2.1 Capital Mobilization in VNPT
Regulations of Capital Mobilization of VNPT a. Forms and Principles of Capital Mobilization
- The parent company is allowed to raise capital for business activities in the form of issuance of debt instruments, loans from banking institutions, credit organizations and other financial
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institutions, from individuals and organizations out of the parent company; from employees and other funding forms in accordance with the law.
- The mobilization of capital for business activities is done according to the principles of self-responsibility of repayment, assurance of debt payment ability and approved plans by the competent authority, assurance of capital using efficiency without changing the ownership of the parent company, and in compliance with the current regulations of the law on securities, corporate and foreign debt management. The person who approves the capital mobilization plan must be responsible for checking, monitoring and ensuring the right purposes and objectives and effectiveness of raised capital.
b. Capital Raising Costs (including interests and raising fees)
- If the parent company is allowed to raise capital with preferential interest rates (e.g. ODA loans), the interest rate will comply with preferential interest rates. In case that the parent company directly borrows from individuals, economic organizations, the maximum interest rate does not exceed lending rates of commercial banks at the time of applying loan.
- The rates and fees are accounted in accordance with Accounting Standard No. 16 - "Borrowing Costs" with Decision No.
165/2002/QD-BTC which was issued last January 31, 2002 of the Minister of Finance.
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c. Authority of approving the capital mobilization plan
The parent company can actively mobilize capital for production and business activities with the index of total debt on charter capital that does not exceed three (3) times wherein:
- Board of Directors decides the mobilization plan when raised capital is greater than the charter capital of the parent company.
- Other mobilization plans will be decided by the parent company’s General Director.
- If the parent company expects to raise funds that exceed the charter capital three (3) times, it is required to report to the owner for his consideration and decision on the basis of effective mobilization projects.
d. Capital Using Plan
- The parent company is allowed to change its capital and asset structure to do business effectively, preserving and making larger capital.
- The parent company can harmonize capital, assets among dependent accounting member units, and corresponding non- productive units to business tasks assigned by the parent company on the basis of ensuring the following principles:
• Use assets properly and efficiently.
• Have no bad influence on business activities.
• Have no damages.
• Record the increase or decrease of capital, assets.
- Board of Directors can decide to rotate funds or assets from
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dependent accounting units to independent accounting units; in case that rotated assets are fixed assets which are fully depreciated, the CEO will make decision. The CEO of the parent company decides to rotate capital, assets of the dependent accounting member units, non-productive units.
- Board of Directors can decide to rotate the assets of its independent accounting subsidiaries, one (1) member limited liability companies by the method of payment.
- The parent company cannot directly withdraw the capital which has been invested in independent accounting subsidiaries, one (1) member limited liability companies which the parent company is the owner representative. The withdrawal shall be affected only through selling invested equity to other individuals, legal entities. In case of reorganization or adjustment of charter capital in independent accounting member companies and one (1) member limited liability companies, the parent company is allowed to directly withdraw invested capital in these companies on the basis of ensuring the sufficient charter capital and debt payment ability of these companies;
Common Assessment about Capital Mobilization
It can be said that the above regulations of VNPT on capital mobilization of both to ensure the autonomy of the group's capital and the security of capital in terms of macro-economy.
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Table 2
The Autonomic Level of Capital Mobilization in VNPT
Verbal Interpretation Frequency fW
Very low 0 0
Low 12 24
Average 32 96
High 112 448
Very high 13 65
Total 169 633
WM 3.75
Table 3
The Safe Level in Mobilizing Capital of VNPT
Verbal Interpretation Frequency Fw
Very low 3 3
Low 4 8
Average 25 75
High 122 488
Very high 15 75
Total 169 649
WM 3.84
From 2010 to 2012, under the impact of the capital mobilization regulations, VNPT’s capital scale keeps growing year after year. In general, the assets and equity of VNPT has tended to increase over the years from 2010 to 2012.
