Circular No. 126/2004/TT-BTC guiding the implementation of Decree No. 187/2004/NĐ-CP dated November 16, 2004 of the Government on converting state-owned enterprises into joint-stock companies

CIRCULAR

Guidelines for Implementing Decree No. 187/2004/NĐ-CP dated November 16, 2004

of the Government on the Conversion of State-Owned Enterprises to Joint Stock Companies

______________________

 

Pursuant to Decree No. 187/2004/NĐ-CP dated November 16, 2004 of the Government on the Conversion of State-Owned Enterprises to Joint Stock Companies (hereinafter referred to as Decree 187/2004/NĐ-CP), the Ministry of Finance provides guidance on financial matters as follows:

This technical regulation sets out technical requirements, testing methods, sampling procedures; management requirements; responsibilities of organizations and individuals producing, trading, and importing cigarettes.

1. These Circular applies to state-owned enterprises implementing shareholding according to Article 2 of Decree 187/2004/NĐ-CP and Decision No. 155/2004/QĐ-TTg dated August 24, 2004 of the Prime Minister on issuing criteria, list, classification of state-owned enterprises and independent accounting subsidiaries under state-owned corporations (hereinafter referred to as enterprises).

2. Enterprises that meet the conditions for shareholding must still have state capital (excluding the value of land use rights) after financial settlement in accordance with Section II of this Circular.

In cases where enterprises do not meet the conditions for shareholding, other restructuring forms shall be applied in accordance with the provisions of the law; additional state capital shall not be provided for shareholding.

3. Prior to implementing shareholding, enterprises must address existing financial issues in accordance with current laws.

During the process of shareholding, enterprises continue to address remaining financial issues in accordance with Section II of this Circular until the formal conversion to a joint stock company.

4. The authority deciding on shareholding as stipulated in Article 40 of Decree 187/2004/NĐ-CP establishes a Steering Committee for Shareholding to assist the authority in directing and organizing the implementation of shareholding.

5. Enterprises may choose the form of shareholding as prescribed in Article 3 of Decree 187/2004/NĐ-CP. Enterprises requiring additional capital for investment and development must issue additional shares.

6. The valuation date of the enterprise is the closing date of the accounting books and preparation of the financial statements to determine the enterprise's value:

- For cases applying the method of determining enterprise value based on assets, it is the end of the nearest quarter to the decision on shareholding but not more than six months from the announcement of the enterprise's value.

- For cases applying the method of determining enterprise value based on discounted cash flow, it is the end of the nearest year to the decision on shareholding but not more than nine months from the announcement of the enterprise's value.

7. The steps related to shareholding are carried out in accordance with the procedure attached to this Circular (Annex No. 1)

II. FINANCIAL SETTLEMENT DURING SHAREHOLDING

A. INVENTORY AND CLASSIFICATION OF ASSETS AND LIABILITIES

Upon receiving the decision to implement shareholding from the competent authority, the enterprise has the responsibility to organize the inventory and classification of assets currently managed and used at the time of determining the enterprise's value in accordance with the following regulations:

1. Inventory and classification of assets:

1.1. Conduct an inventory to accurately determine the quantity and quality of actual assets currently managed and used by the enterprise; check cash balances, reconcile bank account balances at the time of determining the enterprise's value; identify excess or shortage of assets and cash compared to accounting records, clearly analyze the reasons for excess or shortage.

1.2. Classify inventoried assets into the following groups:

a. Assets the enterprise needs to use.

b. Assets the enterprise does not need, surplus assets, assets awaiting liquidation according to the decision of the state capital representative at the enterprise.

c. Assets formed from reward and welfare funds (if any).

d. Leased assets, goods and materials held for others, processing, agency, consignment.

2. Reconciliation, confirmation, and classification of liabilities, prepare detailed lists for each type of liability as follows:

2.1. Accounts payable:

Clearly analyze overdue accounts, principal, interest, and accounts payable that do not require payment.

Accounts payable that do not require payment are debts where the creditor no longer exists (the enterprise has been dissolved, bankrupt, or the creditor has died) or the creditor has not claimed the debt despite being overdue.

2.2. Accounts receivable:

a. Clearly analyze recoverable accounts receivable and non-recoverable accounts receivable.

Non-recoverable accounts receivable must have sufficient documentation proving they cannot be recovered in accordance with current state regulations on handling outstanding debts.

b. Review economic contracts to identify advance payments made to suppliers that have been fully recorded as business expenses such as rent, land lease, purchase of goods, long-term insurance premiums, wages, etc., to be included in the valuation of the shareholding enterprise according to Clause 3 of Article 11 of Decree 187/2004/NĐ-CP.

3. Organize the assessment and determination of the value of assets needed by the enterprise according to Part A of Section III of this Circular.

4. For state-owned commercial banks, in addition to the above requirements, they must:

4.1. Conduct a detailed inventory and reconciliation of customer loans, customer deposits, and certificates of deposit (bills, promissory notes, bonds) as follows:

a. Conduct a detailed inventory based on accounting records.

b. Reconcile and confirm customer deposit balances with legal entities; reconcile each loan file and confirm with borrowers regarding the amount owed by the bank.

c. Savings deposits, personal deposits, and certificates of deposit do not require direct reconciliation with customers, but must be reconciled with deposit slips. For specific cases (with large deposit balances or discrepancies between accounting records and deposit slips), direct reconciliation with customers should be conducted.

4.2. Reconcile assets as credit balances (including balances outside the ledger) as follows:

a. Based on the credit files of each customer at the commercial bank, compile a list of customers with outstanding credit balances and the balance of each customer, detailing each credit contract.

b. Reconcile the data determined from the credit files with the accounting records of the commercial bank; reconcile the credit balances with each customer to obtain their confirmation of the credit balance.

In case there is a discrepancy in figures between the credit file and the accounting ledger and the customer's confirmation, the commercial bank must clarify the cause of the discrepancy and determine the responsibility of the relevant organizations and individuals to handle it according to the current regulations of the State.

4.3. Classify overdue receivables that meet the conditions for handling in accordance with the guidelines of the State Bank of Vietnam.

B. FINANCIAL HANDLING

1. Prior to determining the enterprise value

1.1. Assets

Based on the results of inventory and asset classification, the enterprise handles assets in accordance with Article 10 of Decree 187/2004/NĐ-CP, including:

a. For excess or missing assets, analyze the causes and handle them as follows:

- Missing assets must identify the responsibility of organizations and individuals to compensate for material losses according to current regulations; the value of missing assets, after deducting compensation, shall be recorded in business results.

- Excess assets, if the cause cannot be determined and the owner cannot be found, shall be handled by increasing state capital.

b. For unused assets, stagnant assets, and assets awaiting liquidation, after being approved in writing by the representative of state capital owners, they shall be handled as follows:

- Liquidation and sale: The enterprise director is responsible for directing the organization to liquidate and sell assets in accordance with current laws.

Revenue and expenses from liquidation and sale activities shall be recorded as income and expenses of the enterprise.

