The Importance of Distinguishing Between Private Placement and Public Offering

- Issuance of new shares due to stock split or consolidation

Some joint stock companies when newly established set the par value of shares as 4 new shares too high or sometimes the market price of a company's shares is too high, which can make the company's stock trading unfavorable, the company can decide to split the shares. For example: an old share is worth 1,000,000 VND, the company decides to split an old share into 100 new shares, so an old share is split at a ratio of 1:10 and thus the par value of the share is also reduced and is determined by 10,000 VND/share. Splitting shares or also known as dividing shares is mainly aimed at reducing the price of the shares and thus making it easier to buy and sell the company's shares. A stock split does not change the value of the company's equity assets or the percentage of ownership of the company by each existing shareholder, it only increases the number of shares outstanding and the number of shares held by each shareholder.

In contrast to stock splits, there are cases where a company performs a stock consolidation. This is usually the case where the company's stock price is too low, which is not beneficial to the company's reputation. The company can perform a stock consolidation to increase the market price of a share and do so by recalling the old shares and replacing them with a smaller number of new shares.

1.3.1.3. Issuing new shares with cash

In the process of business operations to increase investment capital, a joint stock company can choose the method of issuing additional shares and selling them. Issuing new shares for sale helps the company collect more capital while the company's assets, charter capital and equity also increase. To issue shares for sale to increase capital, depending on specific conditions, the company can choose the method of private issuance or public offering.

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1.3.2. Securities issuance method

1.3.2.1. Private Placement

Private placement is when a company offers its securities to a limited number of people (usually institutional investors who intend to hold the securities for a long time), under limited conditions, rather than issuing them to the public. Investment banks may also participate in private placements as distributors in order to receive placement fees. Most bond issuances are done in the form of private placements, while issuances of common stock - common stock - are rarely done in this form.

1.3.2.2. Issuance of securities to the public

Public offering of securities is an issue in which transferable securities are sold to the public to a large number of investors (of which a proportion must be reserved for small investors) and the issue volume must reach a certain level.

1.3.2.3. The significance of the distinction between private placement and public placement

The distinction between private placement and public placement is to determine that public issuers must be high-quality companies with good business operations, in order to protect the general investing public, especially small investors who lack knowledge. At the same time, this is also a condition for building a safe, public, effective and sustainable stock market.

The issuance of individual securities is normally subject to the provisions of the Law on Companies. Securities issued in this form are not subject to listing and trading on the primary securities market.

1.3.4. Securities issuance guarantee

1.3.4.1. Concept

Securities underwriting is the commitment of the underwriting organization to the issuing organization to carry out procedures before offering securities for sale.

Securities, purchasing part or all of the securities of the issuing organization for resale or purchasing the remaining undistributed securities of the issuing organization or assisting the issuing organization in distributing securities to the public [Article 6.22].

Underwriting helps stabilize the price of securities in the early stages after issuance. In the world, investment banks are often the organizations that act as underwriters. According to Vietnam's securities law, underwriting is performed by securities companies with underwriting services according to Article 60 of the LCK. The underwriter is the person responsible for buying or offering securities of an issuing organization to distribute securities for commission.

1.3.4.2. Methods of underwriting

Underwriting is usually done in one of the following ways:

- Guarantee with firm commitment: is a guarantee method in which the guarantee organization commits to buy all issued securities regardless of whether all securities are distributed or not.

- Contingency underwriting: This is a method often applied when a public company issues additional common stock in developed countries. In that case, the company needs to protect the interests of existing shareholders. It can be said that contingency underwriting is the underwriting organization's commitment to buy the remaining undistributed securities of the issuing organization and resell them to the public.

- Best-efforts underwriting: is a form of underwriting in which the underwriter agrees to act as an agent for the issuing organization. The underwriter does not commit to selling all the securities but commits to doing its best to sell the securities to the market, but if it cannot distribute all of them, it will return the remaining securities to the issuing organization.

- Guarantee by all-or-none method: in the method

In this method, the issuing organization requires the underwriter to sell a certain number of securities; if they cannot be distributed in full, the entire issuance will be canceled.

Minimum-maximum underwriting: is an intermediate method between the best-efforts underwriting method and the all-or-none underwriting method. Under this method, the issuing organization requires the underwriter to sell a minimum percentage of securities (the floor). Beyond that level, the underwriter is free to offer securities up to a specified maximum level (the ceiling). If the amount of securities sold is lower than the required level, the entire issuance will be canceled.

Chapter 2

INITIAL PUBLIC OFFERING UNDER VIETNAMESE LAW

2.1. PUBLIC OFFERING - INITIAL PUBLIC OFFERING OF SHARES UNDER VIETNAMESE LAW

 Public offering of shares .

A public offering is a process in which shares are offered to all investors (investors) including individual investors and professional investors under the same conditions and time.

Public offering of shares is usually applied to issuances with large capital mobilization and the amount of securities issued must reach a certain level. Public offering of shares is subject to the control of securities law.

