Decree No. 187/2004/ND-CP of November 16th, 2004, on conversion of state owned companies into shareholding companies.

DECREE

ON CONVERSION OF STATE OWNED COMPANIES INTO SHAREHOLDING COMPANIES

THE GOVERNMENT

DECREES:

Chapter I

GENERAL PROVISIONS

Article 1.The objectives of and requirements for conversionof State owned companies into shareholding companies (hereinafter referred to as equitization) shall be:

1. To convert those Stateowned companies in which it is not necessary for the State to continue to hold one hundred (100) per cent of charter capital into shareholding companies with manyowners; to mobilize capital from both domesticand foreign individuals, economic organizations and social organizations for the purpose ofincreasing financial capacity and renovating technology and management methods in order to raise the efficiency and competitiveness of theeconomy.

2. To ensure harmony between the interests of the State, the enterprise,the investor and employees of the enterprise.

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Article 2.Applicable subjects

1. This Decree shall apply to State owned companies not in the category of those in which it is necessary for the State to hold one hundred (100) per cent of charter capital, which shall undergo equitization, comprising: State corporations (including State commercial banks and State finance institutions); independent State owned companies; enterprises which are members of corporations, which maintain an independent cost accounting system and for which the State made the decision on investment and establishment; and dependently accounting affiliates of State corporations (hereinafter all referred to as enterprises undergoing equitization).

The Prime Minister of the Government shall make decisions from time to time on the list of State owned companies in which it is necessary for the State to hold one hundred (100) per cent of charter capital.

2. Equitization ofthe State owned companies prescribed in clause 1 of this article may be carried out when they still have State capital (excluding the value of land use rights) after deducting the value of assets not required to be used, assets awaiting liquidation, losses caused by [annual] losses, reduction in the value of assets, bad debts and equitization expenses.

3. Equitization ofdependently accounting affiliates ofState corporations prescribed in clause 1 of this articlemay only be carried out when:

(a) The dependently accounting affiliate of an enterprise satisfies all conditions for maintaining an independent cost accounting system;

(b) It does not cause difficulties or have adverse consequences on the production and business results of theenterprise or the remaining part of the enterprise.

Article 3.Forms of equitization of State owned companies

1. Maintaining the existing State owned capital in an enterprise and issuing shares in order to mobilize additional capital applicable to enterprises to be equitized which have a requirement to increase charter capital. The level of additional capital to be mobilized shall depend on the scale of the company undergoing equitization and its capital requirements. The structure of charter capital in a company undergoing equitization shall be set out in the equitization plan.

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3. Selling the whole part of the existing Stateowned capital in anenterprise, or combining the sale of the whole part of the existing State owned capital inthe enterprise with issuing shares in order to mobilize additional capital.

Article 4.Who may purchase shares and conditions for purchasing

1. Economic organizations and social organizations operatingpursuant to the law of Vietnam and individuals being Vietnamese residing in Vietnam (hereinafter all referred to as domestic investors) shall have the right to purchase an unlimited number of shares in an equitized enterprise.

2. Enterprises with foreign owned capital and foreign individualslawfully operating in Vietnam and Vietnamese residing overseas (hereinafter all referred to as foreign investors) shall have the right to purchase shares in an equitized enterprise in accordance with the law of Vietnam.

Foreign investors wishing to purchase shares in an equitized enterprisemust open an account at an organizationproviding payment services which is currently operating in the territory of Vietnam, and must comply with the law of Vietnam. All activities of purchasing and selling shares, receiving and usingdividends and other income from investments in the purchase of shares must be conducted via that account.

Article 5.Both domestic investors and foreign investors must purchase shares in an equitized enterprisein Vietnamese dong.

Article 6.Equitization expenses

The expenses of conducting equitization shall be deducted from the existing State owned capital in the enterprise undergoing equitization.The contents and level of equitizationexpenses shall be implemented in accordance with guidelines issuedby the Ministry of Finance.

Article 7.Shareholding, shares and founding shareholders

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2. A share means a certificate issued by a shareholding company confirming theownership of one or a numberof shares of a shareholder who contributes capital to the company. Sharesmay be named or bearer shares but must contain all of the basic items stipulated in article 59 of the Law on Enterprises.

The Ministry of Finance shall provide guidelines on unified sample forms for shares in order for enterprises to print and manage them in accordance with regulations.