- Transfer of assets to other units based on the decision of the representative of the capital owner. In cases where assets are transferred to units outside the ministry, locality, or holding company, the agreement of the receiving unit's capital owner representative is required.

Based on the Asset Handover Record, the enterprise transfers and receives assets, recording increases or decreases in capital according to the value on the transferring party's accounting ledger. If the receiving party does not accept the value on the transferring party's ledger, both parties shall agree on the transfer price. Any difference from the ledger value shall be recorded in the enterprise's business results.

- At the time of determining the enterprise value, unused assets, stagnant assets, and assets awaiting liquidation that have not been handled shall not be included in the enterprise value. The enterprise continues to handle these assets before the enterprise value determination decision. By the time the enterprise value determination decision is made, if there are still unhandled assets, the enterprise is responsible for preserving and transferring them to the Company for Debt and Enterprise Surplus Asset Management for handling according to current regulations. The Company for Debt and Enterprise Surplus Asset Management shall not resell these assets back to the enterprise.

c. Welfare facilities previously invested using welfare funds or reward funds shall be handled according to Clause 3, Article 10 of Decree 187/2004/NĐ-CP.

d. Determining the value and allocating shares to employees for assets used in production and business operations funded by reward funds or welfare funds shall be handled according to Clause 4, Article 10 of Decree 187/2004/NĐ-CP. Employee shares shall be determined based on the average successful bid price.

đ. Welfare assets invested using budget funds or having a budget origin, if the enterprise continues to use them during privatization, they shall be included in the privatized enterprise value.

1.2. Receivables.

Receivables shall be handled according to Clauses 1, 2, and 3 of Article 11 of Decree 187/2004/NĐ-CP, including:

a. For receivables that have sufficient documentation proving they are unrecoverable according to current State regulations on handling overdue debts, clearly identify the reasons and individual and organizational responsibilities to compensate according to current laws. Losses after handling shall be covered by the reserve for doubtful receivables; if insufficient, record it as a business expense.

b. For other overdue receivables, the enterprise must continue to collect or sell them to the Company for Debt and Enterprise Surplus Asset Management at agreed prices, without directly selling them to debtors. Losses from selling receivables shall be recorded as business expenses.

c. For prepaid amounts paid by the enterprise to suppliers for goods and services such as rent, land lease, purchase payments, labor costs, etc., if fully recorded as business expenses, the enterprise shall adjust the reduction of expenses corresponding to unsupplied goods or services or unexecuted rental periods and record an increase in prepaid expenses (or pending allocation expenses).

1.3. Payables

The principle of handling payables shall be carried out according to Article 12 of Decree 187/2004/NĐ-CP, including:

a. For payable debts that do not need to be settled, record them as an increase in state capital.

b. For overdue tax debts and other government revenue debts, handle them as follows:

In cases of loss and inability to settle, the enterprise shall prepare a file to request deferred payment or debt write-off up to the cumulative loss amount until the enterprise value determination date according to current laws.

Enterprises meeting the conditions for debt write-off and completing all procedures, submitting a debt write-off application, but not receiving a debt write-off decision by the enterprise value determination date, the competent authority determining the enterprise value shall consider temporarily reducing the debt and loss for enterprise value determination.

The enterprise is responsible for continuing to cooperate with financial authorities to handle the matter. When the Ministry of Finance issues a handling decision, if there is a difference from the temporarily reduced debt amount, the enterprise shall adjust its financial statements at the official conversion to a joint-stock company.

c. For overdue debts borrowed from state-owned commercial banks and the Development Support Fund:

- In cases of loss and inability to repay overdue debts, the enterprise shall process requests for debt write-off, deferred payment, or cancellation according to current laws.

For overdue interest-bearing debts (including capitalized interest) that have not been settled, state commercial banks and the Development Support Fund shall consider and write off such debts up to the remaining loss amount (after handling overdue tax debts and other government budget payments).

Within a maximum period of 20 working days from the date of receiving the enterprise's application file, the lending commercial bank and the Development Support Fund must provide their written opinion on the debt resolution to the enterprise. In cases where the enterprise has not received the lender's opinion at the time of announcing the enterprise value for privatization, the enterprise may temporarily exclude the proposed interest-bearing debt write-off from the enterprise value for privatization. When a debt write-off decision is made, if there is a difference compared to the amount temporarily excluded from the enterprise value, the enterprise shall adjust its financial statements before officially becoming a joint-stock company.

- Overdue principal debts shall not be written off and shall be handled as follows:

+ The enterprise shall complete all procedures to transfer the debt repayment obligation to the successor joint-stock company.

+ Negotiate with the lending commercial bank to convert the debt into share capital contributions.

+ Coordinate with the lending commercial bank and the Development Support Fund to sell the debt to the Company for Purchasing Debts and Surplus Assets of Enterprises at an agreed price.

d. For overdue foreign loans with guarantees, the enterprise and guarantors must negotiate with creditors to resolve the debt according to the regulations on foreign borrowing and repayment management.

đ. For social insurance debts and employee debts, the enterprise is responsible for settling them completely before becoming a joint-stock company to ensure the rights of employees.

e. The conversion of payable debts (including employee debts) into share capital contributions in a joint-stock company must comply with state regulations on the initial purchase of shares and the state's controlling shareholding rights, and the share price must be determined through auction.

1.4. Provisions, Losses, and Profits

Provisions for inventory write-downs, doubtful receivables, securities write-downs, exchange rate differences, unemployment benefits, financial provisions... and losses and profits shall be handled according to Article 13 of Decree 187/2004/ND-CP, including:

a. The balance of inventory write-down provisions shall be used to offset inventory write-down differences (including write-downs due to revaluation of inventory at the valuation date), and the remainder shall be returned to operating results.

b. The balance of doubtful receivables provisions shall be used to offset uncollectible receivables, and the remainder shall be returned to operating results.

c. The balance of securities write-down provisions shall be used to offset actual securities write-downs, and the remainder shall be returned to operating results.

d. The balance of exchange rate difference provisions shall be used to offset exchange rate differences arising, and the remainder shall be returned to operating results.

đ. The unemployment benefit reserve fund (fully established according to prescribed regulations) shall be used to pay unemployment benefits to redundant workers during the privatization process. At the time of officially becoming a joint-stock company, if there is any remaining balance, it shall be returned to operating results.

e. Financial reserves and business reserves:

- The balance of risk reserves of state commercial banks shall be handled according to the guidelines of the State Bank and the Ministry of Finance.

- The balance of business reserves of insurance enterprises shall be handled according to the guidelines of the Ministry of Finance.

g. Financial reserves for covering losses (if any), offsetting asset losses (including the book value of unused assets awaiting liquidation not included in the enterprise value), and uncollectible debts shall be included in the state-owned equity value at the enterprise.

h. Profits generated to cover previous years' losses (if any), offsetting asset losses (including the book value of unused assets awaiting liquidation not included in the enterprise value), asset write-downs, and uncollectible debts shall be distributed according to current regulations.

i. Enterprise losses shall be covered using financial reserves and pre-tax profits. If insufficient, measures to write off state budget debts and state commercial bank debts as stipulated in point 1.3 part B Section II of this Circular shall be implemented.

