Equitization of foreign direct investment enterprises in Vietnam

UNIVERSITEÙ OUVERTE DE HCMV UNIVERSITEÙ LIBRE DE BRUXELLES ECOLE DE COMMERCE SOLVAY MMVCFB PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM-COMMUNAUT E FRANCAISE DE BELGIQUE VU THI ANH DAO EQUITIZATION OF FOREIGN DIRECT INVESTMENT ENTERPRISES IN VIETNAM MASTER DEGREE THESIS In Management MMVCFB 6 Guidance Adviser: Dr. Pham Dac Duyen Ho Chi Minh City 2005 – 2007 - ii - LETTER OF ASSURANCE I’m hereby testify that this is a self-studied topic which written by Vu Thi Anh Dao All the figures, data lead to outcome indicated in this thesis are quite truly Vu Thi Anh Dao T T h h e e M M a a s s t t e e r r i i n n M M a a n n a a g g e e m m e e n n t t P P r r o o g g r r a a m m ( ( M M M M V V C C F F B B 6 6 ) ) 2 2 0 0 0 0 5 5 - - 2 2 0 0 0 0 7 7 - iii - ACKNOWLEDGEMENT Two years for this course was not considered such as long period of time but at least something, the course cover quite broad, therefore a self-taught without experience exchange and valuable guidance from the Professors will not drive me to the today success. I would like to express my highly appreciation to all the Professor who conducted in this matter in management program for their hard works, valuable guidance on the lecture throughout the course. Many thanks the Professors “Pham Dac Duyen” for his enthusiasm who gave good counsel and advises on my understanding to complete this thesis. Next, I wish to thank you the Board of Director, Head of Investment Promotion Dept. and all the colleagues of Southern Foreign Investment Center – Ministry of Planning and Investment. Who have provide useful supports in gathering of information and discussion to prepare this final report. I also thanks Ms. Bui Phan Bao Tran and Mr. Serge Bywalski for taking the time and providing constructive assistance, tutorship on the study and this thesis preparation. The last but not least, I would like to send my gratitude to all my classmate. Especially, all Group 1 members who have accompany with me to all a long trip today. V V u u T T h h i i A A n n h h D D a a o o T T h h e e M M a a s s t t e e r r i i n n M M a a n n a a g g e e m m e e n n t t ( ( M M M M V V F F F F B B 6 6 ) ) 2 2 0 0 0 0 5 5 - - 2 2 0 0 0 0 7 7 - vi - TABLE OF CONTENTS Page PREFACE xii • The imperative of the thesis xii • The thesis purposes xiii • Objects and scope of studying xiv • The research methodology xiv • The thesis contents xv CHAPTER 1 1 OVERVIEW ON FDI & EQUITIZATION OF FDI ENTERPRISE 1 1.1 Overview on FDI 1 1.1.1 Basic conception 1 1.1.2 The role of FDI in developing countries 2 1.1.3 Characteristics of FDI in Vietnam 5 1.2 Equitization of FDI Enterprises 9 1.2.1 Characteristic of join-stock company 9 1.2.1.1 History of shareholding company 9 1.2.1.2 The concept about shareholding companies 10 1.2.1.3 Basic characteristics of shareholding company 10 1.2.1.3.1 The aspect of ownership 11 1.2.1.3.2 The aspect of finance 11 1.2.1.3.3 The aspect of management organization 14 1.2.2 Equitization of FDI enterprises 16 1.2.2.1 The concepts of equitization and privatization of SOEs 16 1.2.2.2 The implementation process of SOE’s equitization in Vietnam 18 1.2.2.3 Experiences in equitization in some countries 21 - vii - 1.2.2.3.1 Privatization process in England 21 1.2.2.3.2 The privatization implementation in the Federal Republic of Russia. 22 1.2.2.3.3 Equitization of SOEs in China 23 1.2.2.4 Particulars of FDI enterprises’ equitization 24 1.2.2.5 Experience in the implementation of FDI enterprises’ equitization in China 25 CHAPTER 2 28 THE PERFORMANCE OF THE EQUITIZATION 28 OF FDI ENTERPRISES IN VIET NAM 28 2.1 The policies and legal bases for FDI Enterprises equitization 28 2.1.1 Vietnam basic policies and the conversion from FDI Enterprises to FIS Companies 28 2.1.1.1 The policy of equitization 28 2.1.1.2 Contents of equitization 29 2.1.1.2.1 Conditions 29 2.1.1.2.2 Forms of conversion 31 2.1.1.2.3 Determination of the Enterprise’s Value 32 2.1.1.2.4 Operation of FIS companies 34 2.1.1.2.5 Procedures and formalities of the implementation of conversion 36 2.1.2 Legal grounds for and State management of the FIS company 38 2.1.2.1 Legal grounds for the FIS companies: 38 2.1.2.2 State management of FIS companies. 40 2.2 Present situation of equitization of FDI enterprises 41 2.2.1 General situation 41 2.2.2 The situation through the study of 9 equatized FDI enterprises 41 2.2.2.1 The conversion model of Austnam Shareholding Company 43 2.2.2.2 The conversion model of Royal International Shareholding Company 44 - viii - 2.2.2.3 Conversion model of Vietcans Shareholding Company 45 2.2.2.4 Conversion model of Full Power Shareholding Company 46 2.2.2.5 Conversion model of Tung Kuang Industrial Shareholding Company 47 2.2.2.6 Conversion model of Taya (Vietnam) Electric Wire and Cable Shareholding Company 48 2.2.2.7 Conversion model of Chang Yih Ceramic Shareholding Company. 