Circular No. 36/TC-CN guiding financial issues in the pilot implementation of shareholding for state-owned enterprises pursuant to Decision No. 202/CT dated June 8, 1992, and Directive No. 84/TTg dated March 4, 1993 of the Government Prime Minister.

CIRCULAR

OF THE MINISTRY OF FINANCE

Guidelines on financial issues in implementing

pilot shareholding reform of state-owned enterprises pursuant to Decision No. 202/CT dated June 8, 1992 and Directive No. 84/TTg dated March 4, 1993 of the Prime Minister

Implementing Decision No. 202/CT dated June 8, 1992 of the Chairman of the Council of Ministers (now the Prime Minister) and Directive No. 84/TTg dated March 4, 1993 of the Prime Minister regarding continued pilot conversion of some state-owned enterprises into joint-stock companies, the Ministry of Finance provides specific guidelines on financial matters that need to be determined and resolved during the process of converting certain state-owned enterprises into joint-stock companies as follows:

1. The transformation of state-owned enterprises into joint-stock companies (also known as the shareholding reform of state-owned enterprises) is a measure to convert enterprises from state ownership to a multi-component ownership structure, where there may still exist a portion of state ownership (or it may not exist) and ownership of other economic components (i.e., ownership of shareholders), with the state being one of the shareholders, aimed at widely mobilizing capital for investment and development, promoting the resolution and overcoming current shortcomings of state-owned enterprises, creating conditions for workers to truly control the enterprise, and enhancing the production and business efficiency of the enterprise.

I. GENERAL PROVISIONS

2. To implement the shareholding reform of enterprises, it is necessary to determine the actual value of the enterprise, the par value of shares, and the number of shares sold to shareholders.

The actual value of the enterprise is determined based on the record of capital transfer to the enterprise, adding and subtracting changes in capital including the amount of preserved capital according to the preservation coefficient and other factors that create effectiveness and impact the value of the enterprise, up to the time of shareholding reform: including fixed assets, working capital, land compensation funds from the state budget, considered as state budget funds and self-supplemented capital of the enterprise. All these sources of capital mentioned above belong to the entire people and are included in the asset value of the enterprise.

In both cases: shareholding reform of 100% of the enterprise's value (no remaining state ownership) or only selling part of the shares (the remainder becoming state shares), it is necessary to clearly determine the total value of the enterprise before entering into shareholding reform. Assets included in the enterprise's value for calculating shares do not necessarily consist solely of state budget capital and self-supplemented capital, fixed assets, and working capital, but may include various other sources of capital depending on the agreement between the buyer and seller (such as uncompleted investment capital, borrowed capital, etc.). Based on the enterprise's value and the par value of shares, the total number of shares to be sold is determined.

3. Enterprises must address existing financial issues such as losses, stagnant inventory, difficult-to-collect receivables, and immediately pay into the state budget any outstanding amounts due, and develop plans for handling these issues after shareholding reform.

4. After shareholding reform, enterprises must operate under the Law on Enterprises, and the leadership structure of joint-stock companies must be formed according to the Law on Enterprises, regardless of whether there is state ownership or not. Financial companies (if any) and financial management agencies under the Ministry of Finance are responsible for managing state shares in those joint-stock companies.

5. Depending on the specific situation when reforming enterprises into joint-stock companies, the proceeds from selling shares should be handled accordingly. In cases where part of the state ownership, including self-supplemented capital, is transferred to shareholders, the proceeds must be paid into the state budget (treasury). In cases where additional capital is raised according to approved feasibility studies for further investment or to repay previous loans, it does not need to be paid into the state budget but can be used for investment and debt repayment purposes.

6. During the shareholding reform process, the production activities of enterprises shall not be disrupted (except for enterprises that have been closed pending resolution). Newly formed joint-stock companies must inherit the operations of the old enterprises and take measures to continue to promote and develop production after shareholding reform.

7. Share dividends are determined based on the production capital of the enterprise, including fixed assets, working capital, land compensation funds from state budget sources, considered as state budget funds, and self-supplemented capital of the enterprise.