In table 4, the asset scaleofVNPT shows that ithas increasedoverthe years from 2010 to 2012. In 2010, the asset valuewas111,416billion, increasing
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10.91% compared with 2009; while in 2011, the asset value was 123,137 billion, increasing10.52% comparedwith 2010. Then, in 2012 the asset value was135,586 billion,increasing10.11% compared to2011.
Table 4
Assets and Equity of VNPT from 2010 to 2012
Source: Summary from Financial Statements of VNPT Currency unit: Billion dongs
VNPT reported that most capital is concentrated on investment activities for major sectors. According to the reports last December 31, 2012, about 95% of equity was invested in the Group's main sectors (telecommunication activities), and the rest was for other activities such as finance, banking, and assets.
However, the fact that some capital mobilization regulations need to be further improved in order to overcome difficulties in raising capital for production and business activities. Specifically, capital mobilization regulations of VNPT have not promoted the autonomy of subsidiaries; the hierarchical classification and decentralization especially about rights to invest, purchase, license, lease, mortgage, and pledge assets for loans or lend have been specifically regulated by the heads to the Board of Directors and director of the subsidiaries. Therefore, approval from superiors is often late; or the authorization of superiors to subordinates is formalistic, which leads companies into difficulties, embarrassment, making business decisions of the
Year 2010 2011 2012
Total assets 111,416 123,137 135,586
Total Owners’ equity 69,499 71,807 73,968
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companies always passive.
Table 5
The Autonomic Level in Mobilizing Capital of the VNPT’s Subsidiaries
Verbal Interpretation Frequency Fw
Very low 19 19
Low 113 226
Average 30 90
High 5 20
Very high 2 10
Total 169 365
WM 2.16
Capital harmonizing mechanism in VNPT has not been explicitly and fully set. Especially, the application of capital, asset harmonizing methods in the form of recording capital increases or decreases is not suitable to the market mechanism. In the market mechanism, the capital surplus or shortage is frequently taken place, if applying the recording of capital increase or reduction in the harmonizing process is irrational and inefficient.
In reference to Table 7, generally, capital mobilization in the internal group is cumbersome, rigid; if funding from foreign organizations and individuals, the group does not directly sign the contract but through the government, under the guarantee of the Ministry of Finance, which increases capital costs.
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Table 6
Clarity and Fulfilment in Harmonizing Capital Mechanism of VNPT
Verbal Interpretation Frequency fW
Very low 10 10
Low 120 240
Average 27 81
High 12 48
Very high 0 0
Total 169 379
WM 2.24
The capital mobilization regulations made by the state have not promoted the strength of the intermediary financial institutions such as venture capital funds (the EGs are not allowed to raise capital from venture funds). In experience studies from other countries, this is an important channel for capital mobilization.
Table 7
Reasonable Level Regulated the Loan Limit at the Rate Payable on Capital in not more than Three Times
Verbal interpretation Frequency Fw
Very low 10 10
Low 118 236
Average 25 75
High 13 52
Very high 3 15
Total 169 388
WM 2.30
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In table 7, it reflects that the loan limit is regulated based on the rate of debts on charter capital in not more than three (3) times. However, the charter capital of VNPT has changed every year; it is difficult to determine this rate.
On the other hand, the size of the charter capital of VNPT is not really large, if control the raising capital as above regulations, it will cause difficulties for VNPT to invest in other large projects assigned to VNPT.
Financial Activities
Now, VNPT’s main capital mobilization channels are bank loans. The bank loans kept more than 70% of capital in the investment projects of VNPT.
This starts because of the following reasons:
1. VNPT is limited to only one member Liability Company of the state owned so the law of Vietnam must not allow to issue stock to mobilize capital.
2. VNPT still does not issue corporate bonds to raise capital because of a legal framework for this market is too sketchy. The lack of a legal framework and the monitoring role of state management agencies have made investors uneasy that they were well- protected. So they had psychological fears and they participated limiting in the issuance of corporate bonds.
3. Although, mobilizing capital from corporate bonds is the most stable capital mobilization channel. The time limit may be up to 15-20 years. The issuance of corporate bond will control actively the interest rate risk more than bank loans. Bank loans are mostly short-term, which only used to supplement working capital. The bonds are resource so firms can develop long-term investment.
