Who protects minority shareholders?

One of the reasons behind the decline of Vietnam in the World Bank’s report on business environment is shortcomings in protecting minority shareholders.

Vinalink, the freight and forwarding company, decided to raise its chartered capital from VND36bil to VND90bil. In order to reach that end, Vinalink planned to sell 162,000 shares to Vinatrans, another freight and forwarding company, at VND100,000/share, equal to the face value. Meanwhile, the market value of Vinalink’s shares was 1.5mil/share.

The sale of shares at that price, which was much lower than the market price, faced strong opposition from Vinalink’s shareholders. However, the protest from the shareholders only could bring a small change: the 162,000 shares were sold at VND150,000/unit instead of VND100,000 as previously planned, but that was just equal to 1/10 of the market price.

The news that Saigon Service Joint Stock Company (SVC) sold shares at the preferential price of VND30,000/share to the company’s leaders when the market price of the share was VND118,000/unit also stirred up the public.

In this case, the buyers, SVC leaders, got big benefit, while small shareholders suffered losses. Though the minority shareholders protested the plan, the sale still went smoothly as it was approved by the majority shareholders.

In its plan to raise its chartered capital, Vipco, an oil and petrol trading company, allowed big shareholders to buy shares at VND15,000/unit, while smaller shareholders had to buy at VND40,000/unit.

In all the said cases, important principles and rights of shareholders were broken.

In fact, in many cases, members of the management boards and companies’ leaders can get preferences in buying shares and buy shares at preferential prices, which should be seen as a way to attract talents to the companies.

However, experts said that this must be done in accordance with the law and be done transparently. In Australia, the Australian Securities and Investments Commission – ASIC – is in charge of considering these cases. If preferences given to big shareholders face opposition from minority shareholders then ASIC has to come forward and settle the disputes.

In Vietnam, no similar case has been brought into open settlement, paving the way for groups of shareholders to seek unfair profit.

Vietnam fell four grades in the report on the business environment of 208 economies which has been released by the World Bank. The GNI (gross national income) per capita in Vietnam in 2006 was $690, ranking 169th in the world, falling four places from 2005 ($620 per capita).

Many factors have been cited to explain the fall, but the most important is that the 8.2% GDP growth rate was not high enough.

For example, Mauritania, the 168th in 2006, had the GDP growth rate of 11.7%, which helped make its GNI sharply increase from $580 in 2005 to $740 in 2006. Meanwhile, the Solomon Islands, which had the modest growth rate of 4.8%, saw GNI per capita increase from $620 in 2005 to $690 in 2006, thus falling five spots to the 170th position (in 2005, it ranked 165th like Vietnam).

Source: VNE