CIRCULAR

INSTRUCTIONS ON FINANCIAL SETTLEMENT AND BUSINESS VALUATION IN TRANSFORMATION OF WHOLLY STATE-OWNED ENTERPRISES INTO JOINT-STOCK COMPANIES

Pursuant to the Law on Enterprise No. 60/2005/QH11 dated November 29, 2005;

Pursuant to the Government's Decree No. 215/2013/NĐ-CP dated December 23, 2013 defining the functions, tasks, entitlements and organizational structure of the Ministry of Finance;

Pursuant to the Government’s Decree No. 59/2011/NĐ-CP dated July 18, 2011 on transformation of wholly state-owned enterprises into joint-stock companies (hereinafter referred to as ‘the Decree No. 59/2011/NĐ-CP);

Pursuant to the Government’s Decree No. 189/2013/NĐ-CP dated November 20, 2013 amending and supplementing a number of articles of the Decree No. 59/2011/NĐ-CP (hereinafter referred to as ‘the Decree No. 189/2013/NĐ-CP);

Pursuant to the Government’s Decree No. 44/2014/NĐ-CP dated May 15, 2014 providing for land prices;

At the request of general director of Agency of Corporate Finance;

The Minister of Finance promulgates the Circular on instructions on financial settlement and business valuation in transformation of wholly state-owned enterprises into joint-stock companies.

Chapter I

GENERAL PROVISIONS

Article 1. Scope and regulated entities

1. Governing scope:This Circular provides instructions on financial settlement and business valuation in transformation of wholly state-owned enterprises into joint-stock companies (hereinafter referred to as ‘equitization’).

2. Regulated entities:This Circular applies to enterprises subject to equitization as prescribed in Article 2 of the Decree No. the Decree No. 59/2011/NĐ-CP (hereinafter referred to as ‘equitized enterprises’), owners of equitized enterprises (including People’s committees of provinces, central-affiliated cities, ministries, departments) and relevant agencies, organizations, and individuals involved in the transformation of wholly state-owned enterprises into joint-stock companies.

Article 2. Interpretation of terms

In this Circular, some terms are construed as follows:

1. “Time of equitization” refers to the date when the agency that has authority to decide equitization (hereinafter referred to as ‘the equitization-decision-maker’) issues the decision on equitization.

2. "Time of valuation (of an equitized enterprise)” refers to the date of finalization of accounting books, formulation of quarterly or yearly financial statements chosen by competent agencies in accordance with enterprise valuation methods, specifically:

In case of asset-based valuation of equitized enterprises, the time of valuation is the time when accounting books are finalized, quarterly or yearly financial statements closest to the time of equitization are formulated.

b) In case of valuation of equitized enterprises based on discounted cash flow or other approaches, the time of valuation is the time when accounting books are finalized, quarterly or yearly financial statements closest to the time of equitization are formulated.

3. “Time of conducting valuation” refers to the time when consultancies or enterprises start to carry out valuation of an enterprise for equitization.

4. “Time of announcement of enterprise’s value” refers to the time when the equitization-decision-maker issues the decision on announcement of value of the equitized enterprise.

5. “Time of transformation” refers to the time when equitized enterprises are issued the joint-stock company registration certificate for the first time.

Article 3. Some equitization principles:

1. In equitization of parent companies, a subsidiary company in which 100% of charter capital is owned by its parent company shall carry out valuation of the enterprise as prescribed hereof.The time of valuation of enterprise by the subsidiary company should coincide with the time of valuation of enterprise by the parent company.

2. The equitization-decision-maker shall issue the decision on announcement of enterprise' value, the decision on approval for equitization plan, approval for enterprise re-structuring plan, approval for financial balance sheets, balance sheets of equitization cost, balance sheets of supportive budget for employees, balance sheets of receipts from equitization and announcement of true value of state capital at the time of transformation as prescribed in Clauses 1 and 2, Article 49 of the Decree No. 59/2011/NĐ-CP (hereinafter referred to ‘the equitization-decision-maker).

3. The equitization-decision-maker shall grant approval for equitization costs as prescribed in the Circular No. 196/2011/TT-BTC .In case of equitization of single-member limited companies in which 100% of charter capital is hold by parent companies of economic groups, state corporations, parent companies of parent company – subsidiary company conglomerate with equitization cost estimate in excess of the limits as prescribed in Clause 4, Article 13 of the Circular No. 196/2011/TT-BTC , the Steering Committee for Equitization shall direct equitized enterprises to formulate cost estimates and make reports to competent agencies for considerations and approval within the equitization plan, and at the same time make submission to the Ministry of Finance (Agency of Corporate Finance) for monitoring.

4. Before equitization, equitized enterprises shall carry out an inventory, financial settlement and redetermination of value of the enterprise and state capital according to applicable regulations.The State shall not further finance equitization of enterprises including enterprises with more than 50% of shares hold by the state as stipulated by the Prime Minister.

5. After the enterprise’s value is determined as no more state capital therein or that actual value of the enterprise is lower than payables, the equitization-decision-maker shall direct the enterprise to cooperate with Vietnam Asset Management Agency and the enterprise’s creditors in formulating the enterprise re-structuring plan to transform the enterprise into the joint-stock company.In case the plan is not feasible or effective, measures of bankruptcy, dissolution or other appropriate arrangements in accordance with laws can be taken.

6. The process of financial settlement and enterprise valuation should ensure closeness, public disclosure, transparency and cause no loss to capital and assets of the state.

Relevant organizations and individuals performing financial settlement and enterprise valuation that cause loss to the state's assets shall be liable for making compensations or criminal prosecution according to laws.

7. Results of determination of value of equitized enterprises, actual value of state capital approved by competent agencies shall serve as foundations for the equitized enterprises to determine charter capital, formulate equitization plan and conduct sale of shares for the first time, organize General Assembly of Shareholders, continue handle outstanding financial issues to the time of transformation, and carry out financial settlement of equitization process with the state and hand over the joint-stock company.

8. Competent persons as prescribed in Article 49 of the Decree No. 59/2011/NĐ-CP shall establish the Steering Committee for Equitization to support conduct and implementation of equitization according to regulations.The Steering Committee for Equitization shall be dissolved after the equitized enterprises is officially transformed into the joint-stock company.Financial issues (if any) arising out of actual transformation of the equitized enterprise into the joint-stock company in relation to equitization shall continue to be addressed by the equitization-decision-maker.

The Steering Committee for Innovation and Development of Enterprises and the Ministry of Finance shall appoint their members to join the Steering Committee for Equitization with respect to enterprises with state capital more than VND 500 billion and operating in peculiar areas such as insurance, banking, post and telecommunications, aviation, coal, oil and gas and rare precious mine extraction and parent companies of economic groups, state corporations as prescribed in Point b, Clause 4, Article 49 of the Decree No. 59/2011/NĐ-CP.

9. Steps and process of transforming wholly state-owned enterprises into joint-stock companies are mentioned in the annexes enclosed with the Decree No. 59/2011/NĐ-CP.An equitized enterprise that does not undergo transformation via this process may invoke the Prime Minister’s Decision.

Chapter II

FINANCIAL SETTLEMENT IN EQUITIZATION

SECTION I. ASSET TALLY AND PUBLIC DEBT CHECK

Article 4. Asset inventory and classification

1. Upon receipt of equitization decision from the equitization-decision-maker, the equitized enterprise shall be responsible for carrying an inventory and classification of assets, sources of financing and enterprise funds it is managing and using at the time of valuation.The equitization assistant team, equitized enterprise shall cooperate with consultancies (if any) in carrying an inventory and classification of assets.

2. Make a tally of quantity, quality and value of the enterprise's present assets; check cash funds, bank deposit balances; determine assets, cash in deficit or in excess against accounting books, explain reasons for such deficit or excess as well as responsibility of relevant persons, level of compensations according to laws.

3. Tallied assets shall be classified into following groups:

Assets needed by enterprise

b) Assets unwanted, dead or pending disposals.

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

d) Assets leased, material and commodities in custody, for outwork, agency, as consignment; assets contributed as capital for joint-ventures, partnerships and other assets that do not belong to the enterprise.

dd) Land-linked assets subject to handling according to the plan for re-arrangement, handling of state-owned houses, land as prescribed in the Prime Minster’s Decision.

e) Assets of for-profit service providers (hospitals, schools, Research Institute), assets for non-business activities.

g) Assets pending handling by competent agencies

h) Financial investments (capital contributed to joint ventures, establishment of limited liability companies, and other capital contribution activities) in the form of land use right value.

