% 85% of Joint Stock Enterprises Have Charter Capital

Enterprises with capital transferred to the Corporation belong to many different fields, business lines, operating scales and management levels. Most of the enterprises are small-scale, with an average charter capital of less than 10 billion VND (about 85% of enterprises), only about 1.5% of enterprises have capital of over 100 billion VND ( Table 2.4 reflects the proportion of charter capital of equitized enterprises transferred to SCIC ). Specifically as follows:

+ 38% of enterprises have state-owned enterprises holding controlling stakes. Many enterprises, when equitized, are state-owned and do not need to retain capital, but because they cannot sell shares, the remaining capital is large. 36% of state-owned enterprises hold less than 30% of charter capital.

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85% 85% of equitized enterprises have charter capital < 10 billion VND

15% of equitized enterprises have charter capital > 10 billion VND

1.5%

15%

1.5% of equitized enterprises have charter capital < 10 billion VND

Table 2.4: Ratio of charter size of equitized enterprises transferred to SCIC

Source: Summary report of 5 years (2006-2010) of SCIC's activities, development orientation for the period 2011-2015, vision 2020 [120]

+ Enterprises with large capital of over 100 billion VND mostly operate effectively, with an average profit margin on charter capital of over 12%. However, the remaining enterprises are not very effective (45% of operating enterprises have a profit margin lower than 10% and nearly 7% of enterprises are making losses) ( Table 2.5 reflects the proportion of VNN in equitized enterprises handed over to SCIC ).

Among the enterprises in which the Corporation has taken over the right to represent the capital owner, only 51 enterprises (accounting for 5.7% of the total number of enterprises) are in the category of enterprises that the state needs to hold.

hold shares according to Decision 38/2007/QD-TTg issued on March 20, 2007 on promulgating criteria and classification list of 100% Vietnamese enterprises.

36%

38%

26%

36% of equitized enterprises have state capital holding < 30% of the enterprise's charter capital.

38% of equitized enterprises have state capital holding controlling shares (over 51% of charter capital)

26% of equitized enterprises have state capital holding from 30 - 50% of the enterprise's charter capital.

Chart 2.5: Ratio of state capital in enterprises after equitization transferred to SCIC Source: Summary report of 5 years (2006-2010) of SCIC's activities, development orientation for the period 2011-2015, vision 2020 [120]

Basically, the transfer of the right to represent the ownership of VNN in enterprises under the Ministry and localities in the past time has been carried out carefully, in accordance with the law, and has not affected the production and business of the enterprise. Through the transfer of the right to represent the ownership as a shareholder in the enterprise, the Corporation has initially separated the state administrative management function from the business autonomy of the enterprise, shifting from the form of capital allocation to the investment and business mechanism of VNN operating according to market principles, business accounting with efficiency as the goal. The interests of the enterprise, the interests of shareholders and the interests of employees are resolved harmoniously ( Table 2.6 reflects the results of receiving the right to represent the ownership of VNN).

700

600

500

Number of businesses

400

300

200

100

2006 2007 2008 2009

Table 2.6: Results of receiving the right to represent state capital ownership Source: Summary report of 5 years (2006-2010) of SCIC's activities, development orientation for the period 2011-2015, vision 2020 [120]

This thesis presents 03 examples to demonstrate the implementation of the VNN management policy in equitized enterprises in Vietnam. In which, Example 1 : Regarding the transfer of the right to represent the ownership of VNN from the Ministry of Construction as the owner representative to SCIC as the owner representative. Example 2: Regarding an equitized enterprise with VNN represented by a State-owned corporation under the Ministry: Hai Chau Confectionery Joint Stock Company by Sugarcane Corporation 1 under the Ministry of Agriculture and Rural Development as the owner representative of VNN. Example 3: Regarding an equitized enterprise with VNN represented by a State-owned corporation under the locality: Hanoi Construction Materials Joint Stock Company by Hanoi Trading Corporation under the People's Committee of Hanoi City as the owner representative of VNN.