After applying the above solutions, if the enterprise still incurs losses during privatization, the enterprise valuation authority shall consider reducing state-owned equity.

1.5. Long-term investments in other enterprises such as joint ventures, joint operations, share capital contributions, establishment of limited liability companies, and other long-term investment forms shall be handled according to Article 14 of Decree 187/2004/ND-CP, including:

a. In cases where the enterprise inherits joint ventures, the value of the joint venture capital contribution must be included in the enterprise value according to Article 20 of Decree 187/2004/ND-CP.

b. In cases where enterprises do not inherit joint ventures, the competent authority deciding privatization shall consider and handle as follows:

- Resell the enterprise's capital contribution to partners or other investors. The selling price must be close to market prices but not lower than the capital contribution value reported in the most recent audited financial statement prior to the sale.

- Transfer the enterprise to another partner after reaching agreement and consensus with the joint venture partner.

- In cases where the enterprise and the joint venture partner agree to terminate the joint venture contract, it shall be resolved according to the current laws regarding the financial settlement of state-owned enterprises when joint ventures cease operations.

1.6. Reward Fund and Welfare Fund:

a. The cash balance of the Reward Fund and Welfare Fund shall be distributed to employees listed in the regular roster of the enterprise at the time of the privatization decision to purchase shares. The enterprise director shall decide on the distribution after negotiating with the trade union organization.

b. In cases where the enterprise has spent more from the Reward and Welfare Fund than allowed, the excess shall be offset against the actual value of assets currently being used for production and business operations that were invested using the Reward and Welfare Fund. If there is still a shortfall, it shall be handled as follows:

- For amounts directly paid to employees listed on the regular payroll at the time of the decision to equitize, the enterprise must recover these before selling preferential shares.

- For the remaining amounts such as those written off, given as gifts, or paid to employees who have left their jobs before the equitization decision, the enterprise must report to the authority determining the enterprise's value, which will handle these amounts as if they were uncollectible receivables.

2. From the time the enterprise's value is determined until the formal conversion into a joint-stock company.

2.1. The period during which financial matters can be addressed between these two points shall not exceed six months from the date of announcing the enterprise's value.

2.2. Upon making the decision to announce the value, the enterprise shall have the responsibility to:

a. Adjust accounting books and balance sheets according to state regulations on accounting systems.

b. Safeguard and transfer debts and assets excluded when determining the enterprise's value (along with relevant documentation) to the Company for Purchasing Debts and Surplus Assets within a maximum of thirty days.

c. Record all costs related to implementing the equitization process.

2.3. Within thirty days after officially converting into a joint-stock company, the enterprise must prepare a financial statement at the time of registration for business operation and submit it to management authorities as prescribed by laws governing financial management systems for enterprises.

Within thirty days of receiving the financial statement, the authority responsible for determining the enterprise's value shall conduct inspections and address any financial issues arising between the two periods; re-determine the state capital value, decide on adjustments to state capital at the enterprise; organize the handover between the enterprise and the joint-stock company; send the results of re-determining the enterprise's value to the Ministry of Finance.

2.4. The difference between the actual value of state capital at the time the state-owned enterprise converts to a joint-stock company and the actual value of state capital at the time of determining the enterprise's value shall be handled as stipulated in Article 25 of Decree 187/2004/NĐ-CP. In cases where a reduction occurs (including due to losses from business operations), the objective and subjective causes must be clarified before handling, including:

a. Reductions due to objective reasons include losses from natural disasters, enemy actions; changes in state policies or market fluctuations internationally, and other unforeseeable factors.

b. All other cases are considered subjective reasons. The equitization decision-making body shall not select individuals responsible for the reduction in state capital to represent state capital contributions in the joint-stock company.

3. Asset and Capital Transfer.

Based on the decision to adjust the enterprise's value at the time of registering to convert into a joint-stock company, the Equitization Steering Committee shall instruct the enterprise to adjust accounting records, prepare transfer documents, and organize the handover between the enterprise and the joint-stock company.

3.1. Transfer documents include:

a. Documents for assessing the enterprise's value and the decision to announce the enterprise's value.

b. Financial statements and tax settlement reports at the time of officially converting into a joint-stock company.

c. Decision on the enterprise's value at the time of converting into a joint-stock company by the competent authority.

d. Minutes of asset and capital transfer signed at the time of transfer.

3.2. Participants in the handover include:

a. Representatives of the State Management Department or People's Committee of the province or centrally-administered city and representatives of the Ministry of Finance (in the case of full equitization of a holding company).

b. Representatives of the holding company, Chairman of the Board of Directors (in the case of equitization of a member enterprise of a holding company), General Director, Chief Accountant of the state-owned company representing the transferring party.

c. Chairman of the Board of Directors, General Director, Chief Accountant, and representatives of the trade union organization of the joint-stock company representing the receiving party.

3.3. The minutes of the handover must contain signatures of all participants and must clearly record:

a. The situation of assets, capital, and labor at the time of handover.

b. Rights and obligations that the joint-stock company continues to inherit.

c. Outstanding issues that the joint-stock company is responsible for continuing to resolve.

III. METHODS FOR DETERMINING THE ENTERPRISE'S VALUE

A. ASSET METHOD

1. The asset method is a method of determining the enterprise's value based on evaluating the actual value of all current assets of the enterprise at the time of determining the enterprise's value.

2. It applies to joint-stock enterprises undergoing equitization, except for enterprises required to apply the discounted cash flow method as specified in Point 2, Part B, Section III of this Circular.

3. The enterprise's value according to accounting records is the total value of assets reflected in the Balance Sheet of the enterprise.

The state capital value at the enterprise according to accounting records equals the enterprise's value according to accounting records minus (-) liabilities, welfare fund balances, reward fund balances, and surplus operating funds (if any).

4. The actual value of the enterprise is the actual value of all current assets of the enterprise at the time of determining the enterprise's value, taking into account the profitability of the enterprise.

4.1. The actual value of the enterprise does not include:

a. The value of leased, borrowed, or joint venture and joint operation contributed assets;

b. The value of unused, stagnant, or pending liquidation assets;

c. Receivables that cannot be recovered;

d. Uncompleted construction project costs that were suspended before the determination of the enterprise's value according to the decision of the competent authority;

đ. Long-term investments in other enterprises transferred to other partners according to the decision of the competent authority;

e. Assets belonging to welfare facilities funded by the enterprise's Reward and Welfare Funds and housing for employees in the enterprise.

4.2. Basis for determining the actual value of the enterprise at the time of determining the enterprise's value:

a. Accounting records of the enterprise;

b. Quantity and quality of assets according to actual inventory and classification;

c. Technical capabilities of the assets, usage needs, and market prices;

d. Value of land use rights, profitability of the enterprise (geographical location, reputation of the enterprise, design, brand,...).

