| THE MINISTRY OF FINANCE | SOCIALIST REPUBLIC OF VIET NAM Independence – Freedom – Happiness |
| No. 146/2007/TT-BTC | Hanoi, December 6, 2007 |
CIRCULAR
GUIDING THE SETTLEMENT OF A NUMBER OF FINANCIAL MATTERS UPON THE TRANSFORMATION OF ENTERPRISES WITH 100% STATE CAPITAL INTO JOINT-STOCK COMPANIES UNDER THE GOVERNMENT’S DECREE No. 109/2007/ND-CP OF JUNE 26, 2007
In furtherance of the Government’s Decree No. 109/2007/ND-CP of June 26, 2007, on transformation of enterprises with 100% state capital into joint-stock companies (below referred to as Decree No. 109/2007/ND-CP for short), the Ministry of Finance guides a number of financial matters as follows:
I. GENERAL PROVISIONS
1. This Circular applies to entities undergoing equitization under Article 2 of Decree No. 109/2007/ND-CP (below referred to as equitized enterprises).
2. Equitized enterprises shall conduct inventory, financial settlement and revaluation of their assets and state capital portions. If state capital in enterprises no longer exists, another appropriate form of reorganization shall be applied in accordance with law. The State does not allocate more capital for equitization.
3. Based on the revaluation of their assets and state capital portions, equitized enterprises shall determine their charter capital, work out equitization plans and organize an initial offering of shares and the shareholders’ general meeting, continue settling financial matters which remain unsettled by the time of their official transformation into joint-stock companies, make final settlement with the state and hand over all assets to joint-stock companies.
4. The process of equitization must be conducted in a lawful, public and transparent manner and ensure that no state capital and asset is lost. Involved organizations and individuals that fail to comply with state regulations, causing damage to or loss of state assets shall bear administrative liability, pay material compensations or be examined for penal liability in accordance with law.
5. An agency that decides on equitization defined in Article 54 of Decree No. 109/2007/ND-CP shall set up a steering committee to assist it in organizing equitization work in compliance with regulations. A steering committee for equitization shall be dissolved after the equitized enterprise make; final settlement and officially becomes a joint-stock company Equiization-related financial matters arising after the enterprise officially becomes a joint-stock company (if any) shall be settled by the agency that has decided on the equitization.
6. Proceeds from the equitizauon, after subtracting related expenses, shall be remitted to competent agencies according to regulations. Enterprises are strictly prohibited from using equitizalion proceeds for business or any other purposes. Late remittance of equitization proceeds shall be fined according to current financial disciplines.
II. INVENTORY AND CLASSIFICATION OF ASSETS AND LIABILITIES
A. TIME OF ENTERPRISE INVENTOR YAND VALUATION
1. When receiving an equitization notice or decision from a competent agency, au equitized enterprise shall inventory and classify assets it manages and uses at the time of enterprise valuation.
2. Time of enterprise valuation shall be decided by the equitization-deciding agency to suit the time of closing accounting books, making a financial statement and selecting a method of enterprise valuation, specifically as follows:
2.1. In case of application of the method of enterprise valuation based on assets, the time of enterprise inventory and valuation is the end of a quarter following the quarter in which the equitization decision is issued.
2.2. In case of application of the method of enterprise valuation based on discount cash flow, the time of enterprise inventory and valuation is the end of a fiscal year following the year in which the equitization decision is issued.
3. The equitized enterprise shall use its audited annual financial statement as a basis for determining its monetary capital and liabilities.
If the time of enterprise valuation is not coincidental with the time of making an annual financial statement, the enterprise shall make a financial statement up to the time of enterprise valuation.
4. The time of disclosure of the value of an enterprise and the value of the state capital portion in the enterprise must be within 6 months after the enterprise value is determined based on assets or within 9 months after the enterprise value is determined based on discount cash flow.
Past the above time limit, if the enterprise value and the value of the state capital portion in the enterprise are not yet disclosed for equitization, the equitization-deciding agency may consider and decide to prolong the duration for enterprise valuation but shall ensure the principle that the time of disclosure of the enterprise value and the value of the state capital portion in the enterprise is within 12 months after the enterprise valuation.
B. INVENTORY AND CLASSIFICATION OF ASSETS AND LIABILITIES
1. Inventory and classification of assets:
1.1. To inventory and accurately determine the quantity and quality of existing assets currently managed and used by the enterprise; to check cash in safe and the balance of bank deposits at the time of enterprise valuation; to determine surplus or deficit assets and cash compared with accounting books, and clearly identify reasons for the surplus or deficit.