Box 2.2 is an example of a corporation under a ministry when the entire corporation is equitized, with the ministry representing the ownership of VNN. After the establishment of SCIC, the right to represent the ownership of VNN is transferred to SCIC.

Box 2.2. Transfer of ownership representative rights of VNN from the Ministry of Construction as owner representative to SCIC as owner representative

Regarding the Construction Investment and Trade Joint Stock Corporation (Constrexim), the right to represent the owner of VNN was transferred from the Ministry of Construction to SCIC on June 4, 2007. The signing of the Minutes of the handover of the right to represent the owner of VNN was carried out between the Ministry of Construction and SCIC with the witness of the Ministry of Finance.

The charter capital of the Corporation at the time of handover is: 203 billion VND. VNN at the time of handover is: 117.37 billion VND. After signing the handover minutes, SCIC will:

+ There is an official dispatch requesting the General Corporation for Investment, Construction and Trade to confirm VNN ownership at the corporation.

+ Change SCIC's name to represent VNN in business registration and shareholder book of

DN.

Source: Author's own compilation

2.2.2. Implementation status of the issue of VNN representatives in enterprises after equitization.

The representative of VNN in the equitized enterprise is appointed by the representative of the owner of VNN investing in the equitized enterprise to participate in representing VNN in the equitized enterprise. Specifically:

Before 1999, the number of equitized enterprises was not large, by the end of 1998, only 30 enterprises had been equitized nationwide. The State had no specific regulations on the duties of the representative of the State-owned enterprise in the equitized enterprise. The subjects appointed by the owner's representative as the representative of capital in the equitized enterprise were mostly leaders of the old State-owned enterprises because the equitized enterprises almost never sold shares outside the enterprise. From 1999 to 2002, the equitization work was promoted thanks to Decree No. 44/1998/CP dated June 29, 1998, which resolved many difficulties in the equitization of State-owned enterprises. As a result, 940 enterprises and parts of State-owned enterprises had been equitized by June 30, 2002. The appointment of the representative of the State-owned enterprise in the equitized enterprise during this period was decided by the ministries, branches and localities in charge, and the Board of Directors of the State-owned enterprise's corporation.

After 2006, when SCIC came into operation, the right to represent the ownership of VNN was transferred to SCIC and the appointment of VNN representatives in equitized enterprises was decided by SCIC. The implementation of policies for VNN representatives in equitized enterprises is illustrated in box 2.3.

Box 2.3: Some examples illustrating the issue of state capital representatives in enterprises

after CPH

Example 1 : Regarding the election of VNN representatives in the equitized enterprise when equitizing the Construction and Trade Investment Joint Stock Corporation, the Ministry of Construction assigned 4 former leaders of the corporation to represent VNN to run for leadership positions of the equitized enterprise. The first shareholders' meeting of the corporation elected these 4 officials to the Board of Directors and the Board of Directors of the equitized enterprise. When transferring the right to represent VNN ownership from the Ministry of Construction to SCIC: With 04 representatives of VNN before the handover, SCIC decided to continue to authorize 03 former leaders of the enterprise to represent SCIC's capital and assign 01 SCIC official to participate in the election to the Board of Directors of the enterprise so that the Shareholders' Meeting of the enterprise can elect them to the Board of Directors.

Every 6 months, the representative of SCIC's VNN at the General Investment Construction and Trading Corporation must report on the management and use of VNN at the General Corporation. Before the General Shareholders' Meeting of the General Corporation, the representative of SCIC's VNN must submit a written request for SCIC's direction on important issues before voting at the General Shareholders' Meeting. In case of urgent and important matters, the representative of SCIC's capital must request SCIC's opinion before making a decision.

Example 2: Regarding equitized enterprises with VNN represented by a State-owned corporation under the Ministry: Hai Chau Confectionery Joint Stock Company, with Sugarcane Corporation 1 under the Ministry of Agriculture and Rural Development as VNN's representative owner.