5. Determining the actual value of assets:

The actual value of assets is determined in Vietnamese Dong. Assets recorded in foreign currency are converted into Vietnamese Dong based on the average exchange rate in the inter-bank foreign exchange market published by the State Bank of Vietnam at the time of determining the enterprise's value.

5.1. For tangible assets:

a. Only re-evaluate those assets that the joint-stock company continues to use.

b. The actual value of the asset = Original cost calculated based on market price multiplied (x) by the remaining quality of the asset at the valuation date.

Where:

- Market price is:

+ The price of new assets currently being bought or sold on the market includes transportation and installation costs (if any). If it is a special asset not available on the market, calculate based on the purchase price of similar assets from the same country of production with equivalent capacity or functionality. In cases where there is no comparable asset, calculate based on the asset price recorded in the accounting books.

+ Basic construction unit price and investment quota prescribed by competent authorities for assets that are basic construction products. In cases where there is no regulation, calculate based on the final settlement value of the project approved by the competent authority.

Specifically, for projects newly completed within three years before determining the enterprise's value: use the final settlement value of the project already approved by the competent authority.

- The quality of the asset is determined as a percentage compared to the quality of newly purchased or newly constructed similar assets, consistent with state regulations on safety conditions for use and operation of assets; product quality; environmental hygiene according to guidelines issued by relevant economic and technical management ministries. If there is no state regulation, the asset quality is evaluated at no less than 20%.

c. Fixed assets that have been fully depreciated; tools and management equipment whose value has been fully allocated to business expenses but continue to be used by the joint-stock company must be re-evaluated and included in the enterprise's value as stipulated in point 5.1 b part A Section III Circular this.

5.2. Monetary assets including cash, deposits, and securities (bills, bonds,...) of the enterprise are determined as follows:

a. Cash is determined based on the inventory reconciliation report.

b. Deposits are determined based on the reconciled balance confirmed with the bank.

c. Securities are determined based on the market transaction price. If there is no transaction, determine based on the face value of the security.

5.3. Accounts receivable included in the enterprise's value are determined based on the actual balance on the accounting books after processing as stipulated in point 1.2 part B Section II Circular this.

5.4. Work-in-progress costs: basic construction investments, business operations, and public services are determined based on the actual occurrence recorded in the accounting books.

5.5. The value of collateral and short-term and long-term guarantees is determined based on the actual balance on the accounting books that have been reconciled and confirmed.

5.6. The value of intangible assets (if any) is determined based on the remaining value recorded in the accounting books. Specifically, the value of land use rights is determined according to the provisions of point 6 part A Section III Circular this.

5.7. Business advantage value

The business advantage value included in the value of the enterprise being privatized is determined according to clause 3 Article 19 Decree 187/2004/NĐ-CP, wherein the business advantage value of the enterprise is determined using the following formula:

Where:

5.8. The value of long-term investments of the enterprise in other enterprises is determined according to the provisions of Article 20 Decree 187/2004/NĐ-CP.

6. Land use right value.

Calculating the land use right value to include in the enterprise's value according to clauses 1 and 2 Article 19 Decree 187/2004/NĐ-CP, wherein:

6.1. In cases where the enterprise implements the land lease form:

a. If leasing, the land use right value is not included in the enterprise's value; the joint-stock company continues to sign land lease contracts in accordance with the law and manage and use them for their intended purpose without selling them.

b. If the land area has been received, land use fees have been paid to the state budget, or land use rights have been purchased from individuals or legal entities and now switch to leasing, only include in the enterprise's value the costs that increase the land use value and the value of assets on the land such as compensation, resettlement, and land leveling costs.

6.2. In cases where the enterprise implements the form of land allocation with payment of land use fees, the determination of the land use right value to include in the enterprise's value is carried out as follows:

a. For the land area the enterprise is currently leasing: the land use right value included in the enterprise's value is determined according to the price set by the People's Committee of the province but does not increase state capital at the enterprise and is recorded as a payable to the state budget. The joint-stock company must pay this amount to the state budget to obtain a land use right certificate. Procedures and formalities for land allocation, payment of land use fees, and issuance of land use certificates are implemented in accordance with the Law on Land and guiding documents for its implementation.

b. For the land area that has been assigned to the enterprise and for which land use fees have been paid to the state budget: the value of the land use right must be reassessed according to the price set by the Provincial People's Committee. The difference between the reassessed value of the land use right and the recorded value on the accounting books shall be included in the actual value of the state capital at the enterprise.

7. The actual value of the state capital at the enterprise:

The actual value of the state capital at the enterprise equals the total actual value of the enterprise minus (-) the actual debts payable, surplus welfare and reward funds, and surplus operating funds (if any). Among these, actual debts payable are the total value of the enterprise's debts payable minus (-) the debts that do not need to be repaid.

8. The actual value of the corporation:

In the case of the corporatization of the entire state corporation, in addition to implementing general provisions, the following guidelines must also be followed:

8.1. For corporations established by the State's decision to invest in and establish:

a. The actual total value of the corporation includes the actual value of all assets of the Corporation Office (including dependent accounting units), independent accounting subsidiaries, and public service units (if any).

b. The actual value of the state capital in the entire corporation includes the actual value of the state capital of the Corporation Office, independent accounting subsidiaries, and public service units (if any).

8.2. For corporations established by companies investing and establishing them:

a. The actual total value of the corporation for corporatization is the actual total value of the current assets of the parent company.

b. The actual value of the state capital is the actual value of the state capital at the parent company.

8.3. The determination of the actual value of the state-owned corporation must be carried out strictly in accordance with the provisions in Part A, Section III of this Circular, noting the following points:

a. The capital of the corporation in a limited liability company converted from a subsidiary of the corporation or established by the corporation shall be determined as a long-term investment of the corporation in accordance with Article 20 of Decree 187/2004/NĐ-CP.

b. The business advantage value of the corporation includes the business advantage value of the Corporation Office and independent accounting subsidiaries.

Profit and state capital for calculating the profit rate shall be determined in accordance with Decree 199/2004/NĐ-CP dated December 7, 2004, issued by the Government on Financial Management Regulations for Enterprises and Management of State Capital Invested in Other Enterprises, and the guidance documents of the Ministry of Finance.

B. DISCOUNTED CASH FLOW METHOD

1. The Discounted Cash Flow (DCF) method is a method of determining the enterprise value based on the profitability of the enterprise in the future.

2. The application object is enterprises whose main business activities are in the financial services, banking, trade, consulting, construction design, information technology, and technology transfer sectors, with an average post-tax profit rate on state capital over the five consecutive years immediately preceding corporatization higher than the prepayment interest rate of government bonds with a term of ten years or more at the time closest to the valuation date.

3. Basis for determining enterprise value:

3.1. The financial statements of the enterprise in the five consecutive years immediately preceding the determination of the enterprise value.

3.2. The production and business operation plan of the corporatized enterprise from three to five years after becoming a joint-stock company.

3.3. The prepayment interest rate of government bonds with a term of ten years or more at the time closest to the valuation date and the enterprise's cash flow discount factor.