8. State-owned enterprises may use a portion or all (as decided by the enterprise itself) of the surplus in the reward fund and welfare fund up to the time of shareholding reform to purchase shares for employees of the enterprise on the principle of ensuring fairness and rationality, promoting production development based on the contributions of employees to the enterprise, and with the participation of the trade union organization of the enterprise.

Welfare funds shall not be distributed in the form of public facilities such as cultural houses, clubs, clinics, rest homes, etc. These facilities will continue to be maintained and developed to ensure common welfare for the enterprise after shareholding reform.

9. Enterprises conducting pilot shareholding reforms are permitted to lend employees of the enterprise interest-free loans with a maximum term of five years through deferred payment of shares with an average limit of no more than 3 million VND per person and a maximum limit of no more than 5 million VND per person, depending on salary levels and length of service.

The list of borrowers and loan amounts are proposed by the Enterprise Director after consulting with the grassroots trade union organization.

Eligible recipients are employees within the establishment of the enterprise as of the date of shareholding reform and retired or disabled employees of the enterprise. Employee loan contracts must be signed by authorized representatives of the main department (for central enterprises), provincial or municipal People's Committees (for local enterprises), the Ministry of Finance, and the borrower.

Central and local financial companies (if any) and financial agencies at all levels, the Chairman of the Board of Directors, and the General Director of the new joint-stock company are responsible for monitoring the implementation of loan contracts.

Annual repayment shall not be less than 1,000,000 VND (one million dong) per employee who has taken out a loan.

The annual debt repayment amount shall not be less than one million Vietnamese dong (1,000,000 VND) for each worker or employee of the enterprise who has taken out a loan.

These shares shall entitle the workers to annual dividends, be inheritable, but shall not be transferable or redeemable until the deferred payment for the shares has been fully settled.

10. For state employees participating in the purchase of shares with their own capital (in cash), in addition to the portion already purchased, they may borrow shares to be repaid over five years at a preferential interest rate equivalent to the annual return on capital usage. The maximum borrowing amount shall not exceed the number of shares purchased with their own capital (in cash). The Director of the Joint Stock Enterprise shall propose a specific loan list (indicating the amount already purchased and the proposed loan amount) for decision by the Minister of Finance, the Minister of the Main Department, and the Provincial People's Committee (for local enterprises). The regulations concerning the signing of loan contracts and the use of these shares shall apply as stipulated in Section "9" above.

11. Based on the development plan of the enterprise after shareholding reform (proposed by the founders) and during the production and business process, if there are difficulties, the enterprise will be considered for a reduction in corporate income tax not exceeding 50% for two years from the date of shareholding reform. The procedure for reducing corporate income tax shall be carried out according to the law for each specific case.

12. In cases where there is a need to sell shares to foreign organizations and individuals, the Ministry of Finance together with the Main Department (for central enterprises) or the Provincial People's Committees (for local enterprises) and other relevant ministries (such as the State Committee for Cooperation and Investment...) will study and guide each specific case and report to the Prime Minister for decision.

II. ANALYSIS AND EVALUATION OF THE ACTUAL SITUATION OF THE ENTERPRISE BEFORE SHAREHOLDING REFORM AND DEVELOPMENT STRATEGIES FOR PRODUCTION AND BUSINESS AFTER SHAREHOLDING REFORM

A. ANALYSIS AND EVALUATION OF THE ACTUAL SITUATION OF THE ENTERPRISE.

1. At the selected enterprise undergoing shareholding reform, a preparatory analysis and valuation committee must be established to assess the economic and financial status of the enterprise.

The preparatory committee (PC) of the enterprise, directly led by the director, includes representatives from technical departments such as mechanical engineering, economic planning, finance and accounting (accounting head), labor and wages, trade union chairman, and deputy director for finance and economics. The accounting head serves as a permanent member of the PC.

The PC must analyze and evaluate the actual economic and financial situation of the enterprise based on approved financial statements and production and business settlement reports from the year prior to shareholding reform, including the preservation ratio of capital, business results, and amounts payable to the State Budget.

2. For fixed assets, when inspected and settled, the total current fixed assets of the enterprise must be determined based on depreciation rates and the preservation ratio of fixed assets. Based on these figures, the PC needs to conduct a detailed analysis and evaluation of the technical condition of each fixed asset, such as machinery and equipment, and recommend their actual value.