Regarding the organization of VNN management at Hai Chau Confectionery Joint Stock Company: Before equitization, Hai Chau Confectionery Joint Stock Company was a state-owned enterprise under the Sugarcane Corporation 1 under the Ministry of Agriculture and Rural Development. Implementing the equitization plan approved by the Prime Minister, in 2004 Hai Chau Confectionery Company conducted equitization according to Decree 64/2002/ND-CP of the Government. Hai Chau Confectionery Joint Stock Company held its first General Meeting of Shareholders on December 31, 2004 and officially began operating as a joint stock company from February 1, 2005.

The charter capital of Hai Chau Confectionery Joint Stock Company at that time was 30 billion VND. VNN when equitized was 17.7 billion VND, accounting for 59% of the charter capital. The representative owner of VNN is Sugarcane Corporation 1 under the Ministry of Agriculture and Rural Development.

Regarding the appointment of a representative to directly manage VNN: When equitizing, the Equitization Preparation Board of Hai Chau Confectionery Company builds an equitization plan with the contents prescribed in Decree 64. One of the contents of the plan is the expected personnel organization of the JSC to report to Sugarcane Corporation 1 for approval. Based on the report of the Equitization Preparation Board of Hai Chau Confectionery Company and the 50% participation rate of VNN in the JSC, Sugarcane Corporation 1 has appointed 03 people as representatives of VNN to run for the Board of Directors of the JSC and hold the positions of Chairman of the Board of Directors, member of the Board of Directors and General Director and 01 full-time member of the Board of Directors. Sugarcane Corporation 1 also introduced 02 officers as Head of the Supervisory Board and member of the Supervisory Board for the first Shareholders' Meeting of Hai Chau Confectionery Joint Stock Company to elect. As a result, 03 VNN representatives of Sugarcane Corporation 1 hold the positions of Chairman of the Board of Directors, member of the Board of Directors and General Director, and 01 full-time member of the Board of Directors, along with the title of Head of the Supervisory Board and member of the Supervisory Board of the Joint Stock Company.

Sugarcane Corporation 1 assigns 01 officer from among those appointed as capital representative and participating in the Board of Control as Team Leader to manage the activities of the representative and the Board of Control in accordance with the objectives assigned by Sugarcane Corporation 1 to the VNN Representative at Hai Chau Confectionery Joint Stock Company, which is to effectively use the VNN investment in the JSC, preserve the capital assigned to manage and ensure the JSC produces and operates in accordance with the orientation set by the corporation.

The VNN representative elected by the General Meeting of Shareholders has a term of 5 years. After the term expires, he/she may be re-elected by the General Meeting of Shareholders depending on the level of trust of the shareholders in the completion of tasks during the elected term. During the operation, Sugarcane Corporation 1 may replace the representative if deemed necessary. At that time, the corporation shall send a document to the Board of Directors of Hai Chau Confectionery Joint Stock Company requesting the withdrawal of this representative and requesting to replace him/her with another representative. On that basis, the Board of Directors of Hai Chau Confectionery Joint Stock Company shall meet to agree and submit to the Annual General Meeting of Shareholders or Extraordinary General Meeting of Shareholders for election at the nearest meeting.

+ Regarding the activities of the direct representative of VNN at the Joint Stock Company: Every year, the direct representative of VNN at Hai Chau Confectionery Joint Stock Company signs a commitment contract with Sugarcane Corporation 1 on the following contents: Ensuring the implementation of the company's production and business plan; Ensuring the implementation of the profit and dividend plan; Other financial indicators ; Human resource organization plan.....

Every quarter, the group of representatives directly managing the VNN portion meets to review and evaluate the implementation of assigned tasks and propose directions and solutions for implementation in the coming time. Especially the task of preserving and effectively using the VNN portion invested in the JSC. Before the meetings of the Board of Directors, according to the assigned authority, the person directly representing VNN must report in writing to ask for the opinion of Sugarcane Corporation 1 on the contents that need to be voted on at the Board of Directors meeting. Matters that have been delegated by the corporation do not need to be asked for opinions, but the results and resolutions of the Board of Directors meeting of Hai Chau Confectionery JSC must be reported to the corporation.