3. Founding shareholders of an equitized enterprise means shareholders who satisfy all of the following conditions:

(a) They participate in approving the first charter of the shareholding company;

(b) They together hold at least twenty (20) per cent of the number of ordinary shares which are freely transferable;

(c) They comply with the provisions of the charter of the company on ownership of a minimum number of shares.

The general meeting of shareholders shall decide the minimum number of shares which each foundingshareholder must own,and the minimum number of founding shareholders, and these items shall be provided for in the charter of the company.

Article 8.Principles for inheritance of rights and obligations by a shareholding company after conversion from a Stateowned company

1. Equitized enterprises shall be responsible for restructure, for employing the maximum number of employees as at the time of equitization, and for resolving regimes for employees in accordance with current regulations.

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2. A shareholding company shall be entitled, on its own initiative, to use the whole of the assets and capital funds which have been equitized in order to organize production and business; and shall inheritall interests, obligations and liabilities of the State owned company prior to equitization, and shall have other rights and obligations in accordance with law.

Chapter II

DEALING WITH FINANCES ON EQUITIZATION

Article 9.Responsibilities of enterprises undergoing equitization to deal with existing financial issues

An enterprise undergoing equitization shall be responsible, on its own initiative, to co-ordinate with the relevant agencies to deal in accordance with authority and in accordance with regulations with existing financial issues prior to valuing the enterprise to be equitized and throughout the equitization process. In cases of difficulties or in cases outside authority, the enterprise undergoing equitization must report to the competent agency for the latter's consideration and resolution.

Article 10.Dealing with leased or borrowed assets, assets received as joint venture capital contribution, joint assets, assets not required to be used and investments funded by the reward and welfare funds

1. Assets which an enterprise leases, borrows or receives as joint venture capital contribution, and joint assetsand other assets which do not belong to the enterprise shall not be included in the value of the enterprise to be equitized. Priorto conversion to a shareholding company, an enterprise must liquidate contracts or agreements with owners of assets in order for the equitized company to inherit the previously-signed contracts or sign new ones.

2. With respect to assets of an enterprise which are not required to be used, idle stock and assets awaiting liquidation, the enterprise shall liquidate,transfer or sell them, or report to the competent agencyto transfer them to another unit in accordance with current regulations. If theseassets have not beendealt with by the time of valuation of the enterprise, they shall not be included in the value of the enterprise. During the equitization process the enterprise shall continue to deal with these assets,and if these assets have still not been dealt with by the time of the decision announcing the valuation ofthe enterprise then they shall be transferred to a company specializing in the purchase and sale ofdebts and idle stock forsuch company to realize in accordance with law.

3. With respect to assets belonging to welfare buildings such as kindergartens, nurseries, dispensaries and other welfare assets from investments funded by the reward and welfare funds, they shall be transferred to the shareholding company for management and use for the benefit of the labour collective of the enterprise.

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4. With respect to assets of the enterprise being investments funded by the reward and welfare funds and which the shareholding company continues to use for production andbusiness, they shall be includedin the value of the enterprise undergoing equitization and converted intoshareholding to be divided amongst employees of the enterprise at the time of equitizationin accordance with the actual period of work of each person at the enterprise.

Article 11.Debts receivable

1. An enterprise undergoing equitization shall be responsible to review, confirm and recover debts which are due and receivable prior to equitization. If, bythe time of valuation of the enterprise, there are still arrears of bad debts, they shall be dealt within accordance with current regulations of the State on dealing with arrears of bad debts.

2. By the time of thedecision announcing the valuation of the enterprise, the enterprise undergoing equitizationshall be responsible to transfer all irrecoverable debts which have been excluded from the valuationof the enterprise (together with files on the debts and other relevant data) to a company specializing in thepurchase and sale of debts and idle stock from enterprises in order for such company to realize in accordance with law.

3. With respect to items paid in advance to suppliers of goods and services such as rent for housing or land, purchase price of goods and wages, these items must be reviewed and included in the value of the enterprise.

Article 12.Debts payable

1. An enterprise must mobilize funds to pay debts whichmature prior to conducting equitization, or it must agreewith creditors on themethod of dealing with the debts or on the conversion thereof into shareholding capital contribution.

The conversion of debts into shareholding capital contribution shall be determined on the results of a share auction, or the enterprise and a creditor shall reach agreementin order to fix a price for participating in an auction.