1.2. Inventoried assets shall be classified into the following groups:
a/ Assets that the enterprise needs to use.
b/ Assets that the enterprise no longer needs, redundant assets and assets pending liquidation.
c/ Assets formed from the reward fund or welfare fund (if any).
d/ Assets hired from outside, supplies and goods consigned by other entities for safe-keeping, processing or sale agency.
2. Comparison, certification and classification of liabilities, detailed listing of liabilities of each type in accordance with the following regulations:
2.1. Payable debts:
a/ To compare and classify debts by creditor (including also arrears of taxes and other state budget remittances) on the basis of clearly breaking down undue debts, overdue debts, debt principals and interests, and payable debts which arc not required to be paid.
b/ Payable debts which arc not required to be paid mean debts of creditors that no longer exist, specifically as follows:
- Debts of dissolved or bankrupt enterprises without institutional or individual heirs.
- Debts of creditors that are dead persons without heirs.
- Debts of other creditors which have become overdue for many years without creditors coining for comparison and certification. In this case, the equitized enterprise shall notify in writing those debts to its creditors or announce them on the mass media before the time of inventory.
2.2. Receivable debts:
a/ To clearly break down recoverable and irrecoverable receivable debts.
Irrecoverable receivable debts must have adequate documents proving their irrecoverability under the State’s current regulations on handling of outstanding debts.
b/ To scrutinize economic contracts in order to determine advance payments already made to goods and service providers and wholly accounted as business expenses, such as house and land rents, payments for purchased goods, long-term insurance premiums, wages, remunerations, etc.
3. For state commercial banks, the inventory, appraisal and classification of assets being monetary capital, financial leasing assets and liabilities shall be conducted as follows:
3.1. To inventory and compare deposits of clients, deposit certificates (bills, promissory notes, bonds) as follows:
a/ Inventorying in detail each item on the accounting book.
b/ Comparing and certifying the outstanding deposits of clients that are legal entities.
c/ For savings, personal deposits and deposit certificates, crosscheck with their clients is not required but figures recorded in accounting books and client cards kept by the banks must be compared. For some specific cases in which outstanding deposits are great or there are differences between figures on accounting books and client cards), crosscheck with clients must be made.
3.2. To compare assets being outstanding credit loans (including those monitored off-balance sheet) as follows:
a/ Based on each client’s credit dossier at the commercial bank, drawing up a list of clients still having outstanding credit loans and outstanding credit loans of each client under each credit contract.
b/ Comparing figures recorded in credit dossiers and figures reflected in the commercial bank’s accounting book; crosschecking outstanding credit loans with each client in order to obtain clients’ certification of outstanding credit loans.
For clients that are individuals, if no crosscheck with those clients can be conducted, the commercial bank shall compare its accounting book with client cards they keep.
c/ If there is a difference between figures recorded in a credit dossier and those recorded in the accounting book certified by the concerned client, the commercial bank shall clearly identify the reason for the difference, determine the responsibility of concerned organizations and individuals and handle them under the State’s current regulations.
3.3. To classify outstanding receivable debts that are subject to handling under the guidance of the State Bank of Vietnam.
3.4. For financial leasing assets: To conduct crosscheck with each client to clearly determine the payable debt amount of each financial leasing asset.
4. If omitting any asset or liability in the course of inventory and comparison, resulting in a decrease in the enterprise value and the value of the stale capital portion in the equitized enterprise, the director, the chief accountant and concerned organizations and individuals are liable for the whole value of the above liability or asset in accordance with law.
C. FINANCIAL SETTLEMENT
1. Before the enterprise valuation
1.1. Assets:
Based on results of asset inventory and classification, the enterprise shall handle its assets in accordance with Article 14 of Decree No. 109/2007/ ND-CP:
a/ For surplus or deficit assets, the enterprise shall analyze and identify reason(s) for the surplus or deficit and handle them as follows:
- For deficit assets, the responsibility of concerned organizations and individuals must be identified for payment of material compensations under current regulations. The value of deficit assets, after subtracting compensations, shall be accounted into business results.
- For surplus assets, if the reason for the surplus and surplus asset owners are unidentified, an increase in the state capital shall be made.
b/ Unused assets, which are approved in writing by the equitization-deciding agency, redundant assets and assets pending liquidation shall be handled as follows:
- Liquidation, transfer or sale: the enterprise’s director shall direct the liquidation, transfer or sale of assets in accordance with current legal provisions.