49 2.2.2.8 Conversion model of International Food Shareholding Company 50 2.2.2.9 Conversion model of the Taicera Industrial shareholding Company Ltd. 51 2.2.3 The results, the limitations and the causes 52 2.2.3.1 The results: 52 2.2.3.2 Limitations and causes 55 CHAPTER 3 58 SOME MEASURES TO IMPROVE 58 THE EQUITIZATION OF FDI ENTERPRISES 58 3.1 The macroscopic measures 58 3.1.1 Viewpoints on the management policy of FDI enterprises 58 3.1.2 Perfecting the legal system concerning the conversion of FDI enterprises 61 3.1.3 To improve the stock market for pushing up equitization 62 3.1.4 To attract the international investment funds for accelerating the equitization process 67 3.1.5 To improve other barriers 68 3.1.5.1 The responsibilities of State management authorities 68 3.1.5.2 The policies on the workers and the converted enterprises 69 3.1.5.3 The dissemination of equitization knowledge 70 3.2 Concrete solutions 72 - ix - 3.2.1 Solutions to the FIS companies 72 3.2.2 Solutions to other FDI enterprises. 73 3.2.3 To flexibly apply the different methods to determine the enterprises’ value in the conversion 74 3.2.4 Solutions with regard to the share issuance of FDI enterprises when converted to shareholding companies 76 3.2.5 The State should early decide on the opening of “room” for FDI enterprises while the Law on Securities is already effective. 77 3.2.6 To consolidate the foreign currency control over the FDI enterprises in conversion to shareholding companies 78 3.2.7 The organization of implementation 79 CONCLUSION 81 - x - LIST OF ABBREVIATIONS • BCC : Business Co-operation Contract • BOT : Build-Operate-Transfer • BT : Build-Transfer • BTO : Build-Transfer-Operate • EPZ : Export Processing Zone • FDI : Foreign Direct Investment • FIA : Foreign Investment Agency • FII : Foreign Indirect Investment • FIS : Foreign Invested Shareholding • GMS : General Meeting of Shareholders • IZ : Industrial Zone • MOF : Ministry of Finance • MPI : Ministry of Planning & Investment • ODA : Official Development Assistance • SGCs : State General Corporations • SMEs : Small and Medium Enterprises • SOEs : State-owned Enterprises • SSC : State Securities Commission • TNCs : Transnational Corporations - xi - LIST OF GRAPHS AND TABLES Page Table 1.1: Total investment capital by economic sector 6 Table 1.2: GDP structure by economic sectors 6 Graph 1.1: FDI statistics from 1988 to Dec.2006 7 Graph 1.2: FDI statistics by sector from 1988 to Dec.2006 8 Graph 1.3: Top Foreign Investors from 1988 to Dec.2006 8 Table 2.1: the FIS enterprises listed on the stock market 42 Table 2.2: Business situation of FIS companies in 2005 53 Graph 3.1: Vietnam Stock Market in the period 2000 – 2006. 64 Table 3.2: Structure of transactions at Hochiminh City stock exchange in 2006.65 - xii - PREFACE • The imperative of the thesis In the initial stage of economic development, Vietnam has encountered a difficult matter: lack of capital due to low internal accumulation, thus restricting investment scale and equipment renewal. After 18 years of attracting foreign investment capital, in 2005, foreign direct investment (FDI) capital covers 15.7% of total social investment capital, 55% of export turnover, 16% of GDP, and over US$ 1 bil. for national budget. FDI capital also uses redundant labor force, creates jobs for over 1 million people, trains management teams, and forms the behaviors of industrial production. In addition, FDI capital accelerates the process of industrialization and enhances Vietnam’s position in the world. With such results, the preservation and encouragement of FDI capital is a imperative matter in the economic development policy, especially when there is a strong competition in the attraction of FDI capital. According to the previous provisions of Law on Foreign Investment, foreign investors operate in Vietnam chiefly in the forms of business cooperation contract, joint-venture and 100% foreign-owned. All these forms are of limited liability company, thus restricting the capacity of mobilizing capital for production development… Shareholding company is so popular in the world. It is also provided in the Law on Enterprises (old) and applied for the local companies. In April, 2003, the government promulgated the Decree 38/2003/ND-CP on the conversion of some enterprises to shareholding companies, by which, the form of shareholding [...]