2. If during the equitizationprocess the enterprise is in difficulty regarding ability to pay overdue debts because business incurred losses, the debts shall be dealt with in accordance with current regulations of the State on dealing with arrears of baddebts.

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1. Reserves for reduction of price of goods in stock, for bad debts, for reduction of value of securities, and for exchange rate differences shall be accounted for in the business results of the enterprise.

2. The enterprise undergoing equitization shall use reserves for retrenchment allowances to pay to employees who are retrenched during the equitization process, and if not so paid then such reserves shall be accounted for in the business results of the enterprise.

3. Reserves for risks andprofessional reserves withinthe banking and insurance systems orof financial organizations shall be transferred to the shareholding company to continue to manage.

4. The balance in financial reserves to cover losses (if any) and in financial reserves to cover damage to assetsand irrecoverable debts shall be included in the value of the portion of State owned capital in the enterprise undergoing equitization.

5. The balance in reserves of profits generated in order to cover previous years' losses (if any) and in reserves to cover losses being assets not required to be used, assets awaiting liquidation, reduction in the value of assets, and debts which the enterprise does not have the ability to collect shall be distributed in accordance with current regulations prior to valuation of the enterprise to be equitized.

6. The enterprise undergoing equitization shall use financial reserves and pre-tax profits to cover losses calculated up until the time of equitizationand conversion of the enterprise into a shareholding company. If the enterprise lacks [such reserves] then it shall take measures to write off its debts to the State budget, bank debts and debts to the Development Assistance Fund in accordance with current regulations of the State on dealing with arrears of bad debts.

If after applying all theabove measures an enterprise still suffers a loss,the enterprise shall deduct the loss fromthe portion of State owned capital.

Article 14.Long-term investment capital in other enterprises such as joint venture capital contribution, associated ventures, shareholding capital contribution, capital contribution to establishment of limited liability companies and other forms of long-term investment

1. If the enterprise undergoing equitization inherited long-term investment capital which a State owned companyinvested in other enterprises, then the whole of such capital shall be included in the value of theenterprise undergoing equitization in accordance with the principles stipulated in article 20 of this Decree.

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(a) Reach agreement on sale of the investment capital to another partner/entity or to other investors;

(b) Transfer them to another enterprise to act aspartner/entity.

Article 15.Cash balance in reward funds and welfare funds

Any cash balance in reward funds and welfare fundsshall be distributed to the current workforce in the enterprise for the purpose of purchase of shares. Employees shall not be required to pay income tax on such item ofincome.

Chapter III

VALUATION OF AN ENTERPRISE TO BE EQUITIZED

Section 1. METHODS OF VALUATION OF AN ENTERPRISE

Article 16.When any State owned company undergoes equitization, it shall apply one of the following methods of valuation of the enterprise:

1. The asset method.

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3. Other methods.

The Ministry of Finance shall provide guidelines on valuation of an enterprise undergoing equitization in accordance with the above methods.

Section 2. VALUATION OF AN ENTERPRISE IN ACCORDANCE WITH THE ASSET METHOD

Article 17.Value of an enterprise undergoing equitization in accordance with the asset method

1. The actual value of an enterprise undergoing equitization shall be the total value of all existing assets of the enterprise at the time of equitization, including the profitability of the enterprise, as accepted by both the purchaser and the seller ofshareholding.

The actual value of the portion of State owned capital in an enterprise shall be the actual value of the enterprise minus (-) debts payable, including balances in reward and welfare fundsand balance in the professional funding source (if any).

In the case of equitization of the whole of a corporationfor which the State made the decision on investment and establishment, the value of the portion of State owned capital in the whole of the corporation undergoing equitizationshall be the actual value of the portion of State owned capital in the office of the corporation, in the member companies, and in the professional units belonging to the corporation (if any).

In the case of equitizationof the whole of a corporation for which companies made their own [f on] investmentand establishment, the value of the portion of State owned capital [in the whole of the corporation] undergoing equitization shall be the actual value of the portion of State owned capital in the parent company.

2. The following items shall not be included in the value of an enterprise undergoing equitization:

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(b) Debts receivable but which the enterprise does not have the ability to collect;

(c) Expenses of unfinished capital construction worksin abeyance prior to the time of valuation of the enterprise;

(dd) Long-terminvestments in other enterprises stipulated in clause 2(b) of article 14 of this Decree.