Proceeds from and expenses for liquidation, transfer or sale of assets shall be accounted as incomes and expenditures of the enterprise.
- By the time of enterprise valuation, unused assets, redundant assets and assets pending liquidation which have not yet been handled shall be accounted into the enterprise value. The equitized enterprise shall preserve and transfer such assets to the agencies defined in Clause 2, Article 14 of Decree No. 109/2007/ND-CP.
c/ Assets being welfare facilities previously invested with the reward fund or welfare fund shall be handled under Clause 3, Article 14 of Decree No. 109/2007/ND-CP.
d/ Assets invested with the reward fund or the welfare fund and already used for production and business and continuing to be used by the equitized enterprise for its production or business shall be handled under Clause 4, Article 14 of Decree No. 109/2007/ND-CP.
- The capital amount equal to the residual value of these assets shall be returned to the reward fund or welfare fund for division to the enterprise’s employees at the time of enterprise valuation according to the number of years they have actually worked in the equitized enterprise.
e/ Assets being welfare facilities invested with state capital and continuing to be used by the equitized enterprise shall be accounted into the value of the equitized enterprise.
1.2. Receivable debts:
Receivable debts shall be handled under Article 15 of Decree No. 109/2007/ND-CP as follows:
a/ For receivable debts with sufficient documents proving their irrecoverability under the State’s current regulations on handling of outstanding debts, the enterprise shall clearly identify the reason for their irrecoverability and the responsibility of concerned individuals or organizations for payment of compensations under current provisions of law. Any loss after the handling shall be made up for by the enterprise with its bad receivable debt reserve. If this reserve is insufficient, the outstanding loss shall be accounted as the enterprise’s business expense.
b/ For other overdue receivable debts, the enterprise shall continue claiming or agree to sell them to economic organizations engaged in sale and purchase of outstanding debts and assets. It may not sell them directly to debtors. Any loss from the sale of debts shall be accounted as business expense.
c/ At the time of enterprise valuation, the equitized enterprise shall hand over liabilities not accounted into its value (including also those already handled with the bad receivable debt reserve, contingency reserve, professional operation reserve, etc., currently monitored off-balance sheet) to concerned agencies under Clause 2, Article 14 of Decree No. 109/2007/ ND-CP.
d/ For amounts paid in advance by the enterprise to goods and service providers, such as house and land rents, payments for purchased goods and remunerations, which have already been fully accounted as business expenses, the enterprise shall compare and account them as decreases in expenses for goods and services not yet provided or for the remaining rent duration and as increases in advanced amounts (or to-be-allocated funds).
1.3. Payable debts:
The principles for handling payable debts comply with Article 16 of Decree No. 109/2007/ND-CP:
a/ Payable debts which are not required to be paid shall be accounted as increases in state capital.
b/ For arrears of taxes and other state budget remittances: The enterprise shall declare and send a tax finalization report made by the time of enterprise valuation to the tax office for inspection and determination of tax amounts to be paid under regulations. The tax office shall assign tax inspectors to inspect the equitized enterprise before the notified time of enterprise valuation.
If the inspection remains uncompleted by the time of enterprise valuation, the enterprise may use the available financial statement as a basis for enterprise valuation (covering the determination of the enterprise’s tax obligations and profit division). Any difference in the enterprise’s tax obligation toward the State (if any) shall be adjusted when the enterprise is granted a business registration certificate for official transformation into a joint-stock company.
c/ For outstanding loans borrowed from state commercial banks and the Vietnam Development Bank (collectively referred to as the lending bank), the equitized enterprise shall compare and coordinate with the lending bank in handling them on the following principles:
- If the equitized enterprise suffers from losses, has no more state capital or is unable to pay overdue debts, it shall carry out procedures and file a dossier of request for debt freezing, prolongation or loan interest remission under current provisions of law.
Within 20 working days after receiving the enterprise’s dossier, the lending bank shall notify in writing the enterprise of its handling opinion.
- Loan principals and interests which are ineligible for remission shall be handled as follows:
+ The enterprise shall carry out all procedures for transferring these loan principals and interests to the succeeding joint-stock company for repayment.
+ The enterprise shall agree with the lending bank on conversion of loan principals and interests into equity capital. The conversion of loans into equity capital shall be made through an auction. The lending bank shall participate in this auction under regulations.