Article 5. Check, confirmation and classification of public debts

The equitized enterprise shall carry out checking, confirmation and classification of public debts; formulate the detailed list of individual debtors, creditors as prescribed below:

1. Receivables:

Check, confirm all receivables by each debtor, including:

- Undue and overdue receivables.

- Analyze bad debts as overdue receivables specified in the economic contract.Undue receivables from economic organizations (companies, private enterprises, cooperatives, credit institutions) that have gone bankrupt or in the process of filing procedures for dissolution; debtors missing, flying from creditors, facing prosecution, kept in custody, standing trial or serving sentences or dead.Define liability for receivables not confirmed by debtors.

Irrecoverable receivables should be accompanied by documentary evidence to prove they are irrecoverable.

b) Check economic contracts to determine amounts prepaid to goods and service suppliers but already recorded in business costs such as land and house rents, procurement of commodities, long-term insurance premiums, pay...

2. Payables are composed of loans, taxes and payables to the state budget:

Based on contracts and debt notices, check and make a list of payables to individual creditors, determine taxes and payables paid to the state budget; analyze contract-based loans (domestic and foreign loans), guaranteed loans, loans from issue of bonds; undue and overdue loans, principals, interests, and 'accounts payable yet unplayable'.

b) ‘Accounts payable yet unpayable’ refer to following types of payables (as confirmed by creditors of the equitized enterprise):

- Debts owed by an enterprise going bankrupt or dissolved with successors not identifiable according to the plan for bankruptcy and settlement of assets approved by competent agencies.

- Debts owed by deceased persons with their successors not identifiable.

- Other debts that are overdue for years and no longer checked or confirmed by the creditor.In this case, the equitized enterprise should issue a written notice to the creditor and make a public announcement on mass media 10 working days prior to the time of inventory.

Article 6. Checking and confirming financial investments; dividends; capital contributions

The equitized enterprise shall check, confirm and make a detailed list of financial investments and dividends including:Investments contributed to joint ventures, partnerships; equity capital contributions, capital contributions to the establishment of limited liability companies; investments to the establishment of single-member limited companies owned by the equitized enterprise; dividends from capital contribution investment activities (passed at the Resolution of General Assembly of Shareholders, Member Assembly at the organization receiving capital contribution) yet remaining unpaid; analysis of profitable investment activities and other unhandled lost investment activities;

Determine the number and value of types of securities (shares, bonds…) purchased; the number of additional shares received without payment by the equitized enterprise because the joint-stock company has used equity capital surplus, owner's capital funds, undistributed post-tax profits to increase charter capital (increase owner's capital in the joint-stock company with capital contributions by the equitized enterprise).

For capital contributions received for the establishment of joint ventures, partnerships, the equitized enterprise, on the basis of the contract for joint undertaking, partnership, shall make a detailed list of individual partners that have contributed capital to the equitized enterprise and make notices to such partners for cooperation with the joint-stock company in inheriting previously agreed activities or in settlement of the contract.

Article 7. Inventory, check, confirmation and classification of assets and payables in equitization of state-owned commercial banks

Inventory, assessment and classification of assets in the form of subscribed capital, finance lease assets and public debts at state-owned commercial banks in equitization shall be carried out as follows:

1. Tally and check customers’ deposit accounts, certificates of deposit (treasury bills, bonds…) as follows:

Do an inventory of individual entries in accounting books

b) Check and confirm deposit balances of customers as legal persons.

c) It may be unnecessary to check saving deposits, personal deposits, certificates of deposits with customers but is required to do so with stored-value cards.For some specific cases (deposit balance is greater or there is some difference between figures on accounting books and stored-value cards), making direct check with customers is required.

2. Check assets as outstanding credit balance as follows:

Rely on outstanding credit balance of individual customers at commercial banks to make a list of customers with outstanding credit balance, details of individual credit contracts.

b) Check figures in credit documentation against figures recorded in the commercial bank’s accounting book; check outstanding credit balance with individual customers to have their confirmations.

For customers as individuals, if checking with customers is impossible, the commercial bank should do so with stored-value cards.

c) In case there is difference between figures in credit documents and accounting books as confirmed by customers, the commercial bank must clarify reasons for such difference and define responsibility of relevant organizations and individuals according to applicable regulations.

3. Classify outstanding receivables eligible for handling according to instructions of the State bank of Vietnam.

4. For finance lease assets, carry out check with individual customers, determine outstanding payables of each assets.

Article 8. Responsibility for inventory, check and confirmation of assets, capitals of all kinds in equitization

During the inventory, checking and confirmation of public debts, capitals of all kinds, in case of any omission that results in a reduction in value for the enterprise and state capital in the enterprise, the directors, chief accountants and relevant organizations and individuals shall be liable for making compensations to the state budget for the entire value of omitted assets, capitals omitted according to laws.

SECTION II. FINANCIAL SETTLEMENT IN VALUATION OF ENTERPRISE AND AT THE TIME OF TRANSFORMATION

Article 9. Financial settlement in valuation of an enterprise

1. At the time of valuation, the equitized enterprise shall not carry out establishment of provision against devaluation of goods in stock, losses to financial investments, bad debts, warranty for products, goods and construction works;

2. Handling of assets:

Based on results of tallying and classification of assets, the enterprise shall handle the assets according to Article 14 of the Decree No. 59/2011/NĐ-CP and Clause 1, Article 1 of the Decree No. 189/2013/NĐ-CP, in which:

For excess and deficit assets, clarify reasons for such excess and deficit and propose handling measures as follows:

- In case of deficit assets, identify responsibility of organizations, individuals for compensations as prescribed; value of deficit assets after deducting compensations (if any) shall be recorded in production and business costs.

- Excess assets to which the cause or owner is not identifiable shall be treated as an increase in value to state capital.

b) For assets unwanted, dead or pending clearance:

- Directors of the equitized enterprise shall direct organization of disposals or transfer.Disposals or transfer of these assets shall be carried out via public auctions according to applicable regulations.

- Receipts and expenses for disposal and transfer activities shall be recorded in the enterprise’s earnings and costs.

- To the time of valuation, competent agencies shall consider and decide to exclude assets unwanted, dead and pending handling (except for the assets as prescribed in Clause 3, Article 14 of the Decree No. 59/2011/NĐ-CP) from value of the enterprise and carry out transfer to following agencies as prescribed in Clause 2. Article 14 of the Decree No. 59/2011/NĐ-CP:Vietnam Asset Management Agency for handling according to laws on enterprises as prescribed in Article 2 of the Decree No. 59/2011/NĐ-CP.

Parent company of economic groups, state corporations, parent company of parent company - subsidiary company conglomerate for handling according to laws on limited companies with 100% of charter capital held by these companies.

c) Assets of for-profit public service providers (hospitals, schools, research institute) in equitization of parent company of economic groups, state corporations, parent company of parent company - subsidiary company conglomerate, assets for not-for-profit activities shall be handled as follows:

- Where the equitized enterprise continues to inherit such assets, it should carry out financial settlement and include such value to the enterprise' value as prescribed hereof.The equitized enterprise should define an accounting model (independent, dependent accounting) of for-profit public service providers to apply financial mechanism according to laws.

- Otherwise, a report should be made to the Prime Minister for consideration and decision on transfer of such assets to relevant ministries, departments or People’s committees of provinces to call for private sector involvement according to laws.During the period when the transfer is not carried out, the ministries, departments and People’s committees of provinces that are exercising their rights as representatives of owners of economic groups, state corporations, parent company of the parent company – subsidiary company conglomerate shall continue management and exercise their rights as representatives of owners of state capital in these units.

d) To the time of valuation, assets pending handling that are yet to be handled shall be excluded from value of the enterprise and subject to transfer to agencies as prescribed in Clause 2, Article 14 of the Decree No. 59/2011/NĐ-CP.

dd) When valuing an enterprise, the equitized enterprise shall be entitled to exclusion of financial investments (capital contributions to joint ventures, establishment of limited companies, other investment activities) in the form of land use right value if an agreement with capital contributors is reached for transfer of such financial investments to other wholly state-owned enterprises as partners.