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2.2 Capital management and use in VNPT
Regulations of Capital Management and Use of VNPT
a. Rights and Obligations of Parent Company in Capital Management and Use
Rights of parent company in capital management and use:
- Parent company is entitled to actively use the capital under that Parent Company manages in business and investment activities.
- In case Parent Company uses fund contrary to the regulated purpose of fund (temporary use), parent company shall ensure the sufficiency of capital source to meet the expenditure of such fund were necessary.
- Parent company can consider lending capital for member units under internal regulations to conduct the investment and business.
Obligation of parent company in capital and fund management and use:
- Parent company shall bear responsibility before the owners on capital conservation, development and effectiveness of use.
- The use of capital to invest in construction shall follow the regulations of the law on management, investment and construction.
- In case that the parent company placed an order by the State for regular and stable supply of its public products and services, the parent company should focus its capital and resources on production and supply of such public services.
- In case that the parent company is assigned by the State, a special mission, the parent company shall focus its capital and resources on performing such mission.
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b. Investment Out of Parent Company
• Parent company is entitled to use the assets (including cash,
fixed assets, movable assets, intellectual assets and other assets) under its management to invest out of parent company.
Investment out of parent company shall comply with the regulations of the law, be in line with strategy, arrangement and development plan of parent company and have no impact on the target of its operation and business and production activities of parent company ensure the principle of effective use, conservation and development of the capital and increase of revenue. Investment out of parent company related to the land shall comply with regulations of the law on land.
• Parent company shall use at least 70% total investment capital
in enterprises acting in the fields under main business lines of parent company. Total investment out of parent company (including short term and long term investments) shall not exceed the chartered capital of parent company. For the investment of capital contribution in the fields of banking, insurance, security alone, parent company shall only be permitted to invest in one enterprise for one field; investment capital shall not exceed 20% the chartered capital of the institution receiving the contributed capital, but shall ensuring the contributed capital of parent company and subsidiaries shall not exceed 30% chartered capital of the institution receiving the contributed capital; for special cases with investment demand
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exceeding such regulations, parent company shall submit to Prime Minister for consideration and decision.
• Parent company shall not contribute its capital to buy the stocks
of another enterprises whose manager, governor or primary owner of such enterprises are spouse, parent, children, or siblings of members of Board of Management, Board of Control, Board of Directors and Chief accountant of parent company; not contribute the capital or buy the stocks of risk investment funds, security investment funds or security investment companies.
Types of investment out of Parent Company including:
- Contribute the capital; buy the stocks to establish the joint stock companies, limited companies, contribute capital to business cooperation agreements without formation of new legal entities.
- Buy the stocks or contribute the capital to the joint stock companies, limited companies, partnership companies already operating.
- Acquire another company.
- Buy public debt, bond to enjoy interest.
- Other investments under regulations of the law.
Decisive competence:
The owners decide:
- Approve the supplement to business line or capital investment in member enterprises acting in the fields out of main business lines of Parent company.
- Contribute the capital to establish the foreign invested joint ventures
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in Vietnam, invest or contribute the capital to establish the companies in foreign countries, acquire another companies under another economic groups; investment out of the company is designed to perform mainly, regularly, stably the public products and services; decide the remaining financial investment projects out of decisive competence of Management Board.
- Investment projects out of Parent company have the values from 50% chartered capital above;
Management Board decides or assigns for General Director of Parent company to decide:
Investment projects out of Parent company in the range of total financial investment value of Parent company are lower than 50% chartered capital of Parent company. In the scope of hierarchy, General Director can authorize for dependently calculating member units to decide several investments under internal hierarchy of VNPT.
Management of investment capital out of Parent company:
- Parent company performs the management of invested capital in other enterprises by assigning capital representatives of Parent company in other enterprises to execute rights and obligations of shareholders, capital contributing members.
- The level deciding to invest is also the level assigning the representative joining in management, supervision, examination of the use of contributed capital to other enterprises, be responsible for effective use, conservation and development of the capital; enjoy the
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profit from contributed capital under regulation of the law. In case representative for capital management is Chairman of Management Board or CEO of VNPT, Management Board will make the decision.