Based on the commitment signed with the corporation and the assigned tasks, the representative directly managing VNN based on the positions held such as Chairman of the Board of Directors, member of the Board of Directors and General Director, full-time member of the Board of Directors, head of the Supervisory Board and members of the Supervisory Board must perform well their duties as stated in the Company Charter.

Example 3: Regarding a joint stock company with a VNN represented by a local state-owned corporation: Hanoi Construction Materials Joint Stock Company , with Hanoi Trading Corporation under the Hanoi People's Committee as the VNN's representative owner.

+ Regarding the organization of VNN management at Hanoi Construction Materials Joint Stock Company: Hanoi Construction Materials Joint Stock Company is a state-owned enterprise under Hanoi Trading Corporation, which has been equitized since April 2004 according to Decision No. 2522/QD-UB dated April 26, 2004 of the Hanoi People's Committee. Hanoi Construction Materials Joint Stock Company held its first General Meeting of Shareholders on December 22, 2004 and officially started operating as a joint stock company since February 1, 2005 (the day the company was granted a seal).

+ The charter capital of Hanoi Construction Materials JSC at that time was 10 billion VND. VNN when equitized was 5.1 billion VND, accounting for 51% of the charter capital. The representative of VNN's owner was Hanoi Trading Corporation.

+ Regarding the election of VNN management representatives: When Hanoi Construction Materials Joint Stock Company prepared to hold the first General Meeting of Shareholders, Hanoi Trading Corporation sent 03 people to represent VNN to run for election and were elected by the General Meeting of Shareholders of Hanoi Construction Materials Joint Stock Company to the Board of Directors and the Board of Supervisors of the company. On December 23, 2004, the Board of Directors and the Board of Supervisors of the company held the first meeting to elect the Chairman of the Board of Directors, the Head of the Board of Supervisors and to elect the Executive Director of the company. As a result, 03 people from Hanoi Trading Corporation - representing VNN - held the positions of Chairman of the Board of Directors, Director and Head of the Board of Supervisors of Hanoi Construction Materials Joint Stock Company.

+ The Board of Directors and the Board of Supervisors of the company are elected by the General Meeting of Shareholders for a term of 5 years. After the term expires, they can be re-elected by the General Meeting of Shareholders depending on the level of trust.

responsibilities of shareholders in completing tasks during the elected term. During the operation, Hanoi Trading Corporation can replace the representative if necessary. At that time, the representative of VNN, Hanoi Trading Corporation, sent a document to the Board of Directors of Hanoi Construction Materials Joint Stock Company requesting to replace the representative of VNN. On that basis, the Board of Directors of Hanoi Construction Materials Joint Stock Company met to agree and submit to the Annual General Meeting of Shareholders or Extraordinary General Meeting of Shareholders to elect a replacement member of the Board of Directors or member of the Supervisory Board.

Source: author's own synthesis

2.2.3. The situation of implementation of state capital management and investment in state-owned enterprises after equitization

In the period before 1998, because the number of equitized enterprises was not large, the problems arising in the management and investment of foreign capital in equitized enterprises were not discussed by the State with specific policies and guidelines. In this period, the management and investment of foreign capital in equitized enterprises were carried out by the representative as for state-owned enterprises. The investment of capital in business projects, the increase and decrease of foreign capital with changes in the charter capital of the equitized enterprises were reported by the representative to the owner of foreign capital for approval according to the financial management policy of state-owned enterprises.