The enterprise shall record such in the equitized enterprise' value according to principles as prescribed in Article 33 of the Decree No. 59/2011/NĐ-CP if the transfer to other wholly state-owned enterprises as partners cannot be made.

e) The equitized enterprise shall not exclude from the equitized enterprise's value the assets used as collateral for loans including those unwanted by the enterprise.

g) The equitized enterprise shall be responsible for handling assets that are not excluded from enterprise value as prescribed in Clause 3, Article 14 of the Decree No. 59/2011/NĐ-CP.

h) The equitized enterprise shall formulate and submit the plan for re-arrangement and handling of houses, land to competent authorities for approval as prescribed by the Prime Minister’s Decision to complete settlement of the enterprise’s ownership of assets and land use rights before valuation of the enterprise is carried out.

For land-linked assets outside management and use by the enterprise, the equitized enterprise shall rely on the plan for re-arrangement and handling of houses, land as approved by competent authorities to complete settlement of the enterprise’s ownership of assets and land use rights before valuation of the enterprise is carried out.

Such welfare assets as kindergartens, policlinics and other welfare assets financed by reward, welfare funds; housing for civil servants, staff by welfare funds and state budget shall be handled according to Clause 4, Article 14 of the Decree No. 59/2011/NĐ-CP.

k) Assets used for production and business financed by the equitized enterprise’ reward and welfare funds shall be recorded in the enterprise’s value and the joint-stock company shall continue to use them for production and business activities.The equitized enterprise shall return the capital in proportion to value of these assets to the reward and welfare funds for distribution among employees working for the enterprise at the time of valuation based on the number of years they are working in the equitized enterprise.

3. Handling of receivables:

Handling of receivables is instructed in Article 15 of the Decree No. 59/2011/NĐ-CP as follows:

Based on results of checking and confirmation of receivables, the equitized enterprise shall be responsible for recovering all receivables as due; actively speed up and take every measure to recover overdue receivables prior to valuation of the equitized enterprise.

b) Receivables that are determined as irrecoverable debts should be fully accompanied by following documentary evidence:

- Original vouchers, clients’ confirmations on such receivables such as economic contracts, loan agreements, contract settlement agreements, debt commitments, public debt records and other objective documents. - Accounting books, vouchers, documents to the time of debt settlement.

- For economic organizations:

Organizations as debtors going bankrupt or dissolved: a decision or judgment on bankruptcy given by the Court according to the Law on Bankruptcy or a decision by the competent person on dissolution of enterprises as debtors, or a formal notice given by units, organizations or confirmed by the agency making decision on the establishment of such units, organizations should be provided.

Organizations as debtors that cease operation and are in default: a written confirmation on organizations’ cease of operation and default given by the agency making decision on the establishment of the enterprise or business registration organization or relevant tax agency should be provided.

For receivables existing for more than three years on which the debtors are in default, the enterprise should provide following documentary evidence after desperately taking multiple measures: Public debt records, debt payment dispatch, written request to the Court for bankruptcy according to laws.- For individuals:

Death certificate (authenticated copy or copy for master register), or written confirmations by local authorities on the deceased person who has no inheritance.

Written confirmations by local authorities on debtors that are still alive or missing but in default.

Arrest warrants or written confirmations by law enforcement agency on debtors who are taking flight or facing prosecution, serving sentences or by local authorities on default by debtors or their successors.

- To the time of valuation, for any irrecoverable debt that is accompanied by adequate documentary evidence as prescribed, the enterprise shall use provisional sources to compensate and the deficit difference shall be recorded in the enterprise’s production and business costs.

c) Receivables without adequate documentary evidence of existence of such receivables and default by debtors shall not be excluded from enterprise value and the enterprise should clarify the reasons as follows:

- For receivables without adequate documentary evidence of existence of such receivables, the enterprise should determine the reason to impose liability for compensations on relevant collectives, individuals; losses after liability for compensations of organizations, individuals (if any) has been determined shall be recorded in the equitized enterprise's production and business costs.

- Receivables without adequate documentary evidence of default by the debtor, the equitized enterprise and the joint-stock company, later on, shall continue to complete the records as prescribed and handle according to applicable regulations.

d) The enterprise shall be entitled to exclusion from value of the equitized enterprise all receivables accompanied by adequate documentary evidence of default by the debtor as prescribed.

The equitized enterprise shall be responsible for handing over all public debts not recorded in the equitized enterprise’s value (including bad debts compensated by provisional sources for the last five years preceding equitization) and fully accompanied by relevant records, documents to agencies as prescribed in Clause 2, Article 14 of the Decree No. 59/2011/NĐ-CP.

The agency that takes delivery of such irrecoverable debts shall be responsible for continuing to follow up and collection.

During the period when hand-over of receivables is not yet to be made or when the joint-stock company is yet to take shape, the equitized enterprise shall keep following up and organize collection of receivables that are not recorded in the equitized enterprise’s value.

dd) For land and house rents, long-term insurance premiums, expenses for purchase of commodities, remunerations prepaid to suppliers and already recorded in business costs, the enterprise shall rely on goods and service supply contracts to determine the debt and record it as a reduction in costs (corresponding to portions of goods and services unsupplied or rent terms unfinished).

4. Handling of payables:

In reliance on results of checking and classification of debts, the enterprise shall handle payables according to Article 16 of the Decree No. 59/2011/NĐ-CP and Point a, Clause 4, Article 28 as amended in Clause 5, Article 1 of 189/2013/NĐ-CP, in which:

Accounts payable but unpayable as prescribed in Point b, Clause 2, Article 5 hereof shall be recorded as increases in state capital in the equitized enterprise.

b) For taxes and payables to the state budget, the equitized enterprise should fulfill their obligations for remunerating and paying such taxes and payables to the state budget and make a tax settlement report to the tax agency at the time of valuation for inspection and determination of the remaining taxes to be paid as prescribed.

In case the enterprise is yet to complete final tax declaration in the process of valuation, the equitized enterprise may use formulated financial statements and declared tax figures as foundations for valuation of the enterprise but should include such in the written record of enterprise valuation, decision on enterprise value announcement and equitization plan, and make public announcement of such incomplete final tax declaration while publishing information about selling shares to investors.

c) For loans from commercial banks and the Vietnam Development Bank (herein ‘the lending banks’), other organizations and individuals, the equitized enterprise shall be responsible for mobilizing legal sources to make payment for such due debts prior to enterprise valuation.

d) During the process of financial settlement before enterprise valuation, if the equitized enterprise has difficulties in paying overdue debts to the lending banks, or suffer accumulative losses, the enterprise should cooperate with the lending banks in handling the debts as follows:

- The equitized enterprise shall perform procedures for making requests to the lending banks for consideration and decision on debt freezing, extension or forgiving according to applicable regulations.

- Apart from measures above, the enterprise may cooperate with the lending banks in handling overdue principals through selling debt to Vietnam Asset Management Agency according to negotiable price.Based on debt purchase agreement signed, the equitized enterprise shall be responsible for accepting such debt to Vietnam Asset Management Agency; and at the same time cooperating with Vietnam Asset Management Agency in formulating and submitting the debt restructuring plan to the equitization-decision-maker for consideration and negotiation with Vietnam Asset Management Agency on the plan for transforming the enterprise into the joint-stock company.

- Negotiations with the lending banks on transformation of loans into share capital.Transformation of loans into share capital shall be carried out through auctions.In case the lending banks is selected as the strategic investor, the transformation of loans into share capitals shall be instructed in Point dd, Clause 3, Article 6 of the Decree No. 59/2011/NĐ-CP.

- Transformation of loans from lending organizations, individuals (not the lending banks) into share capital is instructed in Clause 1, Article 16 of the Decree No. 59/2011/NĐ-CP.

dd) For overdue foreign loans (guaranteed and unguaranteed), the enterprise and guarantor should negotiate with creditors on plans for handling according to laws.

e) For insurance benefits and other benefits paid to employees, the enterprise shall be responsible for finishing off payments before transformation.For expenses for employees as national defense servicemen, staff (salaries in preparation for retirement) in the equitized enterprise belonging to the Ministry of National Defense (if any) shall be recorded in production and business costs before transformation.