Article 18.Bases for determining actual value of anenterprise

1. Data from books of account of the enterprise at the time of equitization.

2. Data on the inventory,classification and assessment of quality of assets of the enterprise at the time of equitization.

3. Market value of assets at the time of equitization.

Article 19.Value of land use rights and value of business advantages of enterprise

1. With respect to areas of land which the enterprise undergoing equitization is currently using as land for construction of its head office, transaction office and production and business establishment; or land for the purposes of agriculture, forestry, aquaculture andsalt production (including land which has been allocated by the State with or without collection of land use fees), then theenterprise undergoing equitization shall be entitled to select the form of land lease or the form of land allocation pursuant to the Law on Land.

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(b) If the enterprise undergoing equitizationselects the form of land allocation then the value of the landuse right must be included in the value of the enterprise undergoing equitization. The value of aland use right which is included in the value of an enterprise undergoing equitization shallbe the price stipulated by the people’s committee of the province orcity under central authority, close to the actual market prices of assignment of land use rights and announced annually on 1 January in accordance with regulations of the Government. The order and procedures for land allocation, payment of land use fees, and issuance of certificates of land use right shall be implemented in accordance with the current law on land.

2. With respect to areas of land which the State has allocated to the enterprise for construction of residential housing for sale or lease, or for construction of infrastructure business for assignment or lease, the value of the land use right mustbe included in the value of the enterprise undergoing equitization. Such value of land use rights shall be determined in accordance with clause 1(b) of this article.

3. Business advantages of an enterprise shall comprise geographical position, the value of trade names, and the potential for development.

Value of business advantages of the enterprise shall be based on the ratio of after-tax profits over State owned capital in the enterprise prior to equitization and the pre-paid interest rate for long term Governmentbonds at the most recent date priorto the time of valuation of the enterprise.

Article 20.Determining value of long-term investment capital of the enterprise undergoing equitization in other enterprises

1. The value of the long-term investmentcapital of a State owned company in other enterprises shall be determined on the following bases:

(a) Value of the capital of the owner recorded in the most recent audited financial statements of the enterprise in which the State owned company made its investment;

(b) Investment capital ratio of the State owned company prior to equitization in other enterprises;

(c) Where the State owned company made its investment in foreign currency, when determining the investment capital it must be converted into Vietnamese dong at the average trading exchange rate on the inter-bank foreign exchange market as announced by the State Bank at the date of valuation.

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3. The value of the capital contributionof a State owned company in shareholding companies listed on the securities market shall be determined on the basis of the share trading priceon the securities market at the time of valuation of the enterprise.

Section 3. VALUATION OF AN ENTERPRISE IN ACCORDANCE WITH THE DISCOUNTED CURRENCY METHOD

Article 21.Value of an enterprise in accordance with the discounted currency method

1. The actual value of the portion of State owned capital in an enterprise undergoing equitization shall be determined by the discounted currency method based on the ability of the enterprise to be profitable in the future.

Where the whole of a State owned company is valued by this method, the ability of the State owned companyto be profitableshall be determinedon the basis of the profit of the State owned company pursuant to provisions in the financial regulations of [such] State owned company.

Where the State owned company made capital investments in other enterprises, then the basis for valuationof the enterprise to be equitized shall be the profit brought in from such capital investments in other enterprises.

2. The actual value of the enterprise shall comprise the actual value of the portion of State owned capital,debts payable1, cashbalances in reward and welfare fundsand balance in the professional fundingsource (if any).

If the enterprise selects the form of land allocation then the value of the land use right must also be includedin the value of the enterprise undergoing equitization in accordance with clause 1 of article 19 of this Decree.

Article 22.Bases for determination

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2. Plan for production and business operations of the enterprise for from three to five years after conversion to a shareholding company.

3. Interest rate for long term Government bonds at the most recent date prior to the time of valuation of the enterprise and the discountedcurrency indicator of the enterprise being valued.

Section 4. HOLDING A VALUATION OF AN ENTERPRISE

Article 23.Methods of holding a valuation of an enterprise undergoing equitization

1. If an enterprise undergoing equitization has total asset value in its books ofaccount of thirty (30) billion Vietnamese dong or more then valuation of the enterprise shall be conducted by an organization specializing in valuations such as an auditing company, a securities company, a price evaluationorganization or an investment bank, either domestic or foreign, with the capacity to make the valuation (hereinafter referred to as a valuation organization).

