A case that may affect Vietnam’s reputation on global markets

On April 23, Sabeco will hold its extraordinary general shareholders’ meeting, less than six months after it held the share auction that saw Thai Beverage as the only buyer. According to Vietnamese laws and Sabeco’s charter, a shareholder with more than 5 per cent of the stake must hold the shares for six consecutive months or more before they are entitled to appoint nominees to the board.

In this case, as Thai Beverage only acquired 53.59 per cent of Sabeco’s shares last December, technically speaking, the Thai investor has not had the right to appoint and vote its representative to be on Sabeco’s board yet.

But should there be an exception in this case? Thai Beverage clearly wants to gain control of Sabeco as soon as possible, having forked out almost $5 billion to buy the shares. This is evidenced in their petition letter to the Vietnamese government last month, and Deputy Prime Minister Vuong Dinh Hue has asked the Ministry of Industry and Trade (MoIT) to deal with this issue.

For the time being, Sabeco’s board consists of four members, and three more seats remain empty. We believe that Sabeco may temporarily fill these three empty seats with representatives from Thai Beverage and hold an extraordinary shareholder meeting to cast a vote on this appointment. This is in line with Article 26(6) of the company’s charter.

There are a number of arguments, such as Article 26(6) of Sabeco’s charter does not follow Decree No.71/2017/ND-CP by the Government and Circular 95/2017/TT-BTC by the Ministry of Finance about corporate governance at listed companies. Article 26(6) also clashes with Article 16(2) in Sabeco’s charter regarding the right of shareholders to nomination and selection of the board members.

We believe that these arguments are inaccurate. Article 26(2) of Sabeco’s charter state that Sabeco needs to gain shareholders’ approval for its selection of board members, which must stand at seven people.

Also according to the charter, any decision must gain the approval of at least three quarters of the board, or five people. Up until now, Sabeco’s board operates with only four members, so does this mean the formality or validity of a number of board meetings and resolutions respectively  must be re-examined due to the availability of only 4 board members?

As far as the Decree No. 71/2017/ND-CP and Circular No. 95/2017/TT-BTC may be effective, the law only says that a firm’s charter must be passed by the  general shareholder meeting and must not violate the Law on Enterprises, Securities Law, Decree 71, and relevant rules. The model charter is only for reference. There is no ground in stating that Sabeco’s Article 26 violates such pieces of legislation and regulations.

Moreover, MoIT and Sabeco’s board do not need to ask the State Securities Commission whether nominees from Thai Beverage are truly independent or not, and how Sabeco should appoint its board members. As long as the nominees can meet requirements stated in Article 151 (1) of the Law on Enterprises and stay clear from five situations listed in Article 151(2), they can become independent board members.

Thirdly, Thai Beverage is a long-term strategic investor, rather than a financial investor for share price or speculator. The people that they nominate are supposed to be have with sufficient expertise and experience qualification to help move Sabeco forward.

In one extreme case, the Thai firm does not have any right at the moment to nominate board members, but as they have more than 51 per cent of Sabeco’s shares, they can therefore disqualify the quorum of the very meeting to come (by not attending it)and turn down all proposals or motions made in the next meetings. In other words, they can pull the brake even though they cannot touch the gear and driving wheel of the Sabeco vehicle.

Moreover, there are  less than two months until Thai Beverage gains enough time and power to organise another extraordinary meetings, if they want, in accordance with Article 22(3) of Sabeco’s charter, to make key decisions, except some reserved matters such as amendment of the company charter, re-structure or liquidation of the company.

As a matter of fact, Thai Beverage paid a huge amount of money to own more than a half of Sabeco’s outstanding shares, thus they naturally have the right to become part of Sabeco’s management team. This is why we believe that it is unlikely to be fair for Thai Beverage if certain rigid details such as the six-month holding period are emphasised.

The Vietnamese government’s swift response to Thai Beverage’s motion is testament to Vietnam’s efforts to attract foreign investment and create a transparent and fair legal business environment for both domestic and foreign investors. This sends a positive message to such investors in Vietnam.

From this very case, if the situation can be solved properly, it will assist Vietnam in future IPOs and the equitisation processes of major state-owned firms in encouraging  the participation of by foreign investors with ample financial capacity, good reputation, value chain, corporate governance, and technology.

This underscores how important it is for the Thai Beverage-Sabeco case to be taken seriously and solve effectively. It will affect Vietnam’s reputation as an investment destination, as investors are not afraid to incur additional costs and losses for struggling for the management powers after having acquired shares at Vietnamese firms.

Thai Beverage has every right to demand control at Sabeco. The main question right now is how to solve this complaint properly and preserve Vietnam's appeal as an investment destination

Legal amendment needed

In general terms, from the Thai Beverage-Sabeco case, we suggest that the Vietnamese government should consider amendmenting the Law on Enterprises, specifically the amount of share-holding time-limit that investors must have passed before they are legible to nominate their representatives to the board:

3 – 6 months are maximum period of time of holding 1 – 5%  for a shareholder or a group shareholders to have such right. 3 months of holding are mandatory of a group of shareholders with 5 – 10% shares for the same purpose.. There should be no time requirement for a shareholder with more than 5 per cent or a group of shareholders with more than 10 per cent of the stakes to enjoy such right.

Alternatively, there should be no time-line requirement for the investors acquiring 1% equity of a company from the State from the latter’s divestment from the company or State-owned company equitisation (or a fixed value number such as 50 billion Vietnam Dong or more) to have right to appointing a candidate for board member. Of course, a minimum blocking time period of 3 – 6 months may be considered.

These amendments, in our opinion, would increase the attractiveness of major share sales, especially the IPOs of electricity and infrastructure firms. Investors will not have to worry that during the long waiting period the company may undergo significant adverse changes.

This rule will also help the government to prevent any corrupted managerial positions from “sucking blood” from the company before leaving the office or from having enough time to erase any wrongdoings previously conducted or arrange the posts in the company foor their acquaintances before they lose control of it.

Moreover, when conducting share sales or divestment from a company, the government should ensure that the buyers will be entitled to to nominate representatives into the board by requesting an extraordinary meeting that the current board is not allowed turn down for any reason.

To facilitate this move, an escrow account for the share price payment or an obligation of share buy-back by the State (seller) to ensure the above rights for the buyer(s) should be also considered.