The PC must analyze fixed assets formed through loans, the total amount borrowed, debts repaid, remaining debt, and repayment measures. Analyze unfinished construction projects according to budget and reality, based on investment sources, and assess the feasibility of the project, recommending subsequent handling methods.

3. The PC must prepare a list of land area usage both within and outside the enterprise's perimeter, explaining the land area used for production and business, welfare facilities, and public works.

Land value shall not be included in the enterprise's value. In the enterprise's value, only the initial fee for land use rights and land surface use fees (such as compensation and land clearance fees) shall be counted.

The aforementioned initial fee in the enterprise's value shall be decided by the Minister of Finance after consulting with the Minister of the Main Department or the Chairman of the Provincial People's Committee, along with the announcement of the enterprise's value upon shareholding reform.

4. For circulating assets: Apart from the documents in the capital transfer and settlement files, the enterprise must inventory materials, goods, and products, balance them with participating capital sources, and analyze stagnant, deteriorated, missing, and lost items, specifying the reasons.

5. For business results: Compare the profits of the enterprise in previous years before shareholding reform (after calculating the preservation ratio) with actual revenue, total fixed capital, and circulating capital to determine the profit margin. Analyze the profit from main activities and the total profit of the enterprise, including the portion paid to the State Budget and retained by the enterprise.

6. For other sources of capital attraction (not included in the state-assigned capital) such as joint venture capital, long-term debt (both domestic and foreign), clearly list the total capital and assets received from other units or individuals before shareholding reform, including those involved in joint ventures or leases, specifying the units or individuals with joint venture or lease capital.

Clearly state the profit-sharing or interest repayment arrangements for these joint ventures. Enterprises with private shares formed before the South's liberation should analyze the original capital, remaining capital determined in accordance with the state's policy on transforming private commercial and industrial assets after the South's liberation, and the capital that has been calculated with the preservation ratio.

7. Regarding income and income distribution of the enterprise.

Analyze the basic wage fund, total wage fund, comparing it with revenue. Within the total wage fund, analyze the sliding scale wage and other allowances: meal allowance, bonus... indicating the highest and lowest income levels within the enterprise.

8. Other issues related to the production and business of the enterprise. Analyze the conditions and capabilities, difficulties and advantages in business operations: from technology, product quality, domestic market consumption, to exports.

B. Production, Technical, and Financial Plan of the Enterprise After Shareholding Reform (5-10 Years Ahead).

The director of the enterprise to be equitized and individuals participating in founding the joint-stock company (if any) shall be responsible for preparing the production-technical-financial plan after equitization (for the next 5-10 years).

The production-technical-financial plan shall be reported to the superior management agency and financial agency before approving the implementation of the equitization of the enterprise.

The contents of the production-technical-financial plan of the enterprise after equitization include:

1. Plan for handling existing issues regarding capital utilization, production-technical and financial matters of the enterprise that could not be resolved before equitization and must be inherited and continued to be resolved after equitization.

2. Product plan, including the content on improving the quality of traditional products, new items, and market consumption arguments for products both domestically and internationally.

3. Investment expansion development plan for production after equitization, replacement and modernization of equipment, production lines, technology, mobilization of unused assets and materials awaiting liquidation to enhance production efficiency.

4. Labor utilization and wage plan aimed at increasing labor productivity and production efficiency. Specific plan for continuing to handle surplus labor that was not resolved before equitization.

5. Cost price plan, selling price, revenue contributions to the State budget, and profit margin calculated by return on investment and cost of product. Based on this, determine the annual dividend payment plan for shareholders.

6. Plan and arguments for using the proceeds from the sale of shares retained by the enterprise, if any, outside the portion required to be paid into the state budget.

7. Organizational structure, accounting, and management plan for the joint-stock company.

III. VALUATION AND REVIEW OF THE ENTERPRISE'S VALUE.

The Valuation and Review Board is responsible for examining and valuing the assets and capital of the equitized enterprise based on the proposal of the Enterprise Equitization Preparation Board.

1. The Valuation and Review Board:

The Ministry of Finance takes the lead in establishing the Valuation and Review Boards.

Members include economic and financial experts, technical experts from the Ministry of Finance, the supervising ministry, or provincial/municipal People's Committees, the director and chief accountant of the equitized enterprise. An authorized representative of the Ministry of Finance serves as the Chairman of the Valuation and Review Board.