5. Reserves, losses or profits

Handling of reserves, banking risk reserve funds, insurance operation reserve funds, exchange differences, financial reserve funds, profits, losses by the equitized enterprise is instructed in Article 17 of the Decree No. 59/2011/NĐ-CP.Specifically:

Profits after being used to offset losses to the assets unwanted, pending settlement, reduction in value of assets due to re-valuation for equitization, irrecoverable debts shall be distributed according to applicable regulations as foundations for valuation of the enterprise.In case the time of valuation is not in coincidence with the time of making annual financial statement, the distribution, establishment of enterprise funds shall be instructed in Clause 3, Article 10 hereof.

In case losses and outstanding debts to credit institutions (including the Vietnam Development Bank ) still remain after all the losses have been handled according to regulations to the time of valuation, the equitized enterprise shall be responsible for making written requests to the lending bank for forgiving the loan interests according to applicable regulations.

In case the income statement remains in loss after all handling measures above have been taken, the equitized enterprise should report the reason for such losses to the equitization-decision-maker for handling relevant collectives, individuals, the remaining losses shall be recorded in value of the state capital portions in the equitized enterprise

6. Long-term investments in other enterprises, such as capital contributed to joint ventures or partnerships, contributed as shares, contributed for the establishment of limited liability companies, and other forms of long-term investment are instructed in Article 18 the Decree No. 59/2011/NĐ-CP.

7. Reward and welfare funds:

Cash balances of reward and welfare funds, after being used to offset amounts in excess of prescribed level paid to employees (if any) shall be used to distribute among employees working at the time of valuation based on the number of years they have worked in the equitized enterprise.

Director of the enterprise shall cooperate with the union organization in making decisions on distribution of cash balances and the value in proportion to the assets financed by the reward and welfare funds among employees.

In case the enterprise has spent in excess of the reward and welfare funds, the enterprise shall review responsibility of relevant organizations, individuals as follows:

- Expenses paid directly to employees in the regular list at the time when the decision on equitization is made and to members of the management board shall not be recorded in the state capital portion in the equitized enterprise.Director of the enterprise shall cooperate with the union organization in collecting or transforming it into receivables for the joint-stock company to continue following up.

- For expenses in excess of reward and welfare funds paid to those not identifiable (employees losing jobs or retiring prior to the time of equitization), Steering Committee for Equitization shall make notification to the agency making decision on enterprise value for handling.

8. Management staff reward funds

Cash balances of the management staff reward funds shall be reported to the owner for making decisions on giving rewards to those as prescribed before enterprise valuation.

9. Balances of scientific and technological development funds established by the enterprise shall be transferred to the joint-stock company in equitization.The joint-stock company shall be responsible for managing and using the funds as prescribed in the Ministry of Finance’s Circular No. 15/2011/TT-BTC dated February 2011.

10. Balances of enterprise arrangement funds (if any) shall be recorded as an increase in the state capital portion as prescribed in Article 20 of the Decree No. 59/2011/NĐ-CP.

Article 10. Financial settlement at the time of transformation

1. Financial statements formulated at the time of transformation, the equitized enterprise shall not set up provisions for diminution in value of inventories, losses of financial investments, bad debts and product warranty, construction works; not repair expense accruals of fixed assets.

2. Based on the decision on announcement of enterprise value made by competent agencies, the equitized enterprise shall be responsible for adapting the figures in the accounting book to value of the enterprise announced.The transfer of assets and receivables excluded from enterprise value to agencies as prescribed in Clause 2, Article 14 of the Decree No. 59/2011/NĐ-CP shall be carried out within 30 days the decision on announcement of enterprise value made by competent agencies is issued.

3. During the period from the time of valuation to the time of transformation, the equitized enterprise shall continue to handle financial shortcomings as prescribed in Article 21 of the Decree No. 59/2011/NĐ-CP and formulate financial statements at the time of transformation.In which:

Any difference between unfinished investments in assets and constructions at the time of valuation and final settlement of completed investments approved by competent agencies at the time of transformation shall be adjusted in accordance with the approved final settlement.

b) Determine level of fixed asset depreciation according to asset depreciation method the equitized enterprise has registered with tax agency before enterprise valuation.

c) Distribution of profits and establishment of funds are instructed in applicable regulations on state-owned single member limited companies.

In case the time of valuation and the time of transformation is not coincidence with the time of establishment of annual financial reports, and as a result, grading of the enterprise as foundations for establishment of the enterprise’s funds cannot be done, the equitized enterprise shall carry out establishment of enterprise management staff reward funds, two reward and welfare funds at these points of time in following principles:

- Rely on result of grading of the year before the year of valuation;

- Rely on profit sources as prescribed to distribute among the enterprise's funds.

4. Within 30 days since the joint-stock company registration certificate is issued for the first time, the Steering Committee for Equitization shall direct assistant team, the equitized enterprise to complete financial statements, perform financial audits; request tax agency to prioritize inspection of final tax declaration and payments to the state budget; re-determine value of the state capital portions at the time of transformation; formulate balance sheets: receipts from equitization, supportive payments to employees, equitization costs.

If the time of valuation and the time of transformation is before and after December 31 of the year respectively, only one financial statement is made for the entire period.Financial statements should be sent to agencies, units according to regulations on accounting system.

The enterprise’s audited financial statements, balance sheets of equitization process (receipts from equitization, supportive payments to employees, equitization costs) and relevant documents shall be delivered to the equitization-decision-maker and relevant agencies for inspection and handling of financial shorting comings and granting approval for financial statements and final settlement on the process of equitization.

At the time when the joint-stock company registration certificate is issued for the first time, when formulating financial statements for handover from wholly state-owned enterprises to joint-stock company, the enterprise shall re-determine financial investments, securities investments already determined in the equitized enterprise’ value; total value of increases or decreases in financial investments, securities investments in comparison with the accounting books shall be recorded in income statement as prescribed.

b) During the period from the time of valuation to the time of transformation, the equitized enterprise shall carry out transfer, sale, disposal of assets, financial investments and securities investments as prescribed.

The difference between value of receipts and value as recorded in the accounting books shall be included in income statement and determined as follows:

- Value recorded in the accounting books for assets, financial investments and securities investments transferred, disposed before the time of announcement of enterprise value is the value not re-determined.

- Value recorded in the accounting books for assets, financial investments and securities investments transferred, disposed after the time of announcement of enterprise value is the value re-determined according to the announcement of enterprise value.

c) Payables that the enterprise has performed all procedures for checking but received no official confirmations from the creditor shall be recorded as state capital increases and the joint-stock company shall be responsible for maintaining the records, continuing to follow up and perform obligations as requested by the creditor.Based on relevant legal documents and records as well as requests from the creditor, the joint-stock company shall pay the debt and record such in the period costs.

d) Receivables that the enterprise has performed all procedures for checking but received no official confirmations from debtors shall be reviewed to determine liability of relevant collectives and individuals.The remaining payables (after compensations made by collectives, individuals, provisions against bad debts are deducted) shall be recorded in production and business costs of the equitized enterprise. The joint-stock company shall be responsible for keeping the records and continuing to follow up and speed up collection of the debt.The debt received shall be recorded in the period receipts.

dd) Post-tax profits, dividends from financial investment activities (adopted in the Resolution of General Assembly of Shareholders, Member Assembly at the organization receiving capital contribution) that remain unpaid at the time of transformation shall be recorded as increases in financial income and increases in payables as well, and increases in value of financial investments if they are used to increase investment capital in other enterprises.

e) Stocks that the equitized enterprise has received without payment should be followed up and recorded in the enterprise’s accounting books during the formulation of financial statements at the time of transformation, specifically:

Stocks received from distribution of dividends and stocks received without payment shall be recorded as increases in financial income (according to stock face value) and at the same time increases in value of financial investments on the basis of the number of stocks received.

Upon transformation from state-owned companies into joint-stock company, this number of stocks transferred shall belong to the joint-stock company.

g) In case the period from expiration date for purchase of stocks to the time when the enterprise registration is issued is more than three months, the enterprise shall pay loan interests to the investors as follows:

- Only interests over total face value of purchased stocks from forth month on are counted.For preference shares below face value purchased by employees, interests are based only on actual amount of money paid.

- Interest rates should not exceed short-term interest rate of the same period as announced by the commercial bank where the equitized enterprise opens its account.

