The Privatization of the Cienco: How Did Cienco 6 End Up Under the Control of the Thuân Vietnam Group Without Finding a Strategic Investor?

Serious Violations in the Privatization Process

As reported, the Government Inspectorate (GI) recently published its findings from an inspection into the restructuring of state-owned enterprises and the change of land use purposes from business production of state-owned enterprises and equitized companies to land and housing business (for the period 2011-2021) at the Ministry of Transport (MOT).

One of the issues highlighted was the violations during the privatization process of Construction Corporation 6 – JSC (the Parent Company – Cienco 6).

Firstly, the GI determined that Cienco 6, during the privatization of the Parent Company, had not completed the legal procedures for the real estate assets of Construction and Management One-Member Limited Company 76 (a 581 sq. m property in Tan Lap Ward, Dong Hoa District, Di An Town, Binh Duong Province) and Road Management and Repair One-Member Limited Company 719 (a 14,202 sq. m property at 497 23/8 Street, Ward 8, Bac Lieu City, Bac Lieu Province…), yet Cienco 6 still submitted the enterprise valuation for approval, which was not in compliance with regulations.

Secondly, Cienco 6 had not conducted an appraisal or considered the discrepancy between the enterprise valuation report and the Enterprise Handover Minutes when performing the actual handover at the real estate asset located at 497 23/8 Street, Ward 8, Bac Lieu City, Bac Lieu Province, and the real estate asset at 71 Tran Phu Street, Cai Khe Ward, Ninh Kieu District.

Thirdly, Cienco 6 carried out the privatization of six wholly state-owned enterprises with 100% charter capital simultaneously. However, the official date of conversion to joint-stock companies for these six units was not aligned with that of the Parent Company – Cienco 6, which was not in accordance with regulations.

Specifically, Construction and Management One-Member Limited Company 71 officially became a joint-stock company on January 6, 2014; Construction and Management One-Member Limited Company 76 made the transition on May 19, 2014; Road Management and Repair One-Member Limited Company 78 became a joint-stock company on January 2, 2014; Road Management and Repair One-Member Limited Company 714 transitioned on January 2, 2014; Road Management and Repair One-Member Limited Company 719 became a joint-stock company on March 1, 2014, and Road and Transport Infrastructure Construction and Repair One-Member Limited Company 721 has not yet implemented the privatization plan.

Additionally, Cienco 6 had not fully addressed financial issues regarding land lease debts and late payment penalties as notified by Can Tho City Tax Department in Document No. 201448345/TB07-CT dated July 16, 2014 (as of June 30, 2014, there was still an outstanding debt of VND 39.37 billion of Company 721 during the privatization settlement, but it had already been handed over to Cienco 6 – JSC, which was not in compliance with regulations.

Regarding the implementation of state capital divestment, the GI pointed out that Cienco 6 – JSC carried out state capital divestment following the directions of the MOT and the Prime Minister’s opinions, but this was inconsistent with the previous document referred to in Decision No. 22/QD-TTg dated January 6, 2014, of the Prime Minister. According to this Decision, the state would hold less than 51% of the charter capital when market conditions were favorable, and before 2016, the right to represent state capital would be transferred to SCIC.

Furthermore, Cienco 6 proceeded with state capital divestment without obtaining the opinions of the Ministry of Finance and the Ministry of Planning and Investment; they implemented the divestment through auctioning shares in lots without conducting a public auction; the approved state capital divestment plan required a deposit amount higher than the regulated 15%, which limited investor participation in the auction. Additionally, Cienco 6 used an invalid valuation certificate from Amax Investment and Appraisal Consulting Company, which was not in compliance with regulations.

The Only Cienco Unable to Find a Strategic Shareholder

Construction Corporation 6 – JSC (Cienco 6) is headquartered at 127 Dinh Tien Hoang Street, Ward 3, Binh Thanh District, Ho Chi Minh City.

According to the initial public offering (IPO) plan of Cienco 6 approved by the Minister of Transport in early 2014, the company had a charter capital of VND 600 billion, with 60 million shares, and a par value of VND 10,000 per share. The state owned 51% of the charter capital in Cienco 6, equivalent to 30,600,000 shares. According to this plan, the state would continue to sell its stake in Cienco 6 when market conditions were favorable.

