Firms discriminated on new share offers

Some publicly listed enterprises have violated the law by discriminating amongst shareholders in the process of issuing new shares, said Nguyen Dinh Cung, head of the Working Group on Enterprise Law Implementation under the Central Economic Management and Research Institute.

VIPCO (VIP), with chartered captial of VND421.2 billion (US$26.32 million), lists on the HCM City bourse. In its annual shareholder meeting last month, the company planned an additional share issue in order to raise its chartered capital to VND600 billion ($37.5 million).

Under its plan, VIPCO decided to issue 17,880,000 shares, of which Petrolimex, already holding a 51-per-cent interest, would buy 9,118,800 shares at an issue price of VND15,000 ($0.93) per share. Other current shareholders would be allowed to buy the remaining 8,761,200 shares at a ratio of 50:21 at a price over VND40,000 ($2.50) per share.

Before issuing additional shares, listed enterprises must comply with provisions in three legal documents, including the Law on Enterprises, the charter of each enterprise and administrative regulations applied to listed enterprises, noted Nguyen The Tho, head of the Issuance Management Board of the State Securities Commission.

Under these regulations, shareholders must be treated equally, and shareholders with the same classes of shares must enjoy the same rights and benefits.

Article 78 of Law on Enterprises provided that enterprises must issue common shares, Cung said. Preferred shares, paying dividends and carrying higher voting power, were only optional.

"It’s ridiculous to say that because founding shareholders have contributed more than current shareholders, they were priviledged to buy more or buy at lower prices," Cung said.
Cung accused VIPCO, along with Xuan Mai Concrete Co and Vitaco, with violating the law. He said that, in the case of VIPCO, shareholders had a right to raise their voices in spite of the fact that unlawful decisions were ratyfied in the shareholders meeting.

Regulations governing listed companies entitle shareholders to protect their interests under the law. Resolutions adopted by shareholders that violate the basic interests or rights of shareholders can be deemed invalid. If they cause losses to the company, the management board and executives of the company can bear personal liability.
VIPCO executives could not be reached for comment.

Bui Nguyen Hoan, a State Securities Commission representative in HCM City, said that discrimination amid shareholders was absolutely wrong. Shareholders must have the same rights, interests and duties, he said. He highlighted that there were some companies which rewarded major shareholders but not minor ones, an unlawful action.

Bui Quang Nghiem, a lawyer and deputy chairman of the HCM City Lawyers Association, said that a decision on how many shares enterprises could issue to strategic shareholders and to other shareholders depended on the enterprise. However, all shareholders must have rights to buy newly issued shares in the same ratio, based on the volume of shares they already held.

In the case of Xuan Mai Concrete Joint Stock Co, with registered capital of VND60 billion ($3.75 million), the company plans to issue an additional two million shares with a face value of VND20,000 ($1.25) to exisiting shareholders at different ratios.

Founding shareholders would allowed to buy shares at a ratio of 1:1 to existing shares, while the ratio would be 2:1 for current shareholders.

Xuan Mai general director Pham Hoang Huy explained that he also reviewed the article in the Law on Enterprises but chose the different ratios to guarantee the interests of shareholders, the State, staff and the company.

The interests of minor shareholders were being ignored, said Le Dang Doanh, senior economic, who also warned Viet Nam ranked 107 on the Bank’s list of countries protecting the interests of shareholders.

Source: VNS