+ The enterprise shall coordinate with the lending bank in handling debts by selling them to the company for sale and purchase of outstanding debts and assets of enterprises (below referred to as the debt sale and purchase company) at agreed prices. Based on the debt sale and purchase agreement, the equitized enterprise shall acknowledge debts with the debt sale and purchase company and at the same time coordinate with the latter in working out and submitting a plan on debt rescheduling to the equitization-deciding agency for consideration and agreement with the debt sale and purchase company on approval of the plan on transformation of the enterprise into a joint-stock company.
d/ For guaranteed overdue foreign loans, the enterprise and the guarantor shall negotiate with creditors on a plan on debt handling under the provisions of law on management of boo owing and repayment of foreign loans.
e/ For unpaid social premiums or wages for its employees, the enterprise shall completely pay them before being transformed into a joint-stock company in order to ensure interests of employees.
1.4. Reserves, losses and profits shall be handled under Article 17 of Decree No. 109/2007/ND-CP.
1.5. Long-term investment capital in other enterprises, such as joint-venture capital or equity capital contributions, capital contributions to limited liability companies, and other long-term investments shall be handled under Article 18 of Decree No. 109/2007/ND-CP.
1.6. Reward fund and welfare fund:
a/ The monetary balance of the reward fund and the welfare fund shall be divided to the equitized enterprise’s employees who are employed at the time of enterprise valuation according to the number of years of working in the equitized enterprise. The director and the trade union in the equitized enterprise shall jointly plan and decide on the division.
The source of the reward fund and the welfare fund is determined to be equal to their balance (excluding the source constituting welfare assets) plus (+) the actual value of assets invested with the reward fund and the welfare fund and currently used for production and business.
b/ If the enterprise has overspent the reward fund and the welfare fund, the excessive amounts shall be settled as follows:
- Amounts directly paid to employees on the list of regular payees at the time of issuance of the equitization decision shall not be covered with the state capital portion in the enterprise. The enterprise director shall coordinate with the trade union in settling these amounts by recovering or convening them into receivable debts for payment by the succeeding joint-stock company.
- For payments in excess of the reward fund and the welfare fund to payees who are unidentifiable for recovery (such as payments to employees who have lost or quitted their jobs before the time of issuance of the equitization decision), the steering committee for equitization shall report them to the enterprise value-deciding agency for settlement like irrecoverable receivable debts.
2. Financial settlement in the period from the date of enterprise valuation to the date of official transformation of the enterprise into a joint-stock company
2.1. In the period from the date of its valuation to the date of its official transformation into a joint-stock company, the enterprise shall continue settling financial matters under the State’s regulations. At the time of issuance of the decision on disclosure of the enterprise value, the equitized enterprise shall settle financial matters and adjust its accounting books under regulations. At the same time, it shall transfer its assets and debts not accounted into its value to the agencies defined in Clause 2, Article 14 of Decree No. 109/2007/ND-CP within 30 days from the date of disclosure of the enterprise value.
2.2. If the period from the deadline for investors to pay money amounts for share purchase to the time the company is granted a business registration certificate is more than three months, the enterprise may calculate loan interests to be paid to investors on the following principles:
- Interests shall only be calculated from the fourth month on and on the total par value of purchased shares. For shares purchased by employees eligible for preferential shares at a price lower than the par value, interests shall only be calculated on the actually paid amounts.
- The interest rate must not exceed the short-term loan interest rate applied by the commercial bank where the equitized enterprise opens its account at the time of interest calculation.
- The expense for interest payment may be accounted by the enterprise as its business expense and must cause no loss to the enterprise.
2.3. Making of a financial statement, a report on valuation of the state capital portion at the lime the join-stock company is granted a business registration certificate and a report on final settlement of equitization expenses:
a/ Within 30 days after being granted a business registration certificate, the enterprise shall make a financial statement and a declaration of taxes by the time of grant of the business registration certificate, then send them to the enterprise value-deciding agency, the tax office and the finance agency of the same level for coordinated inspection and revaluation of the state capital portion.
Within 30 working days after receiving the financial statement, the competent enterprise value-deciding agency shall inspect and settle financial matters arising during the aforesaid period; revaluate the stale capital portion and issue a decision on state capital valuation at the time the enterprise is officially transformed into a joint-stock company for use as a basis for handover between the equitized enterprise and the join-Stock company.