The agency authorized to make the decision valuing the enterprise undergoing equitization shall select a valuation organization from the list announced by the Ministry of Finance.

If a foreign valuation organization not yet operating in Vietnam is selected, it must be approved by the Ministryof Finance.

When the valuation organization holds a valuation of an enterprise undergoing equitization, it must comply withcurrent regulations and complete the valuation within the time schedule stipulated in the signed contract, and the valuation organization shall be liable for the accuracy and legality of the results of thevaluation.

2. If an enterprise undergoing equitizationhas total asset value inits books of account of less than thirty (30) billionVietnamese dong then it shall not be absolutelynecessary to hire a valuation organization to value such enterprise, and in such a case the enterprise shall be permitted to conduct its own valuation and shall notify the result to the agency authorized to make the decision valuing the enterprise.

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Article 24.Use of results of valuation of enterprise

The results of a valuation of anenterprise carried out in accordance with the provisions of this Decree shall be the basis for fixing the scale of charter capital, the structure of shares for the initial issue, and a price as the startingpoint for holding an auction to sell shares.

Article 25.Adjustment of value of an enterprise undergoing equitization

Up until the time when an enterprise officially converts into a shareholding company, the agency authorized to make the decision valuing theenterprise shall be responsible to inspectand deal with any financial issues arising between the time of the valuation and the time when the business registration certificate is issued to theshareholding company, in order to adjust the value of the portion of State owned capital in the enterprise.

The difference between the actual value of the portion of State owned capital in the enterprise at the time when theenterprise converts into a shareholding company and the actual value of the portion of State owned capital in the enterprise at the time of the valuation shall be dealt withas follows:

1. Where the difference is an increase:

(a) It shall be paid to the State owned corporation or to the independent State ownedcompany when a member of such State owned corporation or a section of such independent State owned company is equitized, and shall be used in accordance with article35 of this Decree.

(b) It shall be paid to theAssistance Fund for Restructure of Enterprises under the Ministry of Finance when the whole of an independent State owned company or the whole of a State owned corporation is equitized, and shall be usedin accordance with article 35 of this Decree.

2. Where the difference is a decrease, the enterprise shall be responsible to report to the agency which made thedecision on equitization in order for the latter to check and clarify the reasons, deal with liability topay compensation for material loss (if such loss was due to subjective reasons), and the remaining difference shall be dealt with as follows:

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(b) If there is insufficient,then there shall be a reduction in the portion of State owned capital in the enterprise and the plan for share sales at incentive rates to employees of the enterprise, and atthe same time there shall be an adjustment to the scale and structure of charter capital of the shareholding company;

(c) If after taking the action stipulated in sub-clauses (a) and (b) above there is still insufficient to cover the decrease, then:

- The agency which made the decision on equitization shall consider making a decision on conversion to the formof sale or bankruptcy of the enterprise (where business registration pursuant to the Law on Enterprises has not yet been conducted);

- The board of management shall convene an extraordinary general meeting of shareholders (in a case where business registration pursuant to the Law on Enterprises has already been conducted) in order tovote on:

+ Agreement to inheriting remaining losses so as to continue to operate;

+ Agreement to sell the enterprise on condition that the purchaser inherits debts and losses;

+ Declare bankruptcy and sell assets in order to pay debts.

- In the case of conversion to implementing a sale or bankruptcy, the enterprise shall be responsible to co-ordinate with the relevant authorities to return to all investors the money they paid to purchase shares, prior to paying any other creditors.

Chapter IV.

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Section 1. INITIAL SALE OF SHARES

Article 26.Whomay purchase initialshares

1. Employees of the enterprise.

2. Strategic investors being domestic investors such as producers and regular suppliers of raw materials to the enterprise; people who undertake to purchase the products of the enterprise on a long-term basis;people closely connected to the long-term strategic business interests [of the enterprise], with financialpotential and management capability.

When an enterprise undergoing equitization formulates its equitization plan, such enterprise may select strategic investors and submit a list of them for approval to the agency which made the decision on equitization.