3.4. The value of the land use right for the assigned land area.

4. The actual value of the state capital at the enterprise is determined as follows:

 

Where:

The difference in the value of the land use right is determined in accordance with point 6.2b of Part A, Section III of this Circular.

 Di

 : is the Present Value of dividend year i

 (1+ K)^{international}

 

 Pn

 : is the Present Value of state capital year n

 (1+ K)ⁿ

i: the order of subsequent years starting from the year of enterprise value determination (i:1n).

Di_: Post-tax profit used for dividend distribution in year i.

n: Number of future years selected (3 - 5 years).

Pn: The value of state capital in year n and is determined by the formula:

Dn₊₁: Post-tax profit used for anticipated dividend distribution in year n+1

K: Discount rate or required rate of return for investors when purchasing shares and is determined by the formula:

K = Rf + Rp

Rf: Return rate obtained from risk-free investments calculated by the prepayment interest rate of government bonds with a term of ten years or more at the time closest to the valuation date.

Rp: Risk premium rate when investing in purchasing shares of companies in Vietnam determined according to the international stock risk premium index in the valuation yearbook or by valuation companies for each enterprise but not exceeding the return rate obtained from risk-free investments (Rf).

g: Annual growth rate of dividends and is determined as follows

 g = b x R

Where: b is the post-tax profit retention ratio to replenish capital.

R is the average post-tax profit rate on equity of future years.

5. The actual value of the enterprise at the valuation date using the DCF method is determined as follows:

Where:

Actual debts payable = Total debts payable on the accounting books minus (-) the value of non-payable debts plus (+) the value of the land use right for newly assigned land areas (determined in accordance with point 6.2a of Part A, Section III of this Circular)

6. The increase in the difference between the actual value and the recorded value of state capital is accounted for as a business advantage of the enterprise, determined as an intangible fixed asset, and depreciated in accordance with current laws.

7. For state-owned enterprises and commercial banks meeting the conditions to determine enterprise value using the discounted cash flow method, profit and state capital shall be determined in accordance with the current financial management regulations for state-owned enterprises and state commercial banks.

(Illustrative example at Appendix 2 attached to this Circular).

C. OTHER METHODS:

In addition to the two methods of determining enterprise value specified in Parts A and B of Section III of this Circular, the agency responsible for determining enterprise value and the valuation organization may apply other valuation methods after obtaining written agreement from the Ministry of Finance.

IV. ORGANIZATION OF DETERMINING ENTERPRISE VALUE

1. Selection of valuation method:

The principle for selecting the organizational method for determining enterprise value shall be carried out in accordance with the provisions of Article 23 of Decree No. 187/2004/NĐ-CP.

1.1. Enterprises with asset values according to accounting books under 30 billion VND shall organize the determination of enterprise value themselves or hire a consulting organization to determine the enterprise value.

In cases where the enterprise determines its own value, it must comply with the provisions of Sections II and III of this Circular.

1.2. For enterprises with asset values according to accounting books of 30 billion VND or more, the office of the holding company (if the entire holding company is being privatized) must hire a valuation organization to determine the enterprise value.

2. Hiring a valuation organization

2.1. Valuation organizations include auditing companies, securities companies, appraisal organizations, investment banks with valuation functions and capabilities...

2.2. Valuation organizations must meet the following standards and conditions:

a. Having valuation functions in the business registration certificate or investment permit.

b. Depending on the industry, they must meet the conditions and standards stipulated by current laws.

c. Not having the same owner, nor economic relations with the enterprise being valued such as joint ventures, equity investments, or shareholding.

d. Not directly conducting audits for the enterprises being valued.

đ. Not violating professional laws during their operations.

2.3. Annually, before December 31, the Ministry of Finance publicly announces the list of valuation organizations meeting the conditions and standards for valuing enterprises for the following year. The list of organizations with valuation functions and capabilities in 2005 is announced in Appendix 3 attached to this Circular.

Organizations with valuation functions that violate the law will temporarily be suspended from publication and will be added back to the list once the violations have been rectified.

2.4. Based on the annual list of valuation organizations published, the privatization steering committee decides on the selection of the valuation organization and is responsible for their choice.

2.5. Based on the decision made by the steering committee, the enterprise's director signs a contract to hire the valuation organization. The contract must clearly commit to the following contents:

a. Valuation method

b. Completion time: Maximum not exceeding 60 days for the privatization of the entire holding company; not exceeding 30 days for other cases.

c. Responsibilities of the enterprise in performing tasks related to valuation such as inventory, classification of assets, financial processing, production and business plans, provision of relevant documents... and responsibility for the accuracy of the provided data and documents.

d. Responsibilities of the valuation organization in complying with valuation regulations; completing within the agreed timeframe and ensuring the valuation results comply with the law.

e. Payment for valuation services will be made after the enterprise value announcement decision is issued.

2.6. During the implementation of the privatization plan, the valuation organization has the responsibility to cooperate with the enterprise to explain matters related to valuation.

3. Documents for Determining Enterprise Value

3.1. The organization determining enterprise value, together with the enterprise, prepares the documents for determining enterprise value, including:

a. Financial statements and tax settlement reports of the enterprise at the valuation date.

b. Reports on the results of inventory and valuation of enterprise assets.

c. Minutes of enterprise value determination (Appendix 4, 5).

d. Copies of detailed files of issues requiring resolution when determining enterprise value.

đ. Other necessary documents (depending on the application of different methods when determining enterprise value).

3.2. The privatization steering committee is responsible for reviewing the valuation results, reporting to the agency responsible for determining enterprise value and the Ministry of Finance.

4. Decision and Announcement of Enterprise Value:

4.1 Within no more than 5 working days from the date of receiving the review report and documents for determining enterprise value, the agency responsible for determining enterprise value issues and announces the enterprise value (Appendix 6a).

4.2. At the point when the enterprise officially becomes a joint-stock company, the agency responsible for determining enterprise value must handle all financial issues according to the provisions of Point 2, Part B, Section II of this Circular and issue a decision to adjust the enterprise value.

V. FIRST SALE OF SHARES

A. OBJECTS OF PURCHASE AND SHARE STRUCTURE

1. Objects of purchase:

1.1. Employees listed in the regular roster at the time of the decision to implement privatization.

1.2. Strategic investors as stipulated in Clause 2, Article 26 of Decree No. 187/2004/NĐ-CP, approved by the privatization decision-making agency.

1.3. Other domestic and foreign investors participating in public auctions in accordance with Article 4 of Decree No. 187/2004/NĐ-CP.

2. Initial Share Structure:

2.1. The number of state-held shares is determined according to the privatization plan and adjusted based on the sale results before officially becoming a joint-stock company, decided by the privatization decision-making agency.

2.2. The number of preferential shares sold is specified as follows:

a. Sold to employees of the enterprise up to a maximum of 100 shares/year worked in the state sector at a price reduced by 40% compared to the average successful auction price.

b. Sold to strategic investors up to a maximum of 20% of the total shares offered at a price reduced by 20% compared to the average successful auction price.

c. The total value of discounts for employees and strategic investors (determined based on face value) shall not exceed the state capital in the enterprise after deducting the value of state-held shares and the privatization costs according to the standard rate.