If the enterprise has submitted a complete dossier but the tax office fails to conduct an inspection within a set time limit, the joint-stock company will not be liable for any difference between the additional tax liability and that resulting from figures in the financial statement already approved and handed over by a competent agency. The tax office’s leadership is responsible for all losses caused by the delayed inspection.
b/ The director and the chief accountant of the equitized enterprise shall make and sign the financial statement, a report on valuation of the state capital portion at the time of transformation of the enterprise into a joint-stock company, and a report on final settlement of equitization expenses, and take responsibility for the truthfulness and accuracy of these statement and reports.
The Board of Directors of the (new) joint-stock company shall create conditions for the leadership of the equitized enterprise to discharge their duties and sign and append a seal of certification of signatures of the director and the chief accountant of the equitized enterprise in the financial statement. The director and the chief accountant of the equitized enterprise may neither be transferred to other jobs nor retire under regulations until they complete the financial statement.
c/ If the date of enterprise valuation falls in a year and the date of official transformation into a joint-stock company falls in the subsequent year, a consolidated financial statement is required for the whole period.
d/ The division of profits earned in the period from the date of enterprise valuation to the date of official transformation of the enterprise into a joint-stock company complies with current provisions of law.
2.4. The difference between the actual value of state capital at the time of transformation of the enterprise into a joint-stock company and the actual value of state capital at the time of enterprise valuation shall be settled under Article 21 of Decree No. 109/2007/ND-CP. If this difference is negative (due to loss-making business operation), its reasons, both objective and subjective, must be clearly identified before the difference is handled:
a/ Negative difference due to objective reasons means losses caused by natural disasters, sabotages, changes in state policy or the world market or other force majeure circumstances.
b/ All other reasons for the negative difference are subjective ones. The equitization-deciding agency may not select or nominate individuals responsible for the equitized enterprise’s loss-making business operation causing the negative difference to act as representatives of the state capital contribution in the. joint-stock company.
3. Handover of assets and capital
Based on the decision on adjustment of the enterprise value at the time of business registration for transformation into a joint-stock company, the steering committee for equitization shall direct the enterprise in adjusting accounting books, making a handover dossier and organizing the handover between the enterprise and the joint-stock-company.
The joint-stock company may use the whole assets and capital handed over to it for its production and business; receive all interests, obligations and responsibilities handed over by the equitized enterprises and have other rights and obligations provided for by law.
Obligations and responsibilities of the equitized enterprise which are additionally determined after the final settlement and handover to the joint-stock company will not rest with the joint-stock company. If some debts of the equitized enterprise are not handed over to the joint-stock company, leading to the fact that the obligation to pay those debts is rejected by the joint-stock company, the director and the chief accountant of the equitized enterprise and concerned organizations and individuals shall take full responsibility for debt payment.
3.1. A handover dossier comprises:
a/ A dossier of enterprise valuation and the decision on disclosure of the enterprise value.
b/ A financial statement at the time of official transformation into the joint-stock company.
c/ A competent agency’s decision on valuation of the state capital portion at the time of transformation into the joint-stock company.
d/ A written record on handover of assets and capital made at the time of handover (including a detailed table on liabilities handed over to the joint-stock company for payment and unsettled financial matters which need to be settled - if any).
3.2. Participants in the handover include:
a/ Representatives of the concerned ministry, ministerial-level agency or provincial/municipal People’s Committee and of the Ministry of Finance (in case of- equitization of an economic group, corporation,parent company).
b/ Representatives of the economic group, corporation or parent company (in case of equitization of member enterprises of the economic group, corporation or affiliate company), and the director and the chief accountant of the equitized enterprise representing the handing over party.
c/ The chairman of the Board of Directors, the director, the chief accountant and a representative of the trade union of the joint-stock company representing the taking over party.
d/ A representative of the Corporation for State Capital Investment and Trading, for equitized enterprises which are obliged to hand over their right to represent the owner of state capital to the Corporation for State Capital Investment and Trading.
3.3. The written record of handover must bear all signatures of handover participants and clearly state:
a/ The actual state of assets, capital and employees at the lime of handover.
b/ Rights and obligations of the joint-stock company.
c/ Unsettled matters that the joint-stock company shall continue settling.
III. METHODS OF ENTERPRISE VALUATION
A. THE ASSET METHOD
1. Asset method means a method for enterprise valuation on the basis of appraising the actual value of all existing assets of the enterprise at the lime of enterprise valuation.
2. Book value of an enterprise means the total value of assets stated in the enterprise’s accounting balance sheet.
The book value of the state capital portion in the enterprise is equal to the enterprise’s book value minus (-) payable debts, the balance of the reward fund and the welfare fund and the balance of the non-business funding source (if any).
