Empirical research on factors affecting probability of delisting on vietnam’s stock market

Previous research in Vietnam:...23 Chapter III: OVERVIEW OF VIETNAM STOCK MARKET AND ITS DELISTING PHENOMENON IN RECENT YEARS...25 3.1.. LIST OF TABLE AND FIGUREFigure andPag e Figure 1

TABLE OF CONTENTS

LIST OF TABLE AND FIGURE 1

LIST OF ABBREVIATIONS 2

ABSTRACT 3

Chapter I: INTRODUCTION 1

1.1 Rationale: 1

1.2 Research objectives and scope: 3

1.3 Research questions: 3

1.4 Research methodology 4

1.4.1 Sample 4

1.4.2 Methodology 4

1.5 Research Structure 4

Chapter II: LITERATURE REVIEW 6

2.1 Review of theoretical concepts: 6

2.1.1 Delisting: 6

2.1.2 Involuntary Delisting 8

2.1.3 Voluntary Delisting: 10

2.2 The incentives to go private: 12

2.2.1 Traditional incentives 12

2.2.2 Incentives derived from agency theory 13

2.2.3 Incentives related to financial structure 14

2.3 Previous researches related to delisting phenomenon: 15

2.3.1 Researches on foreign markets: 15

2.3.2 Researches on Vietnamese stock markets: 16

2.4 Previous researches about determinants of delisting: 19

2.4.1 Financial performance: 19

2.4.1.1 Involuntary delisting: 19

2.4.1.2 Voluntary delisting: 20

2.4.1.3 General Delisting: 21

2.4.2 Corporate Governance: 21

2.4.2.1 Involuntary delisting: 21

2.4.2.2 Voluntary delisting: 22

2.4.3 Previous research in Vietnam: 23

Chapter III: OVERVIEW OF VIETNAM STOCK MARKET AND ITS DELISTING PHENOMENON IN RECENT YEARS 25

3.1 Vietnam Stock Market Overview: 25

3.1.1 Period 2000 - 2005: 25

3.1.2 Period 2006-2007: Period of stock market explosion 26

3.1.3 Period of year 2008: The stock market closed with sharp decline 27

3.1.4 Period of year 2009: Unexpected and impressive growth 27

3.1.5 Period of year 2010: The rise and fall of a year of Vietnam’s stock market 28

3.1.6 Period 2011-2012: 28

3.1.7 Period 2013 - July 2014 29

3.2 Legal framework: 30

3.2.1 Conditions of listing: 30

3.2.2 Delisting securities 34

3.2.2.1 Voluntary delisting: 34

3.2.2.2 Involuntary delisting on HOSE and HNX: 34

3.3 Delisting phenomenon 35

Chapter IV: RESEARCH METHODOLOGY 40

4.1 Research data: 40

4.1.1 Research objectives and scope: 40

4.1.1.1 Research objectives: 40

4.1.1.2 Research scope: 41

4.1.2 Research methodology: 41

4.2 Research model: 41

4.2.1 Measurement of the dependent variable (delisting rate): 41

4.2.2 Measurement of the independent variables: 42

4.2.2.1 Financial factors: 42

4.2.2.2 Corporate Governance factors: 44

Chapter V: EMPIRICAL FINDINGS 46

5.1 Descriptive statistics: 46

5.1.1 Financial ratios: (See Table 1, Appendix) 46

5.1.2 Corporate Governance: (See Table 2, Appendix) 47

5.2 Modeling findings: 48

5.2.1 Finance model: 48

5.2.1.1 Delisting results: (See Table 3, Appendix) 48

5.2.1.2 Involuntary delisting results: (See Table 4, Appendix) 50

5.2.1.3 Voluntary delisting results: (See Table 5, Appendix) 51

5.2.2 Corporate governance model: 52

5.2.2.1 Delisting results: (See Table 6, Appendix) 52

5.2.2.2 Involuntary delisting results: (See Table 7, Appendix) 53

5.2.2.3 Voluntary delisting model: (See Table 8, Appendix) 55

5.2.3 Results summary: 56

5.2.3.1 Finance model: 56

Chapter VI: RECOMMENDATIONSAND CONCLUSION 61

6.1 Recommendations: 61

6.1.1 Recommendations to investors: 61

6.1.2 Recommendations to the authorities: 61

6.1.3 Recommendations to listing companies: 72

6.1.3.1 Recommendations in term of financial performance for company 72 6.1.3.2 Recommendations in term of governance factors for company 72