2.3. The number of shares sold through public auction to investors (including strategic investors and employees if they purchase additional shares) is the remaining shares after selling preferential shares but not less than 20% of the registered capital. In cases where there is insufficient 20% of the registered capital, the following measures shall be taken:

a. Issuing additional shares to increase the registered capital accordingly.

b. Adjusting the reduction of state-held shares accordingly.

c. Adjusting the preferential shares issued accordingly.

2.4. The total number of shares issued for the first time based on the enterprise's registered capital divided by the face value of one share (10,000 VND).

a. The number of shares sold equals the total number of shares issued for the first time minus the number of state-held shares.

b. The number of shares sold through public auction equals the number of shares sold minus the number of preferential shares sold to employees and strategic investors.

B. ORGANIZATION OF PUBLIC AUCTION FOR SHARES

1. Auction methods:

1.1. Direct auction at the enterprise for cases where the total face value of shares to be auctioned does not exceed 1 billion VND, organized by the Privatization Steering Committee.

1.2. Auction at financial intermediaries for cases where the total face value of shares to be auctioned exceeds 1 billion VND up to 10 billion VND, and from 1 billion VND downwards if necessary. The Privatization Steering Committee selects and coordinates with financial intermediaries to organize the sale.

1.3. Auction at the securities trading center for cases where the total face value of shares to be auctioned exceeds 10 billion VND, and from 10 billion VND downwards if necessary. The Privatization Steering Committee coordinates with the Securities Trading Center or financial intermediaries to implement.

The Privatization Steering Committee registers directly or hires financial intermediaries to register and conduct auctions at the securities trading center (Hanoi or Ho Chi Minh City).

1.4. In cases where enterprises are located in remote areas and cannot select financial intermediaries to undertake the public auction as stipulated in Point 1.2 and 1.3 of Section V of this Circular, the authority deciding on privatization shall notify the Ministry of Finance for guidance on resolution.

2. Responsibilities of parties related to the public auction of shares:

2.1. The Privatization Steering Committee must perform the following tasks:

a. Report to the authority deciding on privatization to issue a decision approving the privatization plan (Annex 6b), including the starting price as the basis for the auction.

b. Complete all information related to privatization (Annex 7).

c. Send relevant privatization documents and the registration form for organizing the auction (Annex 8) to the securities trading center (if registering for sale through the securities trading center) or sign a contract with financial intermediaries if selling through these organizations.

d. Coordinate with the auction organizer to publicly announce to investors all information related to the enterprise and the auction at least 20 days before the auction date.

đ. Summarize and report the results of the auction.

2.2. The auction implementing body (enterprise, financial intermediary, securities trading center) must perform the following tasks:

a. Request the Privatization Steering Committee and the enterprise to provide complete documents and information about privatization as prescribed.

b. Notify the Privatization Steering Committee and the enterprise of the time and place of the auction organization.

c. Publicly announce at the enterprise, auction location, and on mass media (on three consecutive issues within one week of a national newspaper and one local newspaper where the enterprise has its headquarters) about information related to the share sale at least 20 days before the auction (Annex 9).

d. Provide information related to the enterprise and the auction to investors and investment promotion organizations along with the auction participation registration form.

đ. Receive the Auction Participation Registration Form (Annexes 10a, 10b), check the conditions for participating in the auction, and issue the Auction Participation Certificate to investors who meet the conditions.

At least three working days before the auction date, the auction organizing body must complete sending the Auction Participation Certificates to investors.

If investors do not meet the conditions for participating in the auction, the auction organizing body must notify them and refund the deposit (if the investor has made a deposit).

e. Organize the auction, prepare the minutes (Annex 11), and notify the results to the Privatization Steering Committee.

g. The auction organizing body must keep confidential the purchase prices of investors until the official results are announced.

2.3. Investors participating in the auction must perform the following tasks:

a. Submit the Registration Form according to the model to the auction implementing body and provide proof of full civil capacity (for individuals) and legal status (for organizations). For foreign investors, they must comply with Clause 2 of Article 4 of Decree 187/2004/NĐ-CP.

b. Pay the full deposit equivalent to 10% of the value of the shares registered for purchase based on the starting price.

c. The time to submit the application and pay the deposit must be at least five days before the auction date.

d. Participate in the auction in accordance with regulations. Violation will result in disqualification from the auction and no refund of the deposit.

đ. Fully and timely pay the purchase price of the shares if purchased.

3. Implementation of public auction:

3.1. The auction is conducted when there are at least two qualified investors participating in the auction. If this condition is not met, the auction will not be organized, and it will be considered unsuccessful.

3.2. The auction process is as follows:

a. Secret ballot for direct auctions at the enterprise or financial intermediaries, securities trading centers. Investors record their bid price (bid price) for the number of shares registered on the Auction Participation Certificate and submit it to the auction implementing body within the time limit specified in the auction regulation.

In the case of auction at the securities trading center, investors may choose to vote directly at the securities trading center or send their bids through a securities company that is a member participating in the auction through the securities trading center.

b. Placing bids online for auctions conducted at the Securities Trading Center in accordance with the regulations of the Ministry of Finance.

3.3. Determining the auction results:

a. The principle for determining the auction results is based on the purchase price from highest to lowest, with investors purchasing shares at the price they bid.

b. The investor who offers the highest price has the right to purchase all the shares registered for purchase at that price. The remaining shares will be sold sequentially to other investors offering the next highest prices until all offered shares are sold.

In cases where multiple investors offer the same price but the number of shares offered is less than the total number of shares registered for purchase, the number of shares each investor can purchase shall be determined as follows:

c. Any bids lower than the starting price will not result in a refund of the deposit.

d. The auction results shall be recorded in the minutes and signed by representatives of the auction implementing agency, the State Capitalization Steering Committee, and the enterprise (as per Appendix 11 attached to this Circular) and sent to the agency deciding the enterprise's value, the Ministry of Finance, the State Capitalization Steering Committee, the enterprise, and kept at the auction implementing agency.

e. The auction implementing agency is responsible for publicly announcing the auction results before the auction ends for all investors.

(Specific steps of the auction session as per Appendix 12)

4. The State Capitalization Steering Committee directs the enterprise to sell shares to employees and strategic investors according to the approved capitalization plan.

5. Payment for purchasing shares.

5.1. Within fifteen working days from the date of announcing the auction results, the auction implementing agency and the investors (including both employees and strategic investors) are responsible for completing the share transactions and transferring the share purchase payments to the account of the enterprise being privatized.

5.2. Share purchases must be paid in Vietnamese Dong. If purchased in foreign currency, it must be converted into Vietnamese Dong at the average exchange rate on the inter-bank foreign exchange market published by the State Bank of Vietnam at the time of the auction. Payments can be made in cash or by bank transfer.