3. Actual value of an enterprise is the actual value of all existing assets of the enterprise at time of enterprise valuation with the enterprise’s profitability taken into account.
3.1. The actual value of an enterprise does not cover items specified in Article 28 of Decree No. 109/2007/ND-CP.
3.2. Bases for determination of the actual value of an enterprise at the time of enterprise valuation:
a/ Financial statement by the time of enterprise valuation;
b/ Quantity and quality of assets actually inventoried and classified;
c/ Technical properties, needs for use and market prices of assets;
d/ Value of land use rights and profitability of the enterprise (geographical location, brand, etc.).
When conducting enterprise valuation by the asset method, financial and credit institutions may use audited financial statements to determine monetary capital assets and liabilities but shall also inventory and appraise fixed assets, long-term investments and land use right value under the State’s regulations.
4. Determination of actual value of assets:
Actual value of assets is determined in Vietnam dong. Assets already accounted in a foreign currency must be converted into Vietnam dong at an average exchange rate on the inter-bank foreign currency market announced by the Slate Bank at the time of enterprise valuation.
4.1. For assets in kind:
a/ Only assets that continue to be used by the joint-stock company are revalued.
b/ Actual value of an asset is equal to (=) its historical cost calculated at the market price at the time of valuation multiplied (x) by its residual quality at the time of valuation.
In which:
- Market price is:
+ Price of a brand-new asset of the same type currently purchased or sold on the market, including also transportation and installation expenses (if any). For special assets unavailable on the market, the asset purchase price is the purchase price of a similar brand-new asset, which is made in the same country, has the same capacity or equivalent properties. If no similar asset is available, the asset purchase price is the asset price recorded in the accounting book.
+ Capital construction unit price or investment ratio set by a competent agency at the latest time prior to the time of valuation, for assets being capital construction products. If no unit price or investment ratio is set. the booked price will be referred to, with the inflation factor in capital construction taken into account.
Particularly for works in which construction investment has been completed within three years before the enterprise valuation, the work settlement value approved by a competent agency will be used.
For works with the work settlement value not yet approved by a competent agency but already put into operation, prices recorded in accounting, books will be used.
- The quality of an asset is determined in a certain percentage of the quality of a brand-new asset of the same type purchased or newlyconstructed, complies with the State’s regulations on safety conditions for use or operation of assets, and assures the quality of manufactured products and environmental sanitationunder the guidance of ministries managing economic technical branches. If no relevant state regulations exist, the quality of revalued assets must not be lower than 20% of the quality of purchased brand-new assets of the same type, if assets are machinery, equipment or means of transport, or 30% of the quality of newly constructed assets of the same type, if assets are workshops or architectures.
c/ Fixed assets which have been fully depreciated and working and managing tools with their value fully amortized and accounted as business expenses but further used by the joint-stock company must be revalued and accounted into the enterprise value on the principle that their value must not be lower than 20% of that of brand-new assets and tools.
4.2. Monetary assets, including cash, deposits and valuable papers (bills, bonds, etc.) of the enterprise are determined as follows:
a/ Cash is determined according to the written record of inventory of cash in safe.
b/ Deposits are determined according to the deposit balance already checked with and certified by the bank where the enterprise opens its account.
c/ Valuable papers are determined at market trading prices. If there is no trading in these valuable papers, their par values are used for determination.
4.3. Receivable debts included in the enterprise value are determined according to their actual balance on the accounting book after being handled under Point 1.2, Part C, Section II of this Circular.
4.4. Investments in uncompleted capital construction works and expenses for uncompleted production, business or non-business activities are determined according to actual amounts reflected in the accounting book.
4.5. The value of assets used as short-term or long-term collaterals or escrow accounts are determined according to their actual balance in the accounting book already checked and certified.
4.6. The value of intangible assets (if any) is determined according to their residual value currently accounted in the accounting book. Particularly, the land use right value is determined under Point 5, Part A, Section III of this Circular.
4 7. Value of business advantages
a/ The value of business advantages of an enterprise is determined by either of the following two methods:
- Determination based on the profit ratio and interest rate of government bonds:
| Value of business advantage of an enterprise | = | Value of state capital portionrecorded in the accounting book at the time of valuation | x |
In which:
| Average after-tax profit ratio on state capital over three years prior to the time of enterprise valuation | = | Average after-tax profit over three years prior to the time of enterprise valuation | x 100% |
| Average slate capital recorded in the accounting book in three years prior to the time of enterprise valuation |
- Determination based on advantages of geographical location and brand value:
| Value of business advantages of an enterprise | = | Value of geographical location advantage | + | Brand value |
In which:
+ The value of geographical location advantage is applicable to equitized enterprises (regardless of their business lines and performance) that use leased urban land lots. The value of geographical advantage of these land lots must be determined and included in the enterprise value.