... or International Investment is the investment activities beyond a nation and of two forms: foreign direct investment and foreign indirect investment Foreign Indirect Investment (FII or FPI: Foreign Portfolio Investment) : is a form of investment in which the capital investing people – foreign investors – and the capital using people are different entities That means the investors do not participate directly... directly in the management of the investment activity This investment form is carried out by way of the purchase of shares, share certificates, bonds, other valuable papers or through securities investment funds and intermediary financial institutions Foreign Direct Investment (FDI): means a form of investment whereby the foreign investor invests his capital and participates in the management of the investment. .. development, Vietnam has encountered a financial problem: lack of capital, due low internal accumulation, this restricting investment scale and equipment renewal After 18 years of attracting FDI, since the promulgation of Foreign Investment Law, this capital has contributed significantly to the increase of investment capital for the economy of Vietnam In 2006, FDI’s capital accounted for 16.3% of total investment. .. Foreign Investment 5,0 13,3 15,9 In which: Source: General Statistical Office According to Foreign Investment Agency – Ministry of Planning and Investment (MPI), at the end of December 2006, Vietnam has 6,813 FDI projects (in validity) with total registered investment capital of US$ 60.47 bil., implemented capital of operational projects reached US$ 28.78 bil., in which, the FDI has mainly gone to industrial... the FDI enterprises in Vietnam at the time being as well as in the future Objects and scope of studying The objects for studying are the FDI enterprises and the scope is the matters concerning the conversion of a FDI enterprises into shareholding companies and the formation of a new foreign company in the form of shareholding company in Vietnam The thesis studies, first, the theories on FDI enterprises. .. of payment, but it helps the balance of payment of China stronger in recent years and foreign currency provision (increased more ca US$ 50 bil, in 2001) higher Among Asian countries, China and India are considered as the most attractive places for investment The following are Thailand, South Korea, Malaysia, Indonesia, Vietnam and Singapore 1.1.3 Characteristics of FDI in Vietnam The main purpose of. .. pilot basis to some enterprises with the Prime Minister’s permission At the end of 2005, Law on Enterprises and Law on Investment are promulgated and come into effect from 1/7/2006, entitling the foreign investors to select the forms of investment, including the shareholding company The form of shareholding company is rather new in Vietnam Many complicated matters on legality and finance are raised:... composed of 3 chapters and the conclusion as follows: Chapter 1: Overview of FDI and equitization of FDI enterprises Chapter 2: The performance of the equitization of FDI enterprises in Vietnam Chapter 3: Some measures to improve the equitization of FDI enterprises in Vietnam The Conclusion CHAPTER 1 OVERVIEW ON FDI & EQUITIZATION OF FDI ENTERPRISE 1.1 Overview on FDI 1.1.1 Basic conception Foreign Investment. .. state budget of investment receiving countries Although the Government applies tax holiday policy for foreign investors in a certain of time, it still has other revenue out of tax and revenue from foreign currency through export of FDI enterprises Ü Pushing up economic development in the undergrown regions Some countries encourage foreign investor to invest in the areas which are still in difficult... important part in the whole investment capital of China, holding circa 3% GDP It also contributes in the ratio of value added tax in China -5- In 1995, FDI’s enterprises in China accounted for 61% of garment and shoes export, creating many jobs, accounted for 3% urban employment and played the important role in privatization process The role of FDI is not strong if we consider the financial contribution . Investment or International Investment is the investment activities beyond a nation and of two forms: foreign direct investment and foreign indirect investment. • Foreign Indirect Investment. Processing Zone • FDI : Foreign Direct Investment • FIA : Foreign Investment Agency • FII : Foreign Indirect Investment • FIS : Foreign Invested Shareholding • GMS : General Meeting of. securities investment funds and intermediary financial institutions. • Foreign Direct Investment (FDI): means a form of investment whereby the foreign investor invests his capital and participates in