Meanwhile, 49% of the charter capital, equivalent to 29,400,000 shares of Cienco6, was offered for auction to investors and employees. Specifically, the company organized an auction of 28,724,100 shares (47.87%) to investors and sold 675,900 shares (1.13%) to employees.

On March 21, 2014, Cienco 6 conducted its IPO through the Ho Chi Minh City Stock Exchange (HoSE) with a total of 28,724,100 shares offered for auction, equivalent to 47.87% of the charter capital, and a starting price of VND 10,000 per share. However, only slightly over 1.2 million shares were sold.

The fact that the state still held a controlling stake was considered the main reason for the unsuccessful IPO of Cienco 6, as the company did not have the “burden” of losses and possessed a wealth of experience.

As a result, Cienco 6 was the construction corporation with the heaviest “burden” among the construction corporations in the transport sector that underwent IPOs in 2014. Cienco 6 was also the only construction corporation unable to find a strategic shareholder when transitioning to operating as a joint-stock company.

Acquired by Thuan Viet Group?

In early December 2015, the MOT announced an auction of shares in lots to divest state capital from Cienco 6. Specifically, the MOT would sell one lot of 45,695,000 shares, with a starting price of VND 10,011 per share, and a starting price for the lot of VND 457,452,645,000.

At that time, Cienco 6 had a charter capital of VND 492,000,000,000, equivalent to 49,200,000 shares with a par value of VND 10,000 per share. The state-owned shares accounted for 45,695,000 shares, or 92.88% of the charter capital.

The auction was to be held at HoSE, with Vietnam Joint Stock Commercial Bank Securities Company (VCBS) as the consulting organization.

In the auction held on December 31, 2015, one organization won the bid for 45,695,000 shares, equivalent to 92.88% of the charter capital. The average successful bid price was nearly VND 457.64 billion, corresponding to VND 10,015 per share, slightly higher than the starting price of VND 10,011 per share.

It is known that two organizations participated in this auction: Dong Phu Hung – Binh Thuan Joint Stock Company and Thuan Viet Construction and Trading Company Limited (Thuan Viet Company).

Dong Phu Hung – Binh Thuan, a subsidiary of Hanoi Urban Development Joint Stock Company (a member of Vingroup), which held 91% of the capital, was the successful bidder.

Despite losing the auction, Mr. Vo Van Be, the founder of Thuan Viet Company, was appointed to the Board of Directors of Cienco 6 under the authorization of major shareholder Ms. Pham Thi Hong.

Notably, from the beginning of 2018 to June 2022, Mr. Be officially held the position of Chairman of the Board of Directors of Cienco 6. This development raised public suspicions about Mr. Vo Van Be and Thuan Viet Company’s acquisition of Cienco 6 from Dong Phu Hung – Binh Thuan.

According to the business registration from June 2022, the Chairman of the Board of Directors of Cienco 6 is Mr. Vo Duoc (born in 1957). Mr. Vo Duoc is also a founding shareholder and the Director and legal representative of Gia Hung Production Investment Construction and Trading Joint Stock Company.

Thuan Viet Construction and Trading Company Limited was established in 1999 with a charter capital of VND 50 billion. The founding shareholders were Mr. Vo Van Be and his wife, Ms. Pham Thi Hong. After 20 years of operation, Thuan Viet Company now has a charter capital of VND 1,000 billion.

In 2014, Thuan Viet was approved by the Ho Chi Minh City People’s Committee to replace Public Utility Company 4 in the Consortium implementing the project of 1,330 resettlement apartments in Thu Thiem.

The project, with the commercial name New City Thu Thiem, became controversial as Thuan Viet Company unilaterally changed the design from resettlement apartments to commercial housing. Subsequently, Thuan Viet Company also unilaterally transferred 1,122 out of 1,228 apartments without obtaining approval for the conversion.

In recent years, Thuan Viet Company and Cienco 6 have frequently joined consortia for several projects. Specifically, in March 2021, the consortium of Tan Thanh Real Estate Investment and Construction Joint Stock Company – Thuan Viet Company – Cienco 6 proposed the Buon Ma Thuot – Nha Trang Expressway project.

In June 2022, the above consortium, along with Coteccons Construction Joint Stock Company, was the only investor group to submit a proposal for the Investment Project for the Construction of Bien Hoa – Vung Tau Expressway Phase I under the PPP format.