The value of geographical location advantage of a land lot is equal to the difference between the land price set close to the actual market price of land use right transfer under normal conditions (under Clause 12, Article 1 of the Government’s Decree No. 123/ 2007/ND-CP of July 27, 2007, amending and supplementing a number of articles of Decree No. 188/2004/ND-CP of November 16, 2004, on methods of determination of land prices and price brackets of various categories of land) and the price decided and announced by the provincial/municipal People’s Committee on January 1 of the year of enterprise valuation.
For a centralenterprise, based on the land use right transfer price determined by a price appraisal agency, the equitization-deciding agency shall consult the People’s Committee of the province or city where the enterprise is located on the actual market price of the land use right transfer before making a decision.
For a local enterprise, the steering committee for equitization shall report to the provincial/municipal People’s Committee for decision.
+ The value of brand (including mark and trade name) is determined on the basis of actual expenses for the creation, establishment and protection of marks, labels and trade names of the enterprise over ten years prior to the enterprise valuation or since the date of establishment, for enterprises that have operated for less than ten years (including also expenses for advertising at home and abroad the enterprise and its products, developing its website, etc.). .
b/ The value of business advantages to be included in the equitized enterprise’s value is either of the values determined by the above two methods, whichever is higher.
4.8. The value of the enterprise’s long-term investment capital in other enterprises is determined under Article 32 of Decree No. 109/2007/ND-CP.
- The value of shares of enterprises listed on the securities market is determined according to prices of stocks traded on the securities market at the time of enterprise valuation.
- For the value of shares of unlisted enterprises, the steering committee for equitization shall base itself on results of valuation by a consultancy agency to consider and propose it to the agency competent to approve the enterprise value for decision.
5. Value of land use rights
The determination and inclusion of the value of land use rights in the enterprise value comply with Article 30 of the Government’s Decree No. 109/2007/ND-CP and Decree No. 123/2007/ND-CP of July 27, 2007, amending and supplementing a number of articles of Decree No. 188/2004/ND-CPof November 16, 2004, on methods of determination of land prices and price brackets of land:
5.1. If the enterprise leases land:
a/ If the equitized enterprise pays land rent on an annual basis, the land rent value is not included in the enterprise value. If the enterprise uses urban land lots, the value of geographical advantages of these land lots must be determined and included in the enterprise value under Item a. Point 4.7, Section A, Part III of this Circular.
b/ If the equitized enterprise pays lump-sum land rent for the whole land lease duration or paid in advance the land rent for many years before July 1, 2004 (the effective date of the Land Law), it shall base itself on the land price promulgated by the provincial-level People’s Committee on January 1 of the year of enterprise valuation and the land rent rate (in percentage) set by the provincial-level People’s Committee to re-determine the value of the paid land rent for the remaining lease duration. Any positive difference resulting from the re-determination of the land rent rate at the time of enterprise valuation for the remaining duration of the land lease contract or the remaining duration for which the land rent has been paid shall be accounted as an increase in the state capital portion in the enterprise. The difference between the land price set close to the actual market price of the land use right transfer under normal conditions and the price decided and announced by the provincial-municipal People’s Committee on January 1 of the year of enterprise valuation shall be considered a geographical location advantage and included in the enterprise value under Point 4.7 above.
The joint-stock company shall take over (or re-sign the land lease contract) and use land for proper purposes under the land law. It is not required to pay the land rent for the remaining duration of the land lease contract or the duration for which the equitized enterprise has paid the land rent.
c/ For equitized enterprises that are allocated land by the State with collection of land use levy and have paid land use levy into the state budget but now shift to lease such land and pay annual land rents; the value of the allocated land use rights is not included in the enterprise value.
The equitized enterprise shall complete procedures for shifting from land allocation to land lease before the official transformation into a joint-stock company.
5.2. If the enterprise is allocated land with collection of land use levy, the determination of the land use right value for calculation of its value shall be conducted as follows:
a/ For equitized enterprises that shift from land lease to land allocation with collection of land use levy, the land use right value must be included in the enterprise value.