After Decree No. 44/1998/ND-CP dated June 29, 1998 of the Government on converting state-owned enterprises into joint stock companies, which provided guidance for representatives of state-owned enterprises at equitized enterprises to exercise their rights and duties in accordance with the provisions of the Law on State-owned Enterprises 1995, representatives of state-owned enterprises had a legal corridor to perform their duties. Representatives of state-owned enterprises participate in the apparatus of equitized enterprises according to the Charter of the equitized enterprise. Monitor and supervise business activities, implement reporting regimes and be responsible to the owners of state-owned enterprises. Management and investment of state-owned enterprises in equitized enterprises are carried out in the following order: Representatives develop plans and measures to submit to the representatives of state-owned enterprises for approval before voting at meetings of the Board of Directors and General Meetings of Shareholders. Participate in deciding on measures to manage and operate equitized enterprises in the direction of using controlling shares or special shares approved by the State;

Since Decree No. 73/2000/ND-CP dated December 6, 2000 of the Government on Regulations on management of VNN portion in other enterprises and Circular No. 64/2001/TT-BTC

dated August 10, 2001 of the Ministry of Finance guiding the implementation of the regulations on management of VNN in other enterprises, stipulating the organization and management of VNN in equitized enterprises. Starting from this period, there has been a relatively complete and clear legal corridor for the management of VNN in equitized enterprises. The value of VNN in equitized SOEs includes: VNN from SOEs transferred to JSCs; The value of state shares granted to employees in enterprises to receive dividends when SOEs equitize in the period before Decree No. 44/1998/ND-CP dated June 29, 1998 of the Government takes effect; Dividends distributed due to the State's investment in equitized enterprises are used for reinvestment in these enterprises.

The management of VNN investment during this period is illustrated in box 2.4.

Box 2.4: State capital management and investment activities in Confectionery Joint Stock Company

Hai Chau

Hai Chau Confectionery Joint Stock Company has been operating since February 1, 2005, however, it was not until 2006 that the company transferred the settlement books of the VNN portion to the JSC. In the handover minutes, the VNN portion at the JSC decreased to only 13.5 billion VND, accounting for 45% of the charter capital of Hai Chau Confectionery Joint Stock Company. The reason for the decrease in VNN was that when equitizing, the VNN portion at the company had not been accurately assessed. Not taking into account the equitization costs, the costs of supporting employees of the company to buy preferential shares reduced by 30%, the losses due to investment in the Custard soft cake production line that had not been settled at the time of equitization... These losses, according to the regulations of the equitization policy, were deducted from the VNN portion at the company, because the Sugarcane Company 1 did not contribute any more. Those shares were sold to the existing shareholders of the JSC according to the existing ratio. During more than five years of operation, the VNN representative of Hai Chau Confectionery Joint Stock Company had 03 investment proposals, using large VNN that had to be reported to Sugarcane Corporation 1 for direction and was approved for investment by Sugarcane Corporation 1. Those are:

+ In 2006, implementing the policy of Hanoi People's Committee on relocating production facilities out of Hanoi city, the company's Executive Board developed a plan to relocate the entire factory to Van Giang district, Hung Yen province, a plan to invest in building a new factory and a plan to invest in land business at the company's headquarters on Mac Thi Buoi street - Vinh Tuy ward - Hai Ba Trung district - Hanoi. After being approved in writing by Sugarcane Corporation 1. The direct capital representative at the JSC voted at the meeting of the Board of Directors and the General Meeting of Shareholders of Hai Chau Confectionery JSC to approve the investment plan.

+ In 2007, based on the need to expand the production and business activities of the JSC and the need to use capital. The company's Executive Board proposed to increase the charter capital of Hai Chau Confectionery JSC from 30 billion VND to 45 billion VND. On that basis, the representative of VNN at Hai Chau Confectionery JSC held a meeting and agreed with the proposal to increase the charter capital of the Executive Board. After that, the Head of the representative of VNN at Hai Chau Confectionery JSC sent a document to ask for the opinion of the representative of VNN's owner, Sugarcane Corporation 1. Sugarcane Corporation 1, based on the functions and tasks assigned by the Ministry of Agriculture and Rural Development, issued a document approving the representative of VNN at Hai Chau Confectionery JSC to vote at the General Meeting of Shareholders for the JSC to issue a resolution to increase the charter capital from 30 billion to 45 billion VND. Accordingly, the existing shareholders increased their capital according to the capital contribution ratio.

% 85% of Joint Stock Enterprises Have Charter Capital < 10 Billion VND

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