6.2 Conclusion: 73

REFERENCES 75

1 International papers: 75

2 Vietnamese papers: 80

3 Websites: 82

APPENDIX 83

LIST OF TABLE AND FIGUREFigure and

Pag e

Figure 1 Delisting in Vietnamese stock market 2009-2014 35

Figure 2 Reasons for delisting in Vietnamese stock market

Table 1 Stock exchanges information summary from 2000-2005 26

Table 4 Summary of significant factors in finance model 57

Table 6 Summary of significant factors in corporate governance

Table 7 Summary of corporate governance indicator causes 59

LIST OF ABBREVIATIONSAbbreviation Full phrases

SSC State Securities Commission of Vietnam

UPCOM Unlisted Public Companies Stock Exchange

M&A Merger and Acquisition

NASDAQ National Association of Securities Dealers Automated Quotation

System

The number of delisting firms in Vietnam stock market has dramaticallyincreased in recent year There have been numerous studies in the world concernedwith the determinants for delisting and the effect of delisting on the market ingeneral, the company itself and the investors The main objective of this research is

to identify the factors affecting delisting probability of companies listed in threeVietnam stock exchanges: HOSE, HNX and UPCOM over the period of 2009 –7/2014 More specifically, the research is concerned with these variables that areindicators of firm’s financial ratios and managerial characteristics Logisticregression model was used to distinguish the difference between delisted and listedfirms After running the model, major findings revealed: (1) the higher Net Income,the greater Total Assets and the lower Debt ratio with the renting of BIG4 asauditor, the less likely a firm will delisted; (2) the smaller the number of Board ofDirectors, the few number of large shareholders and the lower number of MasterDegree and female member in Board of Management, the greater the likelihood thefirm will go private Also, the finding showed that if the shareholders in companiesare foreigners and state, the firms will less likely delisted The results found in thispaper have numerous important implications for establishing stock markets inemerging economies

Another achievement is that there has been a growth in number of listedcompanies in Vietnam stock market, including both large-cap and small-capenterprises Until July 31, 2014, there are 304 stocks listed in HOSE; 359 stocks inHNX with total market capitalization of more than VND 89,000 billion Meanwhile,

151 public companies register transactions in UPCOM with total transaction value

Therefore, the stock market has become an important channel of mobilizingcapital for enterprises as well as an attractive investment channel for investors.Until July 25, 2014, the total capital of the Vietnam stock market was VND1,700,000 billion, which is successfully mobilized in 14 years of operation In

particular, Government mobilized about VND 1,000,000 billion throughgovernment bonds; businesses did approximatelyVND 700,000 billion through thestock market during this period 1,300,000 accounts of investors including1,282,831 domestic investors, 17169 foreign investors were opened on Vietnam’sstock market till July 20, 2014

On the other hand, Vietnam Stock Market has to face up with a seriousphenomenon that can hinder and threaten the sustainable development of themarket This is delisting problem in three Stock Exchanges: HOSE, HNX andHOSE The number of delisting companies in these three Stock Exchanges isincreasing annually

From 2009 – 7/2014, there are 161 delisting companies that includes 69voluntary delisting companies and 92 involuntary delisting companies

This situation affected adversely to stock market, investors and the companyitself Specifically, the delisting degrades the image of the companies in the eyes ofinvestors, customers and partners

Moreover, due to no completed research on delisting, State SecurityCommission (SSC) as well as Stock Exchanges has inactively responded todelisting proposal Since 2009, although numbers of delisting companies haveincreased significantly, there was no adjustment from management body to restrainthe negative impacts of delisting and delisting phenomenon

In fact, the phenomenon of delisting is to a certain extent a commonoccurrence in developed economies as well However, the difference is that therehas been a myriad of worldwide researches on delisting problem

In contrast, there is no academic research paper that evaluates thedeterminants of delisting risk and its consequences on Vietnam’s stock market

Therefore, it is necessary to have research papers to investigate the factorsaffecting delisting risk as well as to assess consequences and influences of delistingissue This research will also help SSC and Stock Exchanges actively response todelisting cases as well as reduce the number of potential delisting firms