The land price for determination of the land use right value to be included in the equitized enterprise’s value is the land price promulgated by the provincial-level People’s Committee close to the actual market price of the land use right transfer under normal conditions according to Clause 12, Article 1 of the Government’s Decree No. 123/2007/ND-CP of July 27, 2007, amending and supplementing a number of articles of Decree No. 188/2004/ND-CP of November 16, 2004, on methods of determination of land prices enterprice brackets of various categories of land.
The order and procedures for land allocation, payment of land use levy and grant of land use right certificate comply with the Land Law and its guiding documents.
b/ For equitized enterprises that have been allocated land and paid land use levy into the state budget or received the lawful land use right transfer (including land areas alreadyallocated to enterprises for building of. houses for sale or lease for hotel business, commercial activities or service provision, or construction of infrastructures for transfer or lease), the value of land use rights must be included in the enterprise value.
The land price for determination of the land use right-value to be included in the equitized enterprise’s valueis the land price promulgated by the provincial-level People’s Committee close to the actual market price of the land use right transfer under normal conditions according to Clause 12, Article 1 of the Goveowncnt’s-Decree No. 123/2007/ND-CP of July 27, 2007, amending and supplementing a number of articles of Decree No. 188/2004/ND-CP of November 16, 2001, on methods of determination of land prices and price brackets of various categories of land. Ifthe determined land use right value is higher than actual expenses for land use rights recorded in the accounting book, the positive difference may be included in the actual value of the state capital portion in the enterprise.
c/ If the equitized enterprise that was allocated land for execution of a project on building of residential houses or infrastructures for transfer or lease has used part of such land for building public-utility works and handed over these works to the local administration for management and use, the land use right value to be included in the equitized enterprise’s value shall be determined according to the land area allocated to the enterprise for dealing in houses and infrastructures (excluding the land area for building public-utility works handed over to the local administration).
d/ If the equitized enterprise that was allocated land for building of houses and infrastructures for transfer-or lease has handed over part of the multi-storied house area to other agencies for use as offices or for trading purpose, then:
| Land use right value included in the enterprise value | = | Allocated land use right value | - | Land use right value distributed to the handed over house area |
The land use right value distributed to the handed-over house area is determined on the basis of the sale price of each floor or the coefficient applicable for all floors set by the provincial/municipal People’s Committee.
e/ If the equitized enterprise that was allocated land for building residential houses for sale has sold these houses, it is exempt from the revaluation of the sold house area corresponding to the collected house sale proceeds which have been accounted into its revenues, included in annual business results and for which taxes have been paid in strict accordance with state regulations.
5.3. The equitized enterprise shall hire a functional consultancy organization to determine the land use right value, then report it to the provincial-level People’s Committee for consideration and decision.
6. Actual value of state capital portion in the enterprise:
The actual value of the state capital portion in an enterprise is equal to the total actual value of the enterprise minus (-) actual payable debts, the balance of the welfare fund and reward fund and the balance of the non-business funding source (if any). Actual payable debts are the total value of the enterprise’s payable debts minus (-) debts not required to be paid.
7. Actual value of economic groups, corporations or parent companies:
In case an economic group, corporation or parent company is wholly equitized, apart from general regulations, the following guidance must also be complied with:
7.1. For economic groups or corporations invested and established by the State:
a/ The actual value of an economic group or a corporation consists of the actual value of all assets of the parent company of the economic group or the office of the corporation (including also dependent accounting units), independent-accounting member companies and non-business units (if any).
b/ The actual value of the state capital portion in an economic group or a corporation consists of the actual value of the state capital portion in the parent company of the economic group or the office of the corporation, independent-accounting member companies and non-business units (if any).
7.2. For parent companies:
a/ The actual value of a parent company for equitization is the actual value of all existing assets of the parent company.
b/ The actual value of state capital is the actual value of the state capital portion in the parent company.
7.3. The enterprise value of an economic group, corporation or parent company shall be determined under the provisions of Part A, Section 111 of this Circular, with attention paid to the following points:
a/ Capital of an economic group, a corporation or a parent company in a one-member limited liability company transformed from a member company of or established by the economic group, corporation or parent company is considered a long-term investment of the economic group, corporation of parent company under Article 18 of Decree No 109/2007/ND-CP.
b/ The business advantage value of an economic group, a corporation or a parent company consists of values of business advantages of the office of the corporation or the parent company of the economic group and independent-accounting member companies.
Profits and state capital used for calculation of the profit ratio are determined under the Regulation on management of enterprise finance and slate capital proportions invested in other enterprises, promulgated together with the Government’s Decree. No. 199/2004/ND-CP of December 3, 2004.