- The amount of interests paid to the investors shall be recorded in production and business costs but ensure not in excess of the amount of money to be paid as prescribed in formulation of financial statements.

h) From the time of receiving written request from the equitized enterprise until before the time of applying for approval for financial statements for handover, the tax agency shall be responsible for prioritizing appointment of staff for inspection of tax final declaration and payments to the state budget in accordance with the process of transformation.

In case the inspection of tax final declaration remains undone after the time of applying for approval for financial statements for handover, the equitized enterprise shall be allowed to use formulated financial statements and declared tax figures as foundations for handover.The joint-stock company shall succeed and be responsible for fulfilling its obligations for all the taxes and amounts paid to the state budget remaining unpaid.

Any losses arising out of failure to perform inspection of final tax declaration after the joint-stock company takes shape shall be dealt with in accordance with Clause 3, Article 52 of the Decree No. 59/2011/NĐ-CP.

5. Within 30 days since receipt of audited financial statements, tax final declaration reports (if any), the equitization-decision-maker shall cooperate with relevant agencies in carrying out inspection and handling of financial shortcomings of the enterprise and issue decision on approval for financial balance sheets, balance sheets of receipts from equitization, equitization costs, supportive payments to employees, and decision on announcement of actual value of the state capital portion as foundations for handover between the equitized enterprise and joint-stock company.

For equitized enterprises with equitization plan being approved by the Prime Minister, relevant ministers shall grant approval for financial statements and other balance sheets: receipts from equitization, equitization costs and supportive payments to employees.

Member Assembly of parent company of economic groups, corporations shall grant approval for financial statements and balance sheets of receipts from equitization, supportive payments to employees and costs for equitization of enterprises authorized by the Prime Minister to announce enterprise value, grant approval for equitization plan.

Director and chief accountant of the equitized enterprise shall be responsible for formulating and signing financial statements, reports on state capital value at the time of transformation, balance sheets of receipts from equitization, supportive payments to employees, equitization costs and also responsible for truthfulness and accuracy of the reports.

Board of directors of the joint-stock company (new) shall be responsible for creating favorable conditions for chief officials of the equitized enterprise to complete their duties, signing and confirming signatures of such titles in the financial statements and final settlements relating to equitization process.

Where director, chief accountant of the equitized enterprise is yet to complete the duties above making the handover for transformation undone shall not be entitled to a reshuffle or retirement under benefit scheme.

6. Positive difference between actual value of state capital at the time of transformation and actual value of state capital at the time of valuation, difference between actual value of state capital in the equitized enterprise and value of state capital left to be invested in the joint-stock company (if any) is instructed in Clause 3, Article 21 of the Decree No. 59/2011/NĐ-CP.

7. In case of negative difference, reasons for it (including business loss) should be clarified, objectively and subjectively, before settlement, in which:

Negative differences caused by objective reasons such as natural calamities and enemy-inflicted destruction, change of policies by the state, global market fluctuation and other force majeure events and imposing no effect at all on the state capital in the enterprise at the time of transformation shall be reviewed and made adjustments to size and structure of charter capital of the joint-stock company by the equitization-decision-maker through General Assembly of Shareholders.

In case negative differences make negative value of the state capital in the equitized enterprise at the time of transformation, the enterprise should make a report to the equitization-decision-maker for using receipts from sale of shares (after supportive payments to employees and equitization costs have been settled) and insurance compensations (if any) to offset; if value of the state capital remains negative after the offset and the equitized enterprise has been issued the joint-stock registration certificate for the first time, the Board of directors shall convene irregular General Assembly of Shareholders for voting on the losses and maintaining operation of the enterprise.

b) Other cases of negative differences caused by subjective reasons shall be handled in accordance with Point b, Clause 4, Article 21 of the Decree No. 59/2011/NĐ-CP.

Article 11. Handover between equitized enterprise and joint-stock company

Based on approval on financial balance sheets; balance sheets of receipts from equitization, equitization costs, supportive payments to employees, and decision on announcement of actual value of state capital granted by the equitization-decision-maker at the time of transformation, the Steering Committee for Equitization shall direct the equitized enterprise to make adjustments to accounting books, formulate documentation for transfer and conduct the transfer between the equitized enterprise and the joint-stock company.Time to complete handover shall not exceed 30 days since approval for financial settlements is issued.

The joint-stock company shall be entitled to use all assets (tangibles and intangibles), source of financing received to organize production and business; succeed all rights, obligations and responsibilities handed over by the equitized enterprise and assume other rights, obligations and responsibilities according to laws.

In case of inadequate handover that makes the joint-stock company refuse liabilities for debts owned by the equitized enterprise, director, chief accountant of the equitized enterprise and relevant organizations and individuals shall take full responsibility for paying the debts.

After 60 days since the transfer note is signed, the joint-stock company shall complete documentation of assets, land and make submission to competent agencies as prescribed to perform transfer of rights to management and use of assets from the equitized enterprise into the joint-stock company; perform handover of land, payment of land rents, apply for issue or re-issue of land use right certificate according to the Law on Land and other instructions on implementation of the Law on Land.

1. Handover documentation:

- Documentation of enterprise value and enterprise value announcement decision;

- Financial statements audited and approved by competent agencies at the time of transformation.

- Decision on value of state capital by competent agencies at the time of transformation;

- Transfer note of assets, funds (including details about public debts transferred to the joint-stock company and other financial shortcomings to be handled (if any)).

- Reports on labor and use of the enterprise’ s land.

2. Participants in handover:

- Representatives of ministries, ministerial-level agencies or People’s Committees of central-affiliated cities and provinces and representatives of the Ministry of Finance (in case of equitization of economic groups, state corporation, parent companies).

- Representatives of economic groups, state corporations, parent companies (in case of equitization of member enterprises of economic groups, state corporations, parent companies), directors, chief accountants of the equitized enterprise.

- President of the board of directors, director, chief accountant and representatives of the union organization of the joint-stock company.

- Representatives of State Capital Investment Corporation in case the equitized enterprise transfers ownership of state capital to State Capital Investment Corporation.

3. The transfer note should have all signatures of the participants and specify:

- Situations of assets, funds and labor at the time of handover;

- Rights and obligations succeeded by the joint-stock company.

- Shortcomings to be handled by the joint-stock company.

Chapter III

VALUATION OF EQUITIZED ENTERPRISE

SECTION I. CONDUCT OF VALUATION OF ENTERPRISE

Article 12. Enterprise valuation consultancy

1. An equitized enterprise with total asset value from VND 30 billion and over or state capital value from VND 10 billion and over according to accounting books should hire organizations that have valuation function to value the enterprise as prescribed in Article 22 of the Decree No. 59/2011/NĐ-CP.

2. Organizations that have valuation function such as audit companies, securities companies, valuation enterprises at home and abroad (hereinafter referred to as ‘consultancies’) should meet requirements as prescribed in Clause 5, Article 22 of the Decree No. 59/2011/NĐ-CP when registering supply of business valuation services and be annually listed by the Ministry of Finance as enterprises qualified for performing valuation.

3. Equitization-decision-maker shall select valuation consultancies to perform business valuation as follows:

For the procurement of consultancy service valued no more than VND 500 million, the equitization-decision-maker may use manner of direct contracting to select the consultancy in the list published by the Ministry of Finance or organize invitation to bids according to the Law on Bidding if it is necessary.

b) For the procurement of consultancy service valued between VND 500 million and VND 3 billion, the equitization-decision-maker may use manner of direct contracting to select the consultancy in the list published by the Ministry of Finance after being approved by the Prime Minister. 

c) For the procurement of consultancy service outside Points a and b, Clause 3, this Article, the equitization-decision-maker shall organize invitation to bids to select the consultancy according to laws.

4. Based on the decision on selection of the consultancy made by the equitization-decision-maker, director of the equitized enterprise shall sign a contract with the consultancy.The contract for business valuation consultancy (herein ‘the consultancy contract’) should state full responsibility of the equitized enterprise and the consultancy and following information:

Valuation approaches used by the consultancy.

b) Completion time:No more than 60 days at the maximum since receipt of all information about valuation of equitized enterprises as economic groups, state corporations and parent companies; no more than 30 days for other types of enterprises.