3. Other investors (including foreign investors).

Article 27.Initial share structure

1. Shares which the State shall hold.

2. Shares for sale at incentive rates for the employees of the enterprise as provided for in article 37of this Decree.

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4. The initial shares to be sold at a publicly announced price to investors shall not be less than twenty (20) per cent of charter capital (including shares purchased additionally to incentive shares by strategic investors andemployees of the enterprise).

Article 28.Selling price of initial shares

1. The selling price of incentive shares to employees of an enterprise shall be a reduction of forty (40) per cent compared to the average auction price.

2. The selling price of incentive shares to strategic investors shall be a reduction of twenty (20) per cent compared to the average auction price.

3. The selling price to entities prescribedin article 27.4 of this Decree shall be the successfulauction bid of each such investor.

Article 29.Value of incentives to strategic investors and employees of an equitized enterprise

The total value of incentives to employees of anequitized enterprise and to strategic investors shall be taken from additional funding collected from share auctions, and if there is a deficiency then it shall be deducted from the portion of State owned capital in the equitized enterprise but shall notexceed the portion of State owned capital in theequitized enterprise after deducting shares held by the State and equitization expenses.

Article 30.Methods of holding initial share auction

1. Auction directly at the enterprise in the case ofan enterprise undergoing equitizationwith a volume of shares for sale of one billion Vietnamesedong or less (the enterprise shallitself hold the share sale auction).

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In the case of an enterprise undergoing equitizationwith a volume of shares for sale above ten (10) billionVietnamese dong, an auction shall be held at a SecuritiesTrading Centre in order to attract investors.

The agency which made the decision on equitization of the State owned company shall make a selection in order to hire auctioneering organizations.

3. In the case of an enterprise in a remote area where there is no intermediary financial organization available to take on the sale of shares, the agency which madethe decision on equitization shall reach agreement with theMinistry of Finance on a sale method.

Article 31.Order for holding initial share auction

1. At least twenty (20) days prior to the auction, the organization holding the auction (the enterprise, or an intermediary financial organization, or a Securities Trading Centre) must make a public announcement at the enterprise, at the place where the auction will be held, and on the mass media about thetime, location, form of sale, conditions for participation, numberof shares proposed to be sold and other issues relevant to the share auction.

2. The auction to other investors shall be held in accordance with the methods prescribed in article 30 of this Decree.

3. The average auction price shall be determined in order to calculate the incentive price for strategic investors andemployees of the enterprise.

4. There shall be distribution and sale of shares to each strategic investor and employee of the enterprise.

5. The enterprise must complete the sale of shares within a time-limit of four months from the date of the decision approving theequitization plan. If the shares are not all sold, then the enterprise shall reportto the agency authorized to make the decision on equitizationin order for the latter to adjust the scaleor structure of charter capital in the equitization planand to implement conversion of the State owned company into a shareholding company.

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After completion of the sale of shares and after holding a general meeting of shareholders correctly in accordance with the Law on Enterprises, the equitized enterprise must conduct business registration pursuant to Decree No. 109-2004-ND-CP of the Government dated 2 April 2004on business registration.

Article 33.Ensuring public notification and transparency of information, listing on the securities market

1. An equitized enterprise must provide publicly notified financial statements to itsshareholders and to the administrative agency correctly in accordance with the Law on Enterprises and other laws.

2. The State shall have a preferential policy in favour of equitized enterprises which satisfy the conditions for immediate listing on the securities market.

Article 34.Management of portion of State ownedcapital in a shareholding company

1. The portion of State owned capital ina shareholding company shall be managed in accordance with the law on management of the portion of State owned capital invested in other enterprises.

2. In the case of equitized enterprises not in the category of those in which it is necessary for the State to be the controlling shareholder, then depending on the particular conditions, the agency representing the owner of the portion of State owned capital in the shareholding company shall have the rightto make decisions to on-sell the State shares in the shareholding company in accordance with current law and the charter of the shareholding company.

Article 35.Management and utilizationof proceeds from equitization of a State owned company

The proceeds which the State collects from equitization of a State owned company (comprising proceeds from the saleof the portion of Stateowned capital and the difference being an increaseresulting from the auction of additionally issued shares in an equitized enterprise), after deducting equitization expenses shall be used for the following purposes:

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(a) To assist the enterprise to pay subsidies to employees who cease work or lose their job upon conversion of the State owned company into the shareholding company.

(b) To assist the enterprise to train employees of the equitized enterprise so as to assign them to new work in the shareholding company.