2. These Valuation and Review Boards must receive capital transfer files, final settlement statements of the enterprise, and analysis reports on the current status of capital and assets submitted by the Enterprise Preparation Board.

The Valuation and Review Board must prepare a valuation record according to the specific content and principles below.

The valuation record of the Valuation and Review Board must be transferred to the Minister of Finance, the Minister of the supervising ministry, and the Chairman of the provincial/municipal People's Committee (for local enterprises). The Minister of Finance will issue a formal decision on the enterprise value after equitization upon reaching a consensus with the Ministers of the supervising ministries and the Chairmen of the provincial/municipal People's Committees.

First, the Valuation and Review Board must examine the documents presented by the Preparation Board. Confirm the total amount of capital to be preserved by the enterprise, the land area under the enterprise's use. Check and classify assets and capital included in the enterprise's asset value for equitization and those not included in the capital value for equitization. The summary of capital transfer and preservation of capital by the enterprise serves as the basis for the Valuation Board to fulfill these requirements.

The value of assets and capital included in the enterprise's value is determined according to Decision 202-CT, including:

Fixed capital (from the budget and self-supplement) currently used in production and business operations and circulating capital (from the budget and self-supplement) currently held by the enterprise.

Other types of capital (construction investment funds including unfinished construction projects, remaining capital for construction, production reserve fund, and long-term loans) need to be analyzed and examined specifically to determine conditions for inclusion in equitization.

a. Regarding fixed assets to determine the value of fixed capital (from the budget and self-supplement) used in production and business operations being equitized, the Board must thoroughly examine the value of each fixed asset on the list determining the capital preservation coefficient as of January 1, 1992, and January 1, 1993, and changes in assets (capital) up to the valuation date.

Revalue fixed assets according to their actual market purchase price at the time of asset valuation. This value may be higher or lower than the capital preservation value of the fixed assets being equitized.

In addition, the enterprise's advantages in product quality, design, variety, sales capacity, export potential, high profitability ratios, and other advantages such as enterprise reputation, skilled workforce, geographical location, etc., contribute to the super-value of the enterprise's assets. The super-value is added to the actual total value of the enterprise.

However, to encourage increased share dividends paid to shareholders, the full application of the enterprise's super-value or land location value may initially not be fully applied to the enterprise's value.

b. Regarding circulating capital: The circulating capital included in the value for equitization is the entire circulating capital (from the budget and self-supplement) currently used in production and business operations, adjusted to the capital preservation coefficient and valuation date.

c. For construction investment capital (including remaining construction investment capital, including unfinished construction projects, from both budgetary sources and self-supplemented sources)

Based on the analysis and assessment by the Preparation Board of the remaining construction investment capital and the value of unfinished construction projects, determine the prospects for including the project in the enterprise's value for equitization or not.

If the project is closely linked to the existence and development of the enterprise and the future effectiveness of the joint-stock company, it should be valued for equitization.

Otherwise, plans for pre- and post-equitization handling are needed.

The valuation method follows the principle as for fixed assets, guided by the Ministry of Finance and relevant agencies.

d. Land:

Pursuant to Directive No. 84/TTg dated March 4, 1993 of the Prime Minister, the value of land is not included in the enterprise's value. However, the State permits enterprises and joint-stock companies to use land for certain periods. Before using the land, the company must pay compensation or purchase fees, which are included in the enterprise's value and must be paid into the State Budget or become state shares in the enterprise. At the same time, joint-stock enterprises must pay annual land rent. The land tax rate shall not exceed the level prescribed for foreign-invested enterprises by the Ministry of Finance and must be paid annually into the State Budget. Land rent is considered a production cost included in the product cost. Joint-stock enterprises undergoing privatization must sign land use contracts with financial authorities at the same level and annually pay land rent into the State Budget.

5. The total value of the enterprise, which has been appraised and evaluated for privatization, divided by the par value of the share (the lowest being 50,000 VND), will result in the number of shares to be issued.

IV. FINANCIAL TREATMENT OF CAPITAL AND ASSETS BEFORE AND AFTER PRIVATIZATION.

1. Idle assets awaiting liquidation must be sold and liquidated immediately before privatization according to current regulations on asset sale and liquidation. If not completed, the joint-stock company will inherit and continue to handle them after privatization.