For large-scale and peculiar equitized enterprises (multiple contacts, complicated financial settlement…) that need time extension, approval of the equitization-decision-maker shall be required.c) Responsibility of the equitized enterprise:The equitized enterprise shall be responsible for carrying out inventory, classification of assets, performing financial settlement, formulation of production and business plan, supply of relevant documents and responsible to the law for accuracy and legality of supplied documents.

d) Responsibility of the consultancy:The consultancy shall be responsible for deciding on appropriate business valuation approaches, complying strictly with regulations on business valuation; explaining cases when value of the assets determined is lower than the value stated in the accounting books and other cases concerning business valuation as requested by competent agencies; fulfill terms and conditions in the signed contract and be responsible for results of business valuation.

In case the result of business valuation is not in accordance with state regulations, the equitization-decision-maker shall issue a written refusal to make payment for consultancy fee and consider elimination of the consultancy from the list of qualified consultancies.The consultancy shall make compensations for any damage caused to the state according to laws.

dd) Consultancy fee, payment and balance sheets:

Consultancy fee shall be agreed by the equitized enterprise and the consultancy on the basis of bidding result.In case no bidding is organized, the Steering Committee for Equitization shall negotiated with the consultancy on consultancy fee and make submission to the equitization-decision-maker for decision.Level of expenses for equitization is instructed in the Ministry of Finance's Circular No. 196/2011/TT-BTC dated December 26, 2011.

Payment of consultancy fee:When the decision on announcement of value of the enterprise is issued, the equitized enterprise shall perform payment of 80% of the contract value.When the decision on approval for equitization plan is issued, the equitized enterprise shall perform payment of the remaining value to the consultancy.

5. During the implementation of the equitization plan, the consultancy shall be responsible for cooperating with the enterprise in explaining issues concerning the valuation.

6. Any equitized enterprise other than those required to hire a consultancy as prescribed in Clause 1, Article 22 of the Decree No. 59/2011/NĐ-CP shall carry out valuation of the enterprise itself and make the report to the agency that have authority to decide value of the enterprise (hereinafter referred to as ‘the enterprise-value decision maker').In case this enterprise wants to hire a consultancy to carry out the valuation, the enterprise itself may select the consultancy without going through a bidding process.Provisions on the hire of the consultancy by the equitized enterprise are prescribed hereof.

Article 13. Approaches to valuing a business

The consultancy shall select business valuation approaches:

1. Asset approach refers to the method of valuing a business based on actual value of all tangible and intangible assets of such business at the time of valuation.

Foundations for asset -based valuation of a business as prescribed in Article 30 of Decree No.59/2011/ND-CP include:

- Financial statements, figures according to the enterprise’ accounting books at the time of valuation;

- Inventory, classification and assessment records concerning quality of the enterprise’ assets at the time of valuation.

- Market value of the assets at the time of valuation.

- Value of transferred land use rights, re-determined land rents in case the enterprise has made one-time payment for the entire lease period and goodwill of the enterprise.                      

2. Discounted cash flow method refers to a method of valuing a business based on its future profitability regardless of value of the enterprise’ asset.

Foundations for discounted cash flow -based valuation of a business as prescribed in Article 35 of Decree No. 59/2011/ND-CP include:

- The enterprise’ financial statements of the last 5 years preceding the time of valuation.

- The enterprise’s production or business plan for between 3 and 5 years after the enterprise is transformed into a joint-stock company.

- The interest rates of five-year government bonds at the time closest to the time of valuation and the discount cash flow co-efficient of the to-be-valued enterprise.

- Value of transferred land use right, re-determined land rents in case the enterprise has made one-time payment for the entire land lease period.                     

3. The consultancy may select other approaches (in addition to two methods above) to determine value of the enterprise. Other approaches must show scientificity, reflect true value of a business, be internationally adopted and straightforward.

Article 14. State audits of equitized enterprises

For enterprises subject to state audits as prescribed in Article 27 of the Decree No. 59/2011/NĐ-CP and Clause 4, Article 1 of the Decree No. 189/2013/NĐ-CP:

1. Based on the enterprise arrangement and innovation plan approved by the Prime Minister, the equitization-decision-maker shall deliver the schedule of equitization of the equitized enterprise to the State Audit Office for coming up with programs, plans for auditing result of enterprise valuation carried out by the consultancy and handle financial issues before an official announcement of the enterprise value is made.

2. After the consultancy has completed documentation of results of the valuation as prescribed, the equitization-decision-maker shall issue a written notice with attachment of the documentation to the State Audit Office for auditing the results made by the consultancy.

The Steering Committee for Equitization, equitized enterprise and consultancy shall be responsible for providing documents and explanations of issues concerning financial settlements, valuation of enterprise carried out by the consultancy at the request of the State Audit Office.

3. Within 15 days since receipt of requests from the enterprise-value decision maker, the State Audit Office shall be responsible for auditing the consultancy’s valuation results and the enterprise's financial settlement. Time of completion and announcement of results of audits shall not exceed 60 days since the auditing starts.The State Audit Office shall be responsible for results of audits according to laws.

In case extension of time for auditing value of the enterprise provided by the consultancy is required as prescribed in Article 27 of the Decree No. 59/2011/NĐ-CP, the State Audit Office should issue a written notice to the agency having authority to decide value of the enterprise for coordination to ensure the time for announcement of value of the enterprise is in accordance with Article 15 hereof.

4. Based on results of valuation as determined by the consultancy and suggestions from the enterprise-value decision maker, the State Audit Office shall carry out auditing of such results and settle financial issues before the official audit is made to following enterprises:

- Parent companies of economic groups;

- Parent companies of state corporations and other single member limited companies at the request of the Prime Minister.

Article 15. Announcement of enterprise value

1. Both the consultancy and equitized enterprise shall formulate enterprise valuation documentation including:

Financial statements of the equitized enterprise at the time of valuation.

The equitized enterprise shall be responsible for carrying out annual financial audit according to state regulations to serve as foundations for valuation of enterprise. In case the time of valuation is not in coincidence with the time of annual financial statements, the enterprise may use quarterly financial statements or financial statements formulated at the time of valuation to determine value of the enterprise according to the equitization-decision-maker’s decision.

b) Reports on classification of assets and handling of financial shortcomings of the enterprise.

c) Written records of enterprise valuation, records of verification of enterprise value (Forms 1, 1a, 1b, 2, 2a, 2b enclosed herewith).

d) Copy of documented details of difficulties proposed for handling during the valuation of enterprise;

dd) Other necessary documents as prescribed in Articles 30, 25 of the Decree No. 59/2011/NĐ-CP (depending on valuation approaches used);

2. Decision on announcement of enterprise value:

Decision on announcement of value of the enterprise by the enterprise-value decision-maker shall be verified by the Steering Committee for Equitization in sequence, procedures and compliance with regulations on business valuation as prescribed in Article 24 of the Decree No. 59/2011/NĐ-CP.

For equitized enterprises that are not subject to auditing in valuation of enterprise as prescribed in Clause 4, Article 1 of the Decree No. 189/2013/NĐ-CP, within ten days since receipt of the Steering Committee for Equalization’s reports and enterprise value documentation, the enterprise-value decision-maker issue the decision on announcement of value of the enterprise.

b) For equitized enterprises subject to auditing as prescribed in Clause 4, Article 1 of 189/2013/NĐ-CP, within 10 days since receipt of results of audit from the State Audit Office, the Steering Committee for Equitization shall make a report to the enterprise-value decision-maker. If results of audits are approved, within 10 days since receipt of the reports from the Steering Committee for Equitization, the equitization-value decision-maker shall issue the decision on announcement of value of the enterprise.

The results of audits, if not approved by the enterprise-value decision-maker, shall be re-discussed or reported to the Prime Minister for consideration and decision before value of the enterprise is announced within competence.

3. Duration between the time of announcement of value of the enterprise and the time of valuation should be six months at the maximum in case of application of asset approach and nine months at the maximum in case of application of discounted cash flow method (and other approaches).

If value of the enterprise is yet to be announced after the duration above, the equitization-decision-maker shall give it consideration and decide extension of time for announcement but ensure the duration between the time of announcement of value of the enterprise and sale of shares for the first time and the time of valuation should not exceed 18 months except for cases as decided by the Prime Minister.

