The Ministry of Finance is recommending revisions to several regulations to address challenges faced by enterprises in which the State maintains more than 50% of the charter capital. Under the proposed changes, the distribution of remaining profits to shareholders, in either cash or shares, will be facilitated. Additionally, state-owned enterprises will be granted the authority to divest capital from entities experiencing financial losses.

Presently, the Ministry of Finance is in the process of crafting a draft Decree that proposes amendments and additions to various provisions of Decree 91/2015/ND-CP, issued on October 13, 2015, regarding state capital investment in enterprises and the management and utilization of capital and assets within these enterprises. The draft also considers modifications introduced by Decree No. 32/2018/ND-CP, dated March 8, 2018, and Decree No. 140/2020/ND-CP, dated November 30, 2020, both issued by the Government. The Ministry is actively seeking feedback from relevant stakeholders.

In comparison to the existing regulations, the draft introduces changes to guidelines concerning the distribution of after-tax profits and the divestment of capital in situations where it may jeopardize business operations. It is anticipated that the proposed decree will have implications for state-owned enterprises.

ENCOUNTERING DIFFICULTIES DUE TO UNABLE TO DIVEST CAPITAL FROM LOSING BUSINESSES

In the proposed report to the Government regarding the draft decree, the Ministry of Finance asserts that enterprises with 50% or more of their charter capital held by the State should be restricted from divesting in companies experiencing losses or accumulated losses, as it may adversely impact the invested capital of such enterprises.

The Ministry of Finance points to issues within the current mechanism, citing the example of Vietnam Airlines Corporation – Joint Stock Company (Vietnam Airlines). The overall project designed to address challenges faced by Vietnam Airlines amid the Covid-19 crisis includes a plan to divest capital from Pacific Airlines Joint Stock Company (PA).

Moreover, the draft report emphasizes that enterprises with over 50% of their charter capital held by the State should not be allowed to divest from companies undergoing losses or accumulated losses, as it could negatively affect the investment capital of these enterprises.

The Ministry of Finance reveals that efforts were made to initiate the divestment process at Vietnam Airlines through amendments to the company’s charter, with three proposed methods: public auction, competitive offer, and agreement in case of unsuccessful auction and offer. However, the public auction method faced implementation challenges due to regulatory issues outlined in Point b, Clause 1, Article 15 of the Securities Law 2019, which requires profitable business activities for two consecutive years preceding the offering year without accumulated losses.

Pacific Airlines, in particular, has been incurring losses since the early 2000s, with a pre-tax profit loss of VND 2,096 billion in 2022. Despite multiple unsuccessful restructuring attempts, Qantas Group chose to withdraw and donate 30% of its shares in Pacific Airlines to Vietnam Airlines, resulting in Vietnam Airlines holding 98% of Pacific Airlines shares.

In light of these challenges, the Ministry of Finance recommends amending Decree 91 to address existing issues and establish a legal framework for enterprises with over 50% of charter capital held by the State to divest capital in other companies experiencing losses or accumulated losses.

As per the proposed amendments, in the case of divestment from a joint-stock company where the State holds more than 50% of the charter capital and that company fails to ensure profitable business operations for two consecutive years preceding the divestment year, the divesting entity must comply with the regulations specified in Clause 2, Article 127 of the Law on Enterprises 2020. The order, procedures, and authority for divesting capital align with the legal framework governing the management and utilization of state capital invested in production and business at enterprises.

PROBLEMS WITH REGULATIONS ON PAYING DIVIDENDS IN CASH

In addition to the aforementioned information, the Ministry of Finance also highlighted that both the Committee for Management of State Capital at Enterprises and the Airports Corporation – Joint Stock Company (ACV) have issued official dispatches regarding the distribution of after-tax profits in accordance with regulations.

Specifically, the Capital Management Committee proposed granting permission to ACV to distribute dividends in the form of shares. This measure aims to assist ACV in bolstering its own capital for the execution of crucial national projects and large-scale initiatives such as the Long Thanh International Airport, Port project, passenger terminal T3 at Tan Son Nhat International Airport, and the expansion of terminal T2 at Noi Bai International Airport.

Implementing the distribution according to existing regulations would render ACV incapable of meeting the capital requirements necessary for the timely completion of investments and constructions. This is particularly critical for the completion and operation of Phase 1 of the Long Thanh International Airport project by 2025.

Under the current regulations, enterprises with the State holding over 50% of charter capital or total voting shares must distribute profits and dividends in a specific order, including allocating the remaining profits as dividends and cash profits to shareholders and capital-contributing members. Dividends and profits in cash for the state-contributed capital are to be paid into the state budget as per regulations.

To address this challenge, the Ministry of Finance suggested drafting a decree to amend and supplement certain articles of Decree 91. The proposed amendments primarily focus on regulations for joint stock companies with more than 50% of charter capital held by the State. The intent is to allow the distribution of remaining profits as dividends to shareholders in the form of cash or shares.

The Ministry of Finance explicitly stated that the option of distributing dividends in shares is applicable only to joint stock companies engaged in important national projects approved by competent authorities and endorsed by the Prime Minister for dividend payment in shares.