2. The remaining sum of money shall be managed and used as follows:

(a) In the case of equitization of a member of a State owned corporation or equitization of a section of an independent State owned company, then such State owned corporation or independent State owned company shall use theproceeds for business operations and to assistequitized enterprises to continue to resolve the issue of retrenched employees in accordance with article 36.8 of this Decree;

(b) In the case of equitization of the whole of an independent Stateowned company or the whole of a Stateowned corporation, the remaining sum of money shall be transferred to the Assistance Fund for Restructure of Enterprises at the Ministry of Finance for investment in companies in which it is necessary for the State to hold one hundred (100) per cent of capital but which lack capital, in shareholding companies in which the State is the controlling shareholder where the State capital in such equitized enterprise is insufficient to ensure the full numberof State shares, and to assist equitized enterprises to continue to resolve the issue of retrenchedemployees in accordance with article 36.8of this Decree. The remaining sum of money shall beinvested in enterprises via the State Capital Business and Investment Corporation.

Chapter V

POLICIES APPLICABLE TO ENTERPRISES AND TO EMPLOYEES AFTER EQUITIZATION

Article 36.Incentives applicable to enterprises after they have been equitized

1. Incentives shall be applicable as in the case of newly-established enterprises in accordance with the provisions of the law on encouragement of investment, and equitized enterprises shall notbe required to carry out procedures for issuance of a certificate of investment incentives.

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2. Exemption from registration fees shall be granted with respect to any transfer of assets underthe right of management and use of an equitized State owned enterprise to the ownership of the shareholding company.

3. Equitized enterprises shall be exempt from registration fees for the issuance of a business registration certificate upon conversion from a State owned enterprise into a shareholding company.

4. Equitized enterprises shall be entitled to maintain lease contracts for residential housing and other buildingsof State agencies or shall be entitled to preferential treatment with respect to acquisition of such housing and buildings at the market price as at the timeof equitization, in order to stabilize production and business activities.

5. Equitized enterprises shall be entitled to landuse rights in accordance with the provisions of the Law on Land when the value of the enterprise undergoing equitization included the value of land use rights.

6. The regime applicable to State owned companies shall continue to apply to loans borrowed by equitizedenterprises from commercial banks,finance companies and other credit institutions of the State.

7. Equitized enterprises shall be permitted to maintain and develop welfare funds in kind, such as cultural facilities, clubs, dispensaries, nursing homes and kindergartens, in order to ensure the welfare of employees of shareholding companies. Such assets shall be under the ownership of the labour collective and shall be managed by the shareholding company.

8. If after a State owned company converts into a shareholding company, some employees in the State owned company which has converted lose their jobs or cease work including voluntary cessation because of the need to restructure business operations or the need tochange technology, then these issues shall be resolved as follows:

(a) Any employee who within twelve months from the date the shareholding company is issued witha business registration certificate loses his job as a result of the company restructure and falls within the category of retrenched employees of a reorganized State owned enterprise entitled to assistance pursuant to Decree No. 41-2002-ND-CP of the Government dated 11 April 2002, then such employee shall receiveassistance from the Fund for Assistance of Retrenched Employees;

The remaining employees who lose their jobs or cease work shall be entitled to a retrenchment allowance or to an allowance for loss of work pursuant to the current law on labour and shall receive assistance from the State's proceeds from equitization of State owned companies as stipulated in article 35 of this Decree.

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Article 37.Employees of an equitized enterprise shall be entitled to the following incentives:

1. Employees named on the list of regular employees of the equitized enterprise as at the time of the decision on equitization, shall be entitled to purchase up to a maximum of one hundred (100) shares for each year of actual employment in theState sector at a discount rate of forty (40) per cent of the average auction price on sales to other investors.

2. Employees who transfer to work in the shareholding company shall continue to participate in social insurance and shall be entitled to benefits in accordance with current regulations.

3. Employees who satisfy the conditions forentitlement to pension benefits as at the time of equitization shall be entitled to receipt of a pension on retirement and tobenefits in accordance with current regulations.

4. Employees who lose their jobs or who cease work at the time of equitization shall be paid retrenchment allowances and allowances on ceasing work in accordance with regulations.