5.3. If the payment deadline of fifteen days is exceeded and the investor (including both employees and strategic investors) fails to pay or pays insufficiently compared to the amount due for purchasing shares, the unpaid shares will be considered as shares refused by the investor and will be handled according to the provisions at point 6 part B Section V of this Circular.

6. Handling unsold shares.

6.1. If the investor (including both employees and strategic investors) does not purchase all the shares, the remaining shares will be resold to participating bidders according to the provisions at point 3.3 part B, Section V of this Circular.

6.2. If participating bidders do not purchase all the shares offered, adjustments to the charter capital and state capital in the enterprise (except in the case of underwriting issuance) will be made.

6.3. If participating bidders do not purchase the full quantity of shares they were entitled to buy according to the announced auction results, they will not be refunded the corresponding deposit for the shares they refused to purchase.

7. Management of deposits:

7.1. Investors who participated in a valid auction but did not obtain shares, within five working days (from the end of the auction), the auction implementing agency is responsible for refunding the full deposit.

7.2. For investors who obtained shares according to the auction results, the deposit will be deducted from the total amount payable corresponding to the actual percentage of shares purchased at the auction price.

7.3. Deposits not returned to investors will be transferred by the auction implementing agency to the enterprise for management and use according to the regulations on managing and using funds from privatization.

8. Costs for serving the share auction activities are decided by the State Capitalization Steering Committee but shall not exceed ten percent of the total privatization costs. In the case of auctions at the Securities Trading Center, the division of costs between the Center and intermediary financial organizations shall be agreed upon by the parties involved.

VI. MANAGEMENT AND USE OF FUNDS FROM PRIVATIZATION

1. Funds from privatization, after deducting privatization costs (as stipulated in point 2 Section VI of this Circular), shall be managed and used as follows:

1.1. Supporting enterprises to implement policies towards employees at the time of the decision to privatize.

a. Supporting the payment of severance benefits to employees listed in the regular roster of the enterprise at the time of the privatization decision who voluntarily resign and employees hired after April 21, 1998, who lose their jobs or have their labor contracts terminated, including:

- The level of severance benefit for each employee is determined according to Article 17, Article 42 of the Labor Code.

- The enterprise is responsible for using the Enterprise Employment Assistance Fund (fully established according to state regulations) to pay severance benefits to employees, and if insufficient, the privatization proceeds may be used.

- The General Director of the enterprise is responsible for:

+ Preparing a severance assistance plan for laid-off and resigned employees and incorporating this plan into the privatization plan to be submitted to the competent authority for approval.

+ Organizing the payment of severance benefits to employees according to regulations and preparing a settlement report to be submitted to the agency deciding the enterprise's value for review and approval in accordance with current laws.

b. Supporting retraining of employees for new job placement in the joint-stock company:

- The retraining period shall not exceed six months; the maximum support is 350,000 VND per person per month.

- The General Director of the enterprise is responsible for:

+ Preparing a retraining support plan (number of people, profession, duration...), incorporated into the overall privatization plan.

+ Enter into contracts with training institutions after the privatization plan has been approved but not later than thirty days from the date the enterprise officially becomes a joint-stock company.

+ Liquidate contracts, pay training fees to the training institutions, prepare and submit a final account of training expenses for approval by the agency responsible for determining the enterprise's value in accordance with current laws within a period not exceeding eight months from the date the enterprise officially becomes a joint-stock company.

1.2. In cases where the proceeds from privatization are insufficient to support the enterprise in implementing policies for employees as stipulated in Point 1.1, Section VI, the shortfall shall be handled as follows:

a. The State-owned Enterprise Group shall provide support for the privatization of member enterprises.

b. Independent state-owned enterprises and member enterprises shall provide support for the privatization of parts of the enterprise.

c. The Enterprise Restructuring Support Fund under the Ministry of Finance shall provide support for the privatization of independent state-owned enterprises and State-owned Enterprise Groups (in cases of full privatization of State-owned Enterprise Groups).

1.3. Remaining proceeds from privatization must be submitted as follows:

a. To the company in cases of privatizing parts of the enterprise.

b. To the State-owned Enterprise Group in cases of privatizing member enterprises.

c. To the Enterprise Restructuring Support Fund under the Ministry of Finance in cases of privatizing independent state-owned enterprises and State-owned Enterprise Groups.

The amount to be submitted shall be determined as follows:

Where:

- Training costs for employees temporarily determined according to contracts signed with training institutions. When liquidating contracts, if there is a surplus, it shall be submitted according to the provisions of this point.

- The difference from selling shares through auction already includes adjustments for the reduced price of preferential shares sold to employees and strategic investors, calculated according to the formula:

Where:

+ The number of shares sold by type includes: the actual number of shares sold to each participating investor; the actual number of preferential shares sold to employees and strategic investors.

+ The actual selling price of each type of share is: the successful bid price of each participating investor; the preferential share price for employees reduced by 40% of the average successful bid price; the preferential share price for strategic investors reduced by 20% of the average successful bid price.

1.4. Proceeds from privatization shall be managed and utilized as follows:

a. Independent companies and member enterprises of State-owned Enterprise Groups shall use them to supplement business capital and support the parts of the company that have been privatized to continue labor restructuring in accordance with Clause 8, Article 36 of Decree 187/2004/NĐ-CP.

b. State-owned Enterprise Groups may use them to supplement business capital and support privatized companies to provide unemployment benefits to redundant workers in accordance with Clause 8, Article 36 of Decree 187/2004/NĐ-CP.

c. The Enterprise Restructuring Support Fund under the Ministry of Finance shall use them to invest and supplement capital for enterprises that require state investment according to current regulations; to support privatized companies and State-owned Enterprise Groups to continue resolving redundant labor issues in accordance with Clause 8, Article 36 of Decree 187/2004/NĐ-CP.

2. Privatization costs: include all expenses related to the privatization of the enterprise from the decision to privatize until the handover between the enterprise and the joint-stock company.

2.1. Privatization costs include:

a. Direct expenses at the enterprise:

- Costs for training on privatization procedures;

- Expenses for inventory and valuation of assets;

- Costs for preparing the privatization plan, drafting the charter of the joint-stock company's organization and operation;

- Costs for the Workers' and Employees' Congress to implement privatization;

- Costs for publicity and disclosure of information about the enterprise;

- Costs for organizing the sale of shares;

- Costs for the first shareholders' meeting;

- Other costs related to the privatization of the enterprise.

b. Fees for auditing, consulting to determine the enterprise's value and sell shares.

c. Costs for the Privatization Steering Committee.

2.2. The maximum total cost shall be determined based on the enterprise's value on the accounting books as follows:

+ Not more than 2 billion VND for enterprises with a value below 30 billion VND.

+ Not more than 3 billion VND for enterprises with a value from 30 billion to 50 billion VND.

+ Not more than 4 billion VND for enterprises with a value above 50 billion VND.

+ In cases of full privatization of State-owned Enterprise Groups, the budget for privatization costs shall be included in the privatization plan of the State-owned Enterprise Group.

The General Director or Director of the enterprise decides on the content and necessary expenditure within the maximum limit to implement the privatization process and is responsible for the legality and validity of these expenditures.

