(First appeared in Vietnamese in The Saigon Times  on 22 September 2016.)

It appears that this is the method the State plans to use to retain national brands when divesting from companies like Habeco, Sabeco, and Vinamilk.

What is a Golden Share?

A “golden share” or “special share” is a type of share typically held by the government in privatized state-owned companies operating in sectors crucial to national security, such as aviation, defense, and telecommunications.

This type of share, even if nominally valued at just one dollar, grants the holder (i.e., the golden shareholder) special privileges related to the company’s operations. For example, the golden shareholder can veto certain decisions made by the general meeting of shareholders. Alternatively, the golden shareholder may always hold a seat on the company’s board of directors. Sometimes, golden shares are used to cap foreign ownership in a company at a certain level.

Golden shares were commonly used by European governments and the United Kingdom in the 1970s and 1980s. These governments argued that golden shares were necessary for the government to implement certain policies in the public interest, even after privatizing state-owned companies.

Governments in the Netherlands, Germany, Portugal, and Italy have held golden shares in privatized companies, but these were declared contrary to the European Union’s principle of free movement of capital by the European Court of Justice.

More recently, the UK government plans to hold golden shares in significant national infrastructure projects, such as the Hinkley Point nuclear power plant (partly funded by China), to ensure the government retains the right to block any controlling stake sales for national security reasons.

How Will Vietnam Use Golden Shares?

Typically, the powers of golden shares are limited to ensure that the State does not interfere in the daily operations of the business. This has been a fundamental characteristic of golden shares used in other countries.

It is not yet clear how the Vietnamese government will use golden shares in upcoming divestments. It might involve a share with a nominal value of 10,000 VND but allowing the government (through the Ministry of Industry and Trade or SCIC) more voting rights at the general meeting of shareholders of these “golden egg” companies, sufficient to veto any resolution that adversely affects the national brand. Alternatively, it could mean that such a resolution requires the unanimous agreement of the “golden shareholder”.

Currently, Vietnamese law provides for preference shares with voting rights, which have more votes per share than common shares. The number of votes for a preference share is stipulated in the company’s charter. The organization authorized by the government can hold this type of share.

Vietnamese law also allows companies to issue other types of preference shares beyond the three specific types (voting, dividend, and redeemable). Golden shares could be considered another type of preference share.

Necessary Challenges

For companies to issue golden shares, the government must first convince other shareholders to amend the company’s charter. This amendment would allow the company to issue golden shares, as common shares (which the State currently holds) cannot be converted into preference shares. Amendments would also need to include provisions ensuring the golden shares can be effective, such as granting the golden shareholder the right to veto any charter amendments that would diminish the value of the golden shares or prohibiting the issuance of “diamond shares” with greater privileges than golden shares. Amending the charter typically requires the approval of a majority of shareholders.

Additionally, these companies would need to conduct the procedure for a private placement of shares specifically for the shareholder representing the government (Ministry of Industry and Trade or SCIC). This issuance also requires a resolution from the general meeting of shareholders. Whether the shareholder representing the government can vote on this issue is controversial, as it would be unreasonable for a shareholder to benefit from the issuance and also have voting rights.

While it is necessary to reconsider whether it is essential to use measures to retain “national brands,” it is encouraging that the government is actively considering legal measures that other countries have applied, such as golden shares. This suggests that the government is becoming more open to good market practices. By persuading other shareholders to amend the company charter, the government can avoid imposing new laws and instead make golden shares a civil agreement.

Lessons for Entrepreneurs

Holding golden shares could also be an option for shareholders of family-owned businesses or social enterprises.

Owners of businesses with brands built over generations might sometimes need to attract capital to expand or even sell the business to another investor. If they have some sentimental attachment to the family brand, they might consider holding golden shares to protect the brand when necessary (this attachment is often emotional as the brand value is already reflected in the sale price).

Founders of social enterprises wanting to maintain their mission to serve the community might also hold golden shares.

By Ngu Truong

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(1) “State to Sell Its Stake in Vinamilk This Year”, VnExpress.

(2) See “Golden share” on Wikipedia and cited articles.

(3) See “Going for gold – How golden shares can help lock in mission for social enterprise”, Hogan Lovells.

(4) See the case law guide on Article 63 and related articles of the Treaty on the Functioning of the European Union by the European Court of Justice.

(5) See “Hinkley Point: UK approves nuclear plant deal” on www.bbc.com.