Inspectors unveil undervaluation, other violations in privatization of Tin Nghia Corp

Government inspectors have reported a spate of violations including undervaluation of assets in the equitization process of Dong Nai province-based state-owned Tin Nghia Corporation (now Tin Nghia Corporation JSC).

The multi-industry corporation deals with industrial estate, petroleum products, agro-products, logistics, real estate development and merchandising.

Set up in 1989, Tin Nghia Corporation developed to become one of Dong Nai’s largest enterprises with 11 subsidiaries (more than 50% equity), two divisions and four affiliates (less than 50% equity). Tin Nghia was also selected as one of the Vietnam’s top 200 largest enterprises by Vietnam Report (VNR).

The inspectors said that consulting firm Grant Thornton LLC incorrectly determined the investment rate, material unit prices and corresponding price indices for several assets on land that needed revaluation. This led to a discrepancy of over VND15 billion ($609,508 at the current exchange rate), which should be reclaimed for the budget of the provincial Party Committee.

In another violation regarding the determination of land use rights, the steering committee for the equitization of Tin Nghia Corporation did not request the provincial People's Committee for its opinions on land valuation for areas remaining untransferred areas at the Tan Bien 1 Residential Area, Tan Bien Market, Tan Bien 2 Residential Area, and the planned site for Tan Bien Apartment Complex.

This meant the possibility that land use rights were not properly determined according to regulations, causing financial losses to the budget of the provincial Party Committee, the inspectors said. During the 2005-2013 period, Tin Nghia agreed to acquire land use rights for expanding its investment projects, which was not in accordance with the law.

At the time of inspection (May 2023), more than 491,000 square meters of this land had not received in-principle approval and a decision on the change of land use purposes from the provincial People's Committee.

In addition, the firm did not complete procedures for changing its name from Tin Nghia Corporation to Tin Nghia Corporation JSC.

Furthermore, the Standing Board of the provincial Party Committee decided to approve enterprise value based on the results of valuation under the net asset value method; whereas using the discounted cash flow method would have resulted in a significantly higher valuation, the inspectors said.

This discrepancy resulted despite the corporation leasing over 8.68 million square meters of land on an annual basis that did not require reassessment of land use rights. However, the steering committee for equitization of the enterprise and the Standing Board of the provincial Party Committee did not thoroughly examine or evaluate the legal basis and accuracy of the enterprise valuation.

Additionally, the Standing Board of the provincial Party Committee decided to use the book value for enterprise valuation during the equitization process, particularly regarding four assets on the annually leased land, namely: Tan Phu rest stop, Xuan Loc rest stop, a stone factory and a brick factory. This was against regulations, the inspectors said.

Moreover, prior to the valuation, the transfer of these assets to Tin Nghia Corporation was approved. If classified as non-essential assets and sold, actual state capital in the enterprise would decrease by over VND145 billion ($5.89 million) from their book value.

In deciding on the enterprise value and approving the equitization plan, the Standing Board determined that after the transition to a joint stock company, the transfer of these four assets would continue. If the sale price exceeded the book value, the joint stock company was responsible for reporting transfer results to the provincial Party Committee. The profits generated from the transfer of these assets had to be contributed in full to the budget of the provincial Party Committee and could not be included in the company's profits for distribution to shareholders.

Unauthorized share sales

On the transfer of long-term financial investments, the Government Inspectorate pointed out that Tin Nghia Corporation’s transfer of shares in various companies via throughput transactions was against regulations.

Specifically, Tin Nghia transferred 568,800 shares of Dong Saigon Component and Concrete JSC at VND1,600 ($6.5 U.S. cents) per share, below the book value as of December 31, 2014, without reporting the transaction to concerned authorities for approval.

Additionally, Tin Nghia received approval from the Standing Board of the provincial Party Committee to sell via put-through transactions 35% of its shares to three strategic investors, even though they had registered to purchase 90% of the charter capital. This was also against the rules.

Two of three investors withdrew from the deal during negotiations, so Tin Nghia sold a 35% stake to Thanh Thanh Cong Investment JSC at an agreed price of VND10,200 ($0.41) per share, with the shares eligible to be resold after five years.

Furthermore, inspectors pointed out that Tin Nghia Corporation improperly sold an additional 7.79 million shares to employees without going through a bidding process. This resulted in a difference of over VND8.7 billion ($353,515) in value that should be reclaimed for the provincial Party Committee's budget, they said.

Fixing consequences

Based on the above shortcomings and violations, the Government Inspectorate asked the Standing Board of the provincial Party to direct and organize an assessment to clarify responsibilities of involved organizations and individuals. It also called for collection of the identified amounts from violations in asset valuation (over VND15 billion) and the improper sale of shares to employees (over VND8.7 billion).

The provincial People's Committee must inspect and review to implement management measures and guide Tin Nghia Corporation in managing and utilizing the land area transferred from households and individuals in accordance with legal regulations, the inspectors said.

It also recommended that the Ministry of Finance consider measures to correct the valuation activities of Grant Thornton LLC in accordance with the law. If signs of criminal violations were detected, the case should be forwarded to the relevant law enforcement agency for further follow up.

On September 12, 2023, the investigative agency of the Dong Nai provincial Department of Public Security registered a criminal case regarding "violations of regulations on the management and use of state assets, causing losses and waste" at Tin Nghia Corporation during the equitization process from 2014 to 2016.