From these above analyses, “Empirical research on factors affecting

probability of delisting on Vietnam’s Stock Market” is new research topic,

valuable and practical to solve the problem of delisting on Vietnam’s Stock Market

1.2 Research objectives and scope:

Our empirical research implemented to analyze performance of eachenterprise at the end of the year before delisting event in order to identify thedeterminants of delisting probability Also, we found both subjective and objectivereasons which have significant influence on both voluntary and involuntarydelisting of enterprises on Vietnam’s stock market All these objectives are carriedout towards limiting and reducing enterprises’ probability of delisting so that wereach the final goal of helping firms to balance, control and maintain their positiveperformance on the stock market

We choose to localize our research on delisted enterprises of three StockExchanges: Ho Chi Minh Stock Exchange (HOSE), Hanoi Stock Exchange (HNX)and Unlisted Public Company Market (UPCOM) as representatives of Vietnam’sStock Exchanges until July 31, 2014 161 delisted enterprises and 40 biggestcapitalized companies were selected to make a comparison For the former, all data

is collected at the end of the year before delisting event, whereas database of thelatter was taken in 2013 Both voluntary and involuntary delisting were studiedbased on two major indicators, namely financial ratios and corporate governance

1.3 Research questions:

There are three questions that this research is going to exploit

1 Whichfactors affect delisting probability on Vietnam’s stock market?

2 Whichfactors affectthe probability of voluntary delistingon Vietnam’sstock market?

3 What factors affect the probability of involuntary delisting on Vietnam’sstock market?

1.4 Research methodology

1.4.1 Sample

The research team first collects the population of all delisted firms onVietnam’s stock market between 2009 and July 2014 The data is completelysecondary, which is mainly taken from companies’ financial statements and annualreport as well as from some journals and newspapers The delisted firms areclassified in two big categories: voluntary delisting and involuntary delisting firms.Then, based on specific reasons for delisting, delisted firms are divided into somekinds of sub-categories

From firm’s financial statements and annual report, the research teamextracts the data into financial indicators and managerial characteristics to establishassessment criteria for delisting

1.4.2 Methodology

Quantitative research methodology is used effectively to analyze the data Asone of the most popular model when researching on delisting phenomenon, logisticregression model is chosen to distinguish the delisted and listed firms based onmanagement criteria and financial ratiosin order to determine the factors affectingprobability of delisting in Vietnam

Chapter 2: Literature review

This chapter gives information about previous researches in the past that will

be the knowledge based for the research Based on this part, the research team andthe readers can make some comparisons to see the differences between delisting inVietnam Stock Market and delisting in other countries in the world

Chapter 3: Overview of Vietnam stock market and its delisting phenomenon in recent years

This chapter contains two big parts that includes Vietnam Stock MarketOverview and Delisting phenomenon in Vietnam

In Vietnam Stock Market Overview, it focuses on analyzing listingrequirements and delisting requirements in HNX, HOSE and UPCOM Regard to

delisting phenomenon, the research studies about features of delisting in HNX andHOSE to figure out delisting characteristics in these stock exchanges

Chapter 4: Research methodology

This section provides the information about research data including objects,scope, and research methodology and research model

Chapter 5: Findings

In this part, research team analyzes the descriptive statistics and the modelthat is applied in the research

Chapter 6: Recommendations and conclusions

From the findings in chapter 5, the research team makes conclusion aboutdelisting on Vietnam’s stock market and some recommendations for relevant parties

to have quick responses and actively encounter with this issue

Chapter II: LITERATURE REVIEW

The decision to go public is a popular topic of corporate finance researchpaper The reverse phenomenon – delisting – is less studied despite its importance.During the past few years, delisting has become a common phenomenon inVietnamese stock market According to the State Security Commission of Vietnam,since 2009, Vietnamese market has witnessed more than 160 delisting cases in bothHanoi and Ho Chi Minh stock exchange However, there was a handful of researchhas been conducted about this subject in Vietnam; thus, the recent wave of delisting

is still a puzzling issue that needs to be studied on

This delisting phenomenon is more interested in at the developed stockmarkets However, existing research appears to be very fragmented, as scholars tend

to concentrate separately on different aspects of delisting While some academicsstudied on the classification or specific types of delisting (going-privatetransactions, going-dark strategies, involuntary delisting or termination of a cross-listing), others prefer the determinants, effects on firm’s governance mechanismsand organizational structure of delisting and the relationship between delisting andcorporate governance, its stakeholders, performance, reporting system, etc