Financial agencies, supervisory agencies, and local tax bureaus will monitor this process.

For missing or lost assets, if individual responsibility can be established, the responsible party must compensate. If compensation is to be made gradually and the responsible party continues working at the joint-stock company, the company will deduct wages and bonuses from their salary to collect the compensation for the State Budget.

If only partial compensation is required, the difference will be transferred to cases where individual responsibility cannot be established. This loss amount will be deducted from the remaining enterprise fund before privatization.

In the final case, if there is no source to cover the losses as mentioned above, the amount will be transferred to the State's losses along with losses from re-evaluating asset values during privatization.

2. Prior to privatization, the enterprise must take measures to deal with difficult-to-collect debts according to the guidelines of the Central Debt Settlement Board. Long-term domestic and foreign loans must be reported clearly and plans for debt repayment after privatization must be proposed so that the joint-stock company can inherit and implement them.

3. Capital or asset values received through joint ventures, leases, or loans before privatization must be clearly defined for the joint-stock company to accept and be responsible for handling and settling afterward. For enterprises with private capital contributions (such as joint ventures previously), their capital portion will be determined and converted into share value for continued participation in the enterprise.

4. Any surplus development funds and investment funds of the enterprise (including retained scientific and technological capital) that have been balanced into sources for paying off fixed assets and unfinished construction projects and included in the enterprise's capital for privatization will be left over for the joint-stock company. If they are no longer needed by the time of asset valuation for privatization, they must be treated as refunded capital payments to the State Budget to offset losses from privatizing the enterprise's assets.

5. During the pilot phase, joint-stock certificates with registered names and transferable according to agreed prices may be applied. Joint-stock enterprises must confirm the transfer of ownership of transferred and purchased shares.

6. All proceeds from selling shares under the form of transferring part (or all) of state ownership to shareholders must be deposited into the State Budget (treasury), except for shares sold on credit, which must be deposited into the State Budget according to the debt recovery process. If the enterprise needs additional capital for expanding production and business operations or raising capital to repay long-term loans (converting loan debt into shareholder debt), it must be clearly stated in the economic and technical justification and in the share issuance plan, specifying the state-owned capital to be privatized and the additional capital to be raised.

V. IMPLEMENTATION

1. After receiving notification of acceptance for privatization pilot programs, the enterprise's privatization preparation board must prepare a report analyzing and evaluating the current status of the enterprise, the post-privatization production, finance, and management plan of the enterprise, and the privatization plan including contents such as: the form and steps of privatization (100% or partially), the enterprise's value for calculating shares, the number of shares and share par value, the target groups for selling shares, measures to handle financial issues before and after privatization, plans for using proceeds from share sales, etc., to report to the Privatization Steering Committee and the Enterprise Valuation and Appraisal Council. The appraisal record of the enterprise's value will be submitted to the Minister of Finance for decision after obtaining the consensus opinion of the Ministers of the main supervising ministries and the Chairman of the Provincial People's Committees.

After determining the enterprise's value, the Privatization Steering Committees of the Ministries and provinces, cities, with the participation of financial agencies at all levels, will carry out the sale of shares and organize the formation of joint-stock companies according to the provisions of the Company Law. The share printing template will be issued uniformly by the Ministry of Finance.

2. Until the Board of Directors and General Manager are established according to the Company Law and during the organization of the privatization process, the old management board will still be responsible for managing the enterprise's operations to ensure continuous and uninterrupted production and business activities. After privatization, all joint-stock companies will operate according to the Company Law.

3. The Ministers, Chairpersons of Provincial People's Committees under the Central Government shall directly direct the pilot shareholding reform at enterprises within their jurisdiction as prescribed in Article 12 of Decision No. 202-CT dated June 8, 1992 of the Chairman of the Council of Ministers (now the Prime Minister); at the same time, they shall regularly report on the progress of implementation, difficulties and obstacles to the Ministry of Finance for timely supplementation of guidance and resolution within the scope of their authority and functions.

This Circular takes effect from the date of signature for state-owned enterprises piloting the transformation into joint-stock companies.