4. For economic groups, state corporations and enterprises operating in the areas of insurance, banking, telecommunications, aviation, extraction of coals, oil, gas and other rare precious mines with equitization plan approved by the Prime Minister, the Steering Committee for Equitization shall make reports on enterprise valuation to regulatory agencies, people’s committees of central-affiliated provinces and cities for decision on announcement of value of the enterprise and at the same to the Ministry of Finance for monitoring.

5. Member Assembly of single-member limited companies of which 100% charter capital is held by the State as parent company of economic groups, state corporations established under the Prime Minister’s Decision shall be authorized by the Prime Minister to make decision on announcement of value of the enterprise and grant approval for the plan for equitization of member enterprises.After the decisions are made, the Member Assembly of economic groups and state corporations above shall make the report to The Steering Committee for Innovation and Development of Central Enterprises and the Ministry of Finance for inspection and monitoring in accordance with laws.

Enterprise value announcement form is in Annex 4 enclosed herewith.

Article 16. Adjustment of enterprise value

1. The equitized enterprise shall make adjustments to published value of the enterprise as prescribed in Article 26 of the Decree No. 59/2011/NĐ-CP; Clause 3, Article 1 of 189/2013/NĐ-CP.

2. Responsibilities of the equitized enterprise and the equitization-decision-maker for making adjustments to value of the enterprise:

In case value of the enterprise is affected by objective reasons, the equitized enterprise should actively conduct an inventory to determine level of losses and make an early report to the equitization-decision-maker for review.

Within 15 days since receipt of reports from the equitized enterprise, the equitization-decision-maker shall conduct inspection to re-determine value of the enterprise and direct the Steering Committee for Equitization to cooperate with the enterprise in adjusting the equitization plan.

b) If the enterprise is yet to sell shares after 18 months since the time of valuation, the equitization-decision-maker shall request the enterprise to suspend approved steps of developing equitization, explain reasons and define responsibility of relevant collectives and individuals and at the same time direct the Steering Committee for Equitization to organize re-valuation of the enterprise and make adjustments to the equitization plan (if necessary). Expenses for re-valuation of the enterprise and making adjustments to the equitization plan (after deducting compensations made by relevant individuals) shall be recorded in the receipts from equitization.

SECTION II. ASSET APPROACH BASED VALUATION OF ENTERPRISE

Article 17. Actual value of equitized enterprise

1. Value of the enterprise stated in accounting books is the total asset value in the enterprise's balance sheet.

2. Actual value of the equitized enterprise is value of the enterprise’s existing total assets at the time of equitization with due account taken of profitability as accepted by share buyers and sellers.

3. Actual value of the equitized enterprise shall not include amounts outside value of the enterprise for equitization as decided by the enterprise-value decision-maker as prescribed in Article 29 of the Decree No. 59/2011/NĐ-CP, and Point b, Clause 1, Article 1 of 189/2013/NĐ-CP.

4. Actual value of the equitized enterprise includes value of land use right as prescribed in Clause 6, Article 1 of Decree No. 189/2013/NĐ-CP and goodwill as prescribed in Article 32 of the Decree No. the Decree No. 59/2011/NĐ-CP.

5. For financial institutions and credit institutions, in the valuation of the enterprise, they may use results of financial audit to determine capital assets, public debts but should re-perform the inventory and assessment of fixed assets, long-term investments, unfinished expenses for compensation for site clearance, site leveling and value of land use right according state regulations.

Article 18. Valuation of business assets.

Actual asset value is determined in Vietnam dong.Assets accounted for in foreign currency shall be converted into Vietnam dong according to average exchange rate in inter-bank foreign exchange market published by the State bank at the time of valuation.

1. For in-kind assets:

Only revaluate the assets that continue to be used by the joint-stock company.

b) Actual value of the asset (=) the cost according to market price at the time of valuation (x) remaining quality of the asset at the time of valuation.

Where:

- Market price:

Price of new asset of the same type sold in the market including costs of transport and installation (if any).For peculiar assets not available in the market, the buying price of the asset shall be based on the price of new asset of the same manufacturer, capacity or similar function.In case no similar asset is available, valuation is based on asset value stated in accounting books.

Unit price of fundamental construction, investment rate shall be stipulated by competent agencies at the time closest to the time of valuation with respect to fundamental construction products.In case no relevant regulation is in place, book value shall be based on with due account taken of slippage in prices in fundamental construction.

For works completed in investment and construction three years before the time of valuation, balance sheets of the works approved by competent authorities shall be based.

- Quality of the assets is determined by percentage of quality of new asset of the same type in accordance with state regulations on safety conditions in use and operation of the asset;If state regulations are not in place, quality of the assets as machinery, equipment, transport vehicles shall be re-determined with at least 20% of quality of a new asset of the same type, or at least 30% of quality of new assets of the same type for assets as workshops, architectural objects.

c) Fixed assets with depreciation cost fully recovered; labor and management facilities fully recorded in business costs that continue to be employed by the joint-stock company shall be re-valuated for inclusion in value of the enterprise with at least 20% of new assets of the same type.

d) For in-kind assets as rubber tree gardens, their value shall be determined in accordance with the Ministry of Finance’s Decree No. 132/2011/TT-BTC dated September 28, 2011.

2. The enterprise’ assets in the form of cash, deposits and other debt instruments (treasury bills, bonds…) are determined as follows:

Cash assets are determined on the basis of reports on cash fund inventory

b) Deposit assets on the basis of balances confirmed with the bank where the enterprise opens account.

c) Debt instruments on the basis of current market transaction priceIf market transaction price is not available, face value of such instruments shall be based.

3. Receivables shall be based on actual balances in accounting books and instructed in Clause 3, Article 9 hereof.

4. Unfinished costs for production and business, fundamental constructions, compensations for site clearance, site leveling shall be based on actual variations in accounting books.

5. Value of short-term and long–term collaterals shall be based on actual balance in accounting books confirmed.

6. Value of intangibles (if any) shall be based on remaining value currently recorded in accounting books.

7. Value of goodwill

Value of goodwill  of an equitized enterprise as prescribed in Article 32 of Decree No. 59/2011/ND-CP including value of its brand and its development potential shall be determined as follows:

Trademark value is determined on the basis of actual expenses for building and protection of the brand, trade name during the operation of the enterprise five years before the time of valuation, including expenses for business establishment, staff training, advertising and propaganda at home and abroad; website construction...

b) Value of development potential of an equitized enterprise is the enterprise’ development potential valued on the basis of its future profitability when comparing profit ratio with Government bonds as follows:

Where:

- Actual value of the state capital according to accounting books at the time of valuation is determined as equal to value of the enterprise according to accounting books (total assets as represented in the enterprise’ balance sheet as prescribed in Clause 1, Article 17 hereof) except for payables at the time of valuation.

- Owner’s capital determined includes the balance of: Owner’s capital – Account 411; development investment funds – Account 414 and capital for capital investment – Account 441 according to the Minister of Finance’s Decision No. 15/2006/QD-BTC dated March 20, 2006. Determination of owner’s capital of joint-stock companies as credit institutions shall be instructed by the State bank of Vietnam.

- Post-tax profit ratio is determined as follows:

8. Value of long-term investment capitals in other enterprises in instructed in Article 33 of the Decree No. 59/2011/NĐ-CP.Where:

- The valuation of owner’s capitals of other enterprises to determine value of the equitized enterprise’s long-term investment capitals shall exclude undistributed profits (if any) used for establishment of reward and welfare funds, other funds, distribution of profits among capital contributing members when the Resolution of Member Assembly and General Assembly of Shareholders takes effect.

- Profits distributed from other enterprises (according to the Resolution) shall be recorded in the enterprise’s business performance outcome at the time of valuation.

- Valuation of other short-term investments (normally under one year) shall be instructed the same as long-term investments.

- Value of the equitized enterprise’s capitals contributed to the joint-stock company already listed on securities market shall be based on closing price of stocks traded in securities market at the time closest to the time of valuation.Value of the equitized enterprise’s capitals contributed to the joint-stock company not listed on securities market shall be based on results provided by the consultancy as prescribed in Clause 1, Article 33 of the Decree No. 59/2011/NĐ-CP. The Steering Committee for Equitization shall review and make submission to the enterprise-value decision-maker for decision.

9. Value of land use rights

Valuation of land use rights is instructed in Clause 6, Article 1 of the Government’s Decree No. 189/2013/NĐ-CP dated November 20, 2013.