The distinction between private placement and public offering is often based on a number of criteria such as: total issuance value, number of buyers of shares - securities of the issuance, however, public offering of shares - securities must pay a higher issuance cost than private offering (6-8% of total mobilized capital). In principle, public offering of shares of all types of enterprises must comply with the Law on Securities. Public offering of securities must be registered with the State Securities Commission. In case a state-owned enterprise converts into a joint stock company and conducts a public offering of shares, it is exempted from registration obligations but must fully perform the obligation to disclose information and be subject to supervision by specialized management agencies.

Initial public offering.

Initial public offering or IPO (initial public offering) . According to financial practice in business, this issuance means that a business raises capital widely from the public for the first time.

by issuing ordinary shares, which are shares that represent ownership in their own right and which carry corresponding voting rights at annual or extraordinary general meetings of shareholders. Part of the IPO (Initial Public Offering) may be the transfer of shares of existing shareholders (for example, Article 84 of the Enterprise Law, Clause 4.5 stipulates: “In case the founding shareholders do not register to buy all the shares offered for sale, the remaining shares must be offered for sale and sold out within three years from the date the company is granted a Certificate of Business Registration. Within three years from the date the company is granted a Certificate of Business Registration, founding shareholders have the right to freely transfer their common shares to other founding shareholders, but may only transfer their common shares to persons who are not founding shareholders if approved by the General Meeting of Shareholders. In this case, shareholders intending to transfer shares do not have the right to vote on the transfer of those shares and the transferee automatically becomes a founding shareholder of the company.

After three years from the date the company is granted the Certificate of Business Registration, all restrictions on common shares of founding shareholders shall be lifted.

Thus, IPO (Initial Public Offering) is the first offering of shares for each enterprise only once, and after the IPO, the next times will be called issuing shares on the secondary market. IPO is very important for enterprises because for any enterprise this is the first and most important challenge for a series of operational aspects, the reason for this challenge is that before being allowed to mobilize capital widely, enterprises must ensure a series of strict issuance conditions and very strict information reporting regulations.

An IPO is completely different from an existing shareholder selling his shares; the latter is called an offer for sale.

In Vietnam, IPOs are often associated with the equitization of state-owned enterprises, which is also a characteristic of a transitional economy. Equitization is summarized through the following process:

- In terms of procedures, the IPO process usually involves one or more

Finance companies, investment banks, securities companies, these financial intermediaries are responsible for providing services or underwriting. The organization that issues securities to the public is called the issuer. In the world, this underwriting fee can be up to 8% of the total amount sold and is accompanied by many other terms.

- IPO process.

Due to the amount of legal procedures and sanctions that are quite strict and complicated, each IPO usually requires the support of several law firms. An IPO may include a part in which the current shareholders transfer ownership of the current shares in a way that we call secondary transactions, although the main role of the IPO is emphasized as a new and initial public offering to raise a significant amount of capital. However, according to world practice, both securities law and the convention of the underwriting companies limit the function of transferring the current shares in the form of secondary transactions.

IPOs are usually sold to large institutional investors and also reserve a small percentage of shares for sale to important individual customers arranged by the underwriter. In developed markets, issuers often allow a clause allowing the underwriter to arbitrarily increase the size of the IPO issuance up to 15% compared to the agreed plan to flexibly respond to market demand, called the Greenshoe option - Greenshoe is a clause agreed to be implemented when market demand increases too much, pushing up the price, then issuing an additional maximum of 15% to help stabilize the price (in some countries this amount is transferred to a price stabilization fund). Sometimes the issuer does not agree because they do not have a plan to use the money from increasing the number of shares sold.

2.2. CONDITIONS FOR INITIAL PUBLIC OFFERING OF SHARES OF CERTAIN TYPES OF ENTERPRISES

The conditions for initial public offering of shares are clearly stated.

in Article 4, Decree 14 of 2007, detailing the implementation of the Securities Law of 2006

2.2.1, For foreign invested enterprises converting into joint stock companies and offering shares to the public

For this type of enterprise, the following conditions must be met:

a) Enterprises with contributed charter capital at the time of registration for offering from 10 billion Vietnamese Dong or more calculated according to the value recorded in the accounting books.

b) Business operations in the year immediately preceding the year of registration for offering must be profitable and have no accumulated losses up to the year of registration for offering.

c) There is an issuance plan and a plan to use capital raised from the offering approved by the owner of the 100% foreign-owned enterprise or the board of directors of the joint venture enterprise.

d) Have a securities company advise on preparing the stock offering documents.

2.2.2 For 100% state-owned enterprises converting into joint stock companies combined with public offering of shares

This type of enterprise must comply with the provisions of law on converting State-owned enterprises into joint-stock companies (stipulated in Decree 109/2007ND-CP). Before being allowed to mobilize capital widely from the public, a State-owned enterprise must ensure the conditions for issuing shares and regulations on full and accurate disclosure of information on all aspects of the enterprise's operations. Each enterprise has only one IPO and the following times are issuing shares on the secondary market. Therefore, before IPO, the equitized enterprise must promote the determination of the enterprise's value, especially the value of the assets that the State assigns to the enterprise to manage. The most difficult and complicated task in the equitization process is to determine the value of the enterprise's assets at the time of equitization. Valuation of enterprise assets is one of the important factors in building the stock price.

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