio on owner’s equity in future years.

5. Actual value of an enterprise at the date of valuation shall be determined in accordance with the discounted cash flow method as follows:

Actual value of an enterprise

=

Actual value of the portion of State owned capital

...

...

...

Actual debts payable

+

Balance in the welfare and reward funds

+

Balance of professional funding sources

In which:

The actual debts payable shall be total debt shown in the books of account minus (-) the value of debts which are not required to be paid plus (+) the value of the right to use any newly allocated area of land (which is determined in accordance with Part A.6.2(a) of Section III of this Circular).

6. The increase in State owned capital being the difference between the actual value and the book value [of State owned capital] shall be treated as a business advantage of the enterprise, and determined as an intangible fixed asset and depreciated in accordance with the applicable State regulations.

7. With respect to corporations and commercial banks which satisfy all the conditions for determining the value of an enterprise in accordance with the discounted currency flow method, profits and State owned capital shall be determined in accordance with the applicable laws on financial management with respect to State owned corporations and commercial banks.

...

...

...

In addition to the two methods of valuation of the enterprise specified in Parts A and B of Section III of this Circular, the body making the decision on valuation of the enterprise and valuation organizations shall be allowed to use other methods of valuation upon written agreement with the Ministry of Finance.

IV. ORGANIZATION OF THE VALUATION OF AN ENTERPRISE

1. Selection of methods of valuation:

The principles of selection of a method of holding a valuation of an enterprise shall be performed as specified in article 23 of Decree 187-2004-ND-CP.