- For enterprises where Parent company hold a portion of shares (holding rate decided by Management Board), Management Board decides not to assign the representative for capital portion invested by Parent company in such enterprises. Management Board implements to monitor the invested capital and its divided profit and assign to whom executing the right of shareholders, capital contributing persons under regulation of the law and Charter of organization and operation of such enterprises.
Increase or decrease the capital invested by Parent company in other enterprises:
- Increase or decrease of invested capital of Parent company in other enterprises is suitably considered and decided by Management Board in compliance with charter of organization and operation of such enterprises.
- Method of increasing or decreasing the State capital in such enterprises complies with the prevailing regulations of the law and charter of organization and operation of such enterprises.
Handle the capital of Parent company withdrawing from other enterprises (if any):
State capital is redeemed when there is the decision of decreasing the capital portion of Parent company in other companies, or when such
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companies dissolve or go bankruptcy; redeem the amount borrowed by employees to buy the stocks in case of capitalization of State owned companies, share value is divided for employees for enjoying dividend, credit sale stocks for poor employees in the companies are handled as follows:
- Deliver to Parent company when state capital in the companies is decreased or when such companies dissolve or go bankruptcy.
- Deliver redeemed amount to Corporation arrangement support fund borrowed by employees to buy the stocks in case of capitalization of State owned companies, share value is divided for employees for enjoying dividend, credit sale stocks for poor employees in enterprises under member units of the Corporation.
Common Assessment about Capital Management and Use
Generally, regulations on capital usage in VNPT are rather strict, not only facilitating to increase the self-control, self-responsibility of VNPT but also strengthening examination, supervision on representative owners of State capital.
Regulations on capital management and usage in VNPT have many positive effects; eliminate difficulties in financial management system in VNPT, and help the unit internally handling the financial problems obtain a firm legal ground contributively promoting business production activities of VNPT.
Reports of Supervision delegation of Standing Committee of National Assembly performing supervision program of National Assembly affirm in the context of changeable economy like the current period with the fluctuations in
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demand and supply of commodities and price that VNPT has functioned of the market moderation, price stability, contributively reducing the inflation, stabilizing the market.
Table 8
The Level of Autonomy and Self-Responsibility at VNPT in Using and Managing Capital
Verbal interpretation Frequency fW
Very low 0 0
Low 6 12
Average 25 75
High 128 512
Very high 10 50
Total 169 649
WM 3.84
The report also affirmed that initial capital financed by the State was limited by not meeting the requirement of extending the development of production, business; mostly, chartered capital was not timely adjusted, supplemented; hence, VNPT actively mobilized the capital, diversified the types of ownership in subsidiaries to utilize the development resources, make the motivation for other economic components participate in investment and implementation of important investment projects. The total owner capitals of VNPT tended to increase, owner capitals highly increased in 2011 and 2012.
Rate of total payable liabilities over owner capitals of VNPT basically remained in safe threshold. Specifically, this rate was 2.74 fold, 2.33 fold respectively in 2011, 2012. A recent study showed that this rate of world’s big economic corporations was 1-3 folds.
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Further studying the situation of State capital management and usage in VNPT in the pass time has revealed the following problems:
Table 9
Level of Capital Preserve in VNPT
Verbal Interpretation Frequency fW
Very low 4 4
Low 8 16
Average 17 51
High 126 504
Very high 14 70
Total 169 645
WM 3.82
Capital Management
The sanctions in current capital management relation have not been clearly shown for individuals, institutions assigned to perform the rights of the owner which is only applied to VNPT. It is because the owners as representatives of management agency work periodically, so after the expiration of their office term whether they are responsible for their decision. It has not been transparently regulated in capital management regulation.
Investing Activities
In the angle of parent company with assigned competences, VNPT can be free in decision of initial investment capital source in projects of 100%
subsidiaries where VNPT governs by contributing capital. Even in the prestige and big loan, VNPT remains to find big, long term and low interest rate capital sources easily.