Land price for valuation of land use rights is the land price as prescribed in Articles 15, 16 of the Government’s Decree No. 44/2014/NĐ-CP dated May 15, 2014 on land prices.

b) Enterprises that have already completed equitization or in the process of equitization (the equitized enterprise’s value already published by competent authorities) before the effective date of Decree No. 189/2013/NĐ-CP shall continue to carry out land handover and lease and determine value of land use rights based on the approved plan.

10. When determining value of a business applying asset approach, the entire value that constitutes total asset value of the enterprise and is included in actual value of the equitized enterprise through purchase of shares from the equitized enterprise shall be converted to the joint-stock company’s assets invested by shareholders. The joint-stock company shall include depreciation in business costs according to applicable regulations (appreciation value of fixed assets); 

Article 19. Actual value of state capital in enterprise

1. Actual value of state capital in the enterprise is equal to actual value of the enterprise minus actual payables and balances of the budget for non-business services (if any).In which, actual payables are the total value of the enterprise’s payables minus the accounts payable yet unpayable.

2. In the equitization of parent companies of economic groups, state corporations, parent company of parent company-subsidiary company conglomerate (hereinafter referred to as ‘parent company):

- Subsidiary companies with 100% of charter capital held by the parent company (the equitized enterprise) shall carry out valuation as prescribed hereof to determine actual value of the parent company in subsidiary companies.

- Actual value of the equitized enterprise (the parent company) is value of the parent company and value of its dependent cost-accounting enterprises determined in accordance with this Circular.

- Actual value of state capital in the parent company is equal to actual value of the parent company as determined above minus actual payables and balances of the budget for non-business services (if any).

SECTION III. DISCOUNT CASH FLOW - BASED VALUATION OF ENTERPRISE

Article 20. Discount cash flow - based valuation of enterprise

1. The discounted cash flow method is the valuation of an enterprise based on future profitability of such enterprise regardless of the enterprise's asset value.

2. - Equitized enterprises subject to discount cash flow – based valuation should have at least five years of operation before the time of valuation with an average post-tax profit to state capital ratio in the last five years preceding the time of valuation higher than interest rates of five-year term government bonds issued at the time closest to the time of valuation. 

3. In this method, figures of profits, state capital in the past years shall be used to determine value of the enterprise on the basis of figures of profits, state capital as prescribed in financial regulations on equitized enterprises.

In case the equitized enterprise has capital investments in other enterprises, the profits therefrom shall serve as foundations for determination of the enterprise's value.

4. According to discounted cash flow method, determination of figures of future post-tax profits and use of such figures to calculate norms (profit rates/capitalization rates; dividend growth rates) as foundations for conversion of future dividend and capital value into present value as follows:

- Determine future post-tax profits based on average post-tax profit growth rate in the past years.If future post–tax profits are used as profits as set in the plan, the enterprise should prove it feasible.

5. Actual value of the enterprise includes actual value of state capital, payables, balances of budget for non-business services (if any)

Article 21. Actual value of state capital according to discounted cash flow method

Actual value of state capital according to discounted cash flow method is determined as follows:

Where:

1. Norms

: present value of dividends of the year i

: present value of state capital of the year n

i: the order of successive years from the year of valuation (i:1→n).

D_i: Post-tax profits used for distribution of dividends of the year i.

n: the number of years chosen (3 – 5 years)

P_n: Value of state capital of the year n and determined as follows:

D_n+1: Post-tax profits used for distribution of expected profits of the year n+1

K: Necessary discount rate or rate of return to investors in purchase of shares and determined as follows:

K = R_f + R_p

R_f: Profit ratio received from risk-free investments. It is calculated on interest rates of five-year term government bonds issued at the time closest to the time of valuation.

R_p: Risk premium for purchase of shares from Vietnamese companies. It is determined according to international securities risk premia indices or by valuation companies for each enterprise but not in excess of profits received from risk-free investments.

g: Annual dividend growth rate determined as follows:

g = b x R

Where:b: earnings retention rate

R: Average ratio of future post-tax profits to owner’s capital

2. Determination of the difference in value of land use rights is instructed in Clause 9, Article 18 hereof.

Article 22. Discount cash flow - based valuation of enterprise

1. Actual value of the enterprise according to discounted cash flow method at the time of valuation is determined as follows:

Where:

Actual payables = Total payables on accounting books minus (-) accounts payable yet unpayable plus (+) Value of land use rights paid to state budget for the area of land handed over, transformed in use purpose as prescribed in Clause 9, Article 18 hereof.

2. Positive difference (increase difference) between actual value of state capital according to discounted cash flow method and value of state capital on accounting books at the time of valuation recorded in value of the equitized enterprise through purchase of shares from the equitized enterprise shall be converted to the joint-stock company’s assets invested by shareholders.

SECTION IV. VALUATION OF EQUITIZED ENTERPRISES BY OTHER METHODS

Article 23. Valuation of equitized enterprises by other methods

In addition to the two methods as stated in Section II, Section III, Chapter III of this Circular, the consultancy may apply other methods to valuate the equitized enterprise.Other approaches should ensure scientificity, reflect true nature of the enterprise, internationally adopted and straightforward.

Article 24. Choice and use of results of valuation

1. Results of valuation according to discounted cash flow method or other methods should be compared with results of valuation according to asset approach at the same time for the choice based on the principle that value of the equitized enterprise to be announced should not be lower than value determined according to asset approach. 2. Documentation and results of valuation shall be determined and chosen in accordance with the Decree No. 59/2011/NĐ-CP, Decree No. 189/2013/NĐ-CP and this Circular and serve as foundations for the enterprise-value decision-maker to determine scale of charter capital, structure of shares issued for the first time and reserve price for share auctions.

SECTION V. DEDUCTION OF VALUE OF GEOGRAPHICAL ADVANTAGES

Article 25. Principles of deduction of value of geographical advantages

1. The enterprises that have included the value of the geographical advantage of allocated land in the enterprise value and have recorded an increase in state capital in the enterprise when determining enterprise value for equitization, which is announced by the competent authorities under regulations before the Decree 59/2011/ND-CP became effective, may deduct the value of the geographical advantage from the land rent payable. Enterprises equitized pursuant to Decree No. 109/207/ND-CP without geographical advantages may apply Decree No. 59/207/ND-CP without obligation to add geographical advantages and adjust state capital in the enterprise..

2. Total land rents deducted should not exceed value of geographical advantages decided by the enterprise-value decision-maker.

In case value of geographical advantages is greater than land rents payable in the year, the difference shall be deducted from the land rents of succeeding years (amounts of geographical advantages already included in the enterprise’s costs until December 31, 2013 shall not be deducted).

Article 26. Application for deduction of value of geographical advantages

1. The joint-stock company shall issue a written request to the enterprise-value decision-maker for confirmation of value of geographical advantages of each land parcel in the locality (the figures are based on enterprise valuation documentation).

2. Application for deduction from land rents:

A written request delivered to the local tax agency (where value of the land’s geographical advantages is confirmed) for deduction of value of geographical advantages from annual land rents (original)

b) A written confirmation of value of geographical advantages by the enterprise-value decision-maker (original).

c) Decisions on valuation of the enterprise for equitization, written records of valuation of the enterprise for equitization, detailed information about value of geographical advantages of the enterprise (original or certified true copy).

d) Documentary evidence or invoices of paid land rents in case of one-time payment for the entire lease period (certified true copy).

3. Sequence of deduction of value of geographical advantages from land rents.

Upon receipt of the application for deduction of value of geographical advantages from land rents from the joint-stock company, within 15 days, the tax agency shall be responsible for conducting examination (legality and accuracy of the application) and accepting deduction if the application meets requirements as prescribed.

Chapter VI

EFFECT

Article 27. Effect

1. This Circular takes effect since October 27, 2014 and supersedes the Ministry of Finance’s Circular No. 202/2011/TT-BTC dated December 30, 2011 providing instructions on the Decree No. 59/2011/NĐ-CP.

2. To the time when this Circular takes effect, any equitized enterprise that performs valuation and is issued the decision on announcement of enterprise value by competent agencies shall be entitled to retain the value as announced and make adjustments under this Circular when performing financial settlement, determination of value of state capital at the time of transformation.

3. Difficulties that arise during the implementation of this Circular should be reported to the Ministry of Finance for amendments, supplements./.