Chapter VI

RIGHTS AND OBLIGATIONS OF SHAREHOLDERS

Article 38.Strategic investors shall have the following rights andobligations:

1. Rights:

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(b) To engage in management of the shareholding company in accordance with the provisions of law and the charter of the shareholding company;

(c) To use their shares to pledge or mortgage in credit relationships in Vietnam;

(d) To exerciseother rights stipulated by the law and the charter of the shareholding company.

2. Obligations:

(a) To discharge undertakings made when purchasing shares;

(b) Not to transfer shares purchased at incentive rates pursuant to article 27.3 of this Decree within a period of three years after the date on which a business registration certificate is issued to the shareholding company. If in special circumstances this number of shares needs to be transferred, then the board of management of the company must agree;

(c) Other obligations stipulated by the law and the charter of the shareholding company.

Article 39.Rights and obligations of other shareholders

Other shareholders shall have the rights and obligations stipulated in the Law on Enterprises and the charter of the shareholding company.

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Chapter VII

ORGANIZATION OF IMPLEMENTATION

Article 40.Powers and responsibilities of ministries, people'scommittees of provinces and cities under central authority, and boards of management of State owned corporations

1. Ministers, heads of ministerial equivalent bodies, heads of Government bodies and chairmen of people's committees of provinces and cities under central authority shall, based on the plansfor restructuring State ownedenterprises as approved by the Prime Minister of the Government:

(a) Organize valuations of State owned corporations undergoing equitization and send the results to the Ministry of Finance to check and to make a decision on announcement;

(b) Submit equitization plans for the whole of State corporations to the Prime Minister of the Government for approval;

(c) Make decisions on equitizationof enterpriseswithin their management; make decisions on the value of enterprises; and approve equitization plans in order to convert State owned companies into shareholding companies;

(d) On their own initiative check for enterprises which no longer have any portion of State owned capitaland then transfer those enterprises from the list of enterprises to undergo equitization to the list of enterprises to be assigned, sold or declared bankrupt;

(dd) Resolve, within their authority, any difficulties for equitized enterprises within a time-limit of fifteen (15) days from the date of receipt of a complete file. Any issues outside authority must be promptly reported to the Prime Minister of the Government for hisconsideration and decision;

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If any approved equitization plan fails tobe implemented, the head of the agency managing the enterprise shall be disciplined in accordance with current regulations.

2. Boards of management of State owned corporations shall be responsible:

(a) To organize the restructure of enterprises under the corporation in accordance with the plans for restructuring State owned enterprises as approved by the Prime Minister of the Government;

(b) To direct member companies to deal with existing financial issues in accordance with Chapter II of thisDecree, to hold valuations of enterprises, andto prepare equitization plans and submit them to the competent level for approval;

(c) To themselves deal with existing financial issues of enterprises undergoing equitization within their authority;

If any approved equitization plan fails to be implemented, the board of management of a State owned corporation shall be disciplined in accordance with current regulations.

3. The Steering Committee for Enterprise Renovation and Development and the Ministry of Finance shall be responsible to assist the Prime Minister of the Government to direct, inspect, supervise and activate ministries, ministerial equivalent bodies, Government bodies, people's committees of provinces and cities under central authority and State corporations to carry out equitization work in accordance with law and approved plans for restructuring Stateowned enterprises.

Chapter VIII

IMPLEMENTING PROVISIONS

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This Decree shall replace Decree 64-2002-ND-CP of theGovernment dated 19 June 2002 and shall be of full force and effect after fifteen (15) days from the date of its publication in the Official Gazette. Any previous provisions on equitization whichare inconsistent with thisDecree shall no longer beeffective.

Any enterprise undergoing equitizationfor which there was a decision approving a plan for conversion of the State owned company into a shareholding company prior to the effective date of this Decree shall remain effective and need not be changed to a plan in accordance with this Decree.

Article 42

The Ministry of Finance; the Ministry of Labour, War Invalids and Social Affairs; the State Bank of Vietnam; the Ministry of Natural Resources and Environment, and other relevant ministries and bodies shallbe responsible to provideguidelines for implementation of this Decree.

Article 43

Ministers, heads of ministerial equivalent bodies, heads of Government bodies, chairmen of people's committees of provinces and cities under central authority, and boards of management of State corporations for which the Prime Minister of the Government made the decision on investment and establishment shall be responsible forimplementation of this Decree.

FOR THE GOVERNMENTTHE PRIME MINISTERPhan Van Khai