In cases of privatizing large-scale and complex enterprises where necessary costs exceed the maximum limit, the agency responsible for determining the enterprise's value shall proactively review and decide, and notify the Ministry of Finance.

At the end of the privatization process, the enterprise must settle privatization costs and report to the agency responsible for determining the enterprise's value for approval.

VII. POLICIES FOR ENTERPRISES AND WORKERS AFTER PRIVATIZATION

1. For Enterprises

1.1. Enterprises after privatization enjoy incentives as stipulated in Article 36 of Decree 187/2004/NĐ-CP and current state regulations on enterprises.

For investment incentives specifically, enterprises after privatization shall independently determine the level of incentive according to current laws and register with the tax authority (along with a copy of the decision approving the privatization plan and the business registration certificate of the joint-stock company) to obtain resolution.

1.2. Joint-stock companies established from the privatization of member enterprises of State-owned Enterprise Groups with over 50% state capital remain members of the State-owned Enterprise Group but are exempt from paying management fees to the State-owned Enterprise Group.

1.3. Enterprises are supported by the state with funds from privatization proceeds and the Redundancy Labor Support Fund for state-owned enterprises to resolve worker policies according to current regulations.

2. For employees in enterprises

2.1. Preferential treatment for employees shall be implemented in accordance with the provisions of Article 36 and Article 37 of Decree 187/2004/NĐ-CP, wherein employees purchasing preferential shares are entitled to freely transfer such shares without time limitation, except for founding shareholders who must comply with the Company's Articles of Association.

2.2. The total value of preferential benefits for strategic investors and employees in the enterprise shall be derived from additional revenue generated from the auction of shares. If insufficient, it may be deducted from the existing state capital at the enterprise but shall not exceed the amount of state capital remaining after deducting the value of state-owned shares and privatization costs.

In the case of the privatization of a wholly-owned holding company that consolidates accounts, the value of preferential benefits for employees and strategic investors of subsidiary companies shall be calculated within the actual value of state capital at the subsidiary companies; the value of preferential benefits for employees and strategic investors of the holding company's office and affiliated units shall be calculated within the total actual value of state capital of the holding company's office and affiliated units.

VIII. IMPLEMENTATION

1. The process of privatization shall be carried out according to specific steps detailed in Appendix 1 attached hereto, including the following basic steps:

Step 1: Develop a plan

a. Establish a Privatization Steering Committee and a working group assisting the committee.

b. Prepare relevant documents and materials.

c. Address financial and organizational issues related to determining the enterprise's value.

d. Finalize the privatization plan.

Step 2: Organize the sale of shares.

a. Sell shares.

b. Adjust the privatization plan.

Step 3: Complete the transition of the enterprise into a joint-stock company.

a. Organize the General Shareholders' Meeting and register for business operations.

b. Organize the handover between the enterprise and the joint-stock company.

All steps must be completed within a maximum period of nine months. In cases exceeding this timeframe, the authority responsible for privatization shall bear responsibility for any additional costs incurred.

2. Responsibilities of relevant agencies

2.1. The agency deciding on privatization and the agency determining the enterprise's value shall exercise rights and responsibilities as stipulated in Clause 1 of Article 40 of Decree 187/2004/NĐ-CP.

2.2. The Board of Directors of State-owned Holding Companies shall exercise rights and responsibilities as stipulated in Clause 2 of Article 40 of Decree 187/2004/NĐ-CP.

2.3. The Privatization Steering Committee of the enterprise:

a. Assist the agency deciding on privatization in directing and organizing the privatization of one or more enterprises. The rights and responsibilities of the Steering Committee shall be defined by the agency deciding on privatization. (Model decision on establishing the Privatization Steering Committee in Appendix 13).

b. The Steering Committee shall consist of no more than five (5) members, primarily comprising:

- Leadership of the agency deciding on privatization (or authorized representative) - Chairperson.

In the case of privatizing a holding company, the leadership of the ministry, provincial/municipal People's Committee shall serve as Chairperson.

- Representative of the leadership of functional units of the agency deciding on privatization - Member.

- Representative of the leadership of the Ministry of Finance (in the case of privatizing a whole holding company) - Member.

- Leadership of the enterprise being privatized (Board of Directors, General Director, Director or authorized representative) - Member.

The number and composition of Steering Committee members shall be decided by the head of the agency deciding on privatization.

c. Working group assisting the Steering Committee:

- The Steering Committee shall establish a working group consisting of no more than five (5) members to assist the Steering Committee in tasks related to privatization.

- The composition of the Working Group includes:

+ Enterprise leadership - Team Leader.

+ Chief Accountant or Head of Accounting Department - Team Member.

+ Heads and Deputy Heads of functional departments - Team Members.

In the case of privatizing dependent units of state-owned enterprises, their leadership must participate in the Working Group.

The number and composition of Working Group members shall be decided by the Chairperson of the Steering Committee.

d. Operating expenses of the Steering Committee and Working Group shall be included in privatization costs. Members shall receive allowances not less than five hundred thousand dong per person per month but not exceeding the basic salary of each individual. Specific amounts shall be determined by the Chairperson of the Steering Committee.

3. Handling certain issues arising before the effective date of Decree 187/2004/NĐ-CP (December 10, 2004)

3.1. Enterprises whose privatization plans were approved before December 10, 2004, need not adjust their plans. However, the auction of shares shall be conducted in accordance with the provisions of Part B, Section V of this Circular.

3.2. Enterprises that had decisions on valuation made before December 10, 2004, need not re-evaluate their enterprise value but must develop a privatization plan and sell shares in accordance with Decree 187/2004/NĐ-CP and this Circular.

3.3. The balance of the Fund for Restructuring and Privatizing State-Owned Enterprises in provinces and centrally-administered cities, and state-owned holding companies as of December 10, 2004, shall be handled as follows:

a. Holding companies may use it for business activities in accordance with current regulations on state capital management.

b. Provinces and centrally-administered cities may use it to supplement capital for state-owned enterprises that need to retain 100% ownership. The specific support level for each enterprise shall be decided by the provincial/municipal People's Committee. It shall not be used for other purposes.

3.4. Provincial/municipal People's Committees and Boards of Directors of State-owned Holding Companies shall direct the preparation of a final report on the management and use of the Fund for Restructuring and Privatizing State-Owned Enterprises since its establishment, to be submitted to the Ministry of Finance by March 31, 2005, for consolidation and reporting to the Prime Minister.

This Circular shall take effect fifteen days after publication in the Official Gazette and shall replace Circulars No. 76/2002/TT-BTC dated September 9, 2002, No. 79/2002/TT-BTC dated September 12, 2002, No. 80/2002/TT-BTC dated September 12, 2002, and other documents issued by the Ministry of Finance guiding Decree No. 64/2002/NĐ-CP dated June 19, 2002, of the Government on converting state-owned enterprises into joint-stock companies.

Any difficulties encountered during implementation should be reported to the Ministry of Finance for resolution.