2.1 Review of theoretical concepts:

2.1.1 Delisting:

In order to be publicly exchanged on a stock market, companies wishing to

go on-board have to satisfy certain listing requirements set out by the exchange.Listing requirements contain minimum share prices, minimum number ofshareholders, minimum revenues per year, minimum market capitalization, certainlevel of financial ratios, and so forth If listing requirements are not met by acompany, the exchange that lists the company's stock will probably issue a warning

of non-compliance to the company If the company cannot address the continuous

problems after a certain period of time announced before by the exchange, its stockmay be delisted And it means that they will no longer trade on the exchange thatdelisted them Companies are not necessarily bankrupt to be delisted; it still maycontinue trading over the counter.

Fernandez (2014) explained the term "delisting" securities as the shares areremoved from the stock exchanges and trading would cease to exist thereafter

ZuzanaFungáčová, Jan Hanousekrefered a phenomenon in delisting, which is

“massive delisting” He defined that “massive delisting” is a large proportion of thelisted share issues was excluded from public trading within a relatively short period

of time

In general, corporate delisting can be technically defined as the deletion of alisted stock from a regulated exchange (Onesti et al 2014) Seems to be a commonpractice, however, delisting, if examined from a distinct angle and to a deeperperspective, will reveal itself as a very complex and highly differentiatedphenomenon

On the one hand, delisting from the transition markets indicates that innumerous circumstances, unsuitable firms were initially placed on the market Inthese particular cases, delisting actually benefited by screening poor performancecompanies out of the market; hence, it will become more healthy and clear

On the other hand, delisting, despite not exactly the same as bankruptcy, has

a significant negative impact both for the shareholders Minor investors with smallholdings could get hurt by delisting transition economies since no exit rules areapplied in such time of delisting Additionally, massive delisting can bring to thewhole market negative emotions Concurrence of delisting without new listingresulted in the fall of the market, which offered fewer investment opportunities(Fungáčová&Hanousek 2011) Also, Inter alia, O’Donnell (1969) and Jarrell (1984)found an average decline of9% in the market value of delisted stocks while Sangerand Peterson (1990) confirmed average abnormal returns of -8.5% around delisting

More recently, Harris, Panchapagesan and Werner (2008) found increasingspreads,declining trading volumes and increased intraday return volatility forgovernance related delisting

Each cancellation, if further inspected may present an exceptional set ofcharacteristics and dynamics, with specific underlying strategies and motivationsregarding to the parties involved Nevertheless, following the identical regulationsset by the exchange, in summary, delisting cases all share the same mechanism thathad been the concern and be investigated closely for decades

2.1.2 Involuntary Delisting

Delisting, in general, is classified into voluntary and involuntary delisting(Macey et al 2008) A company involuntarily delisted because it experiencedfinancial distress or it has been merged and/or acquired by other firms (Djama et al.2012) The delisting caused by acquisition reasons is natural technical outcome ofthe change in shares ownership In involuntary delisting the shares are taken outfrom the stock exchanges due to various issues including non-compliance of listingagreements with the exchanges or any other issues

For firms’ shareholders in general, involuntary delisting may be the worstnightmare It usually is the result of failure to meet the exchanges’ requirements,from financial default, suspension of banking transaction, refusal of audit opinions

or utter write-down of equity The practice of delisting stocks that fails to meetexchanges’ prerequisite remains controversial for several reasons First, the firmdelisted will get hurt Thus, shareholders who own those shares are also harmed.Second, for investors who wish to trade those stocks, they will miss an investment

or getaway opportunities

To continue trading in the exchange, firms must comply with the delistingrules designed by the exchange commission, which are normally divided into twoset of rules First category is the rules that ensure the exchange’s relationship with

the listed company remains profitable It is obvious that exchanges are subject tomore costs listing firms which have infrequent trading Because listing venues existbased on fees associated with trading, it is sensible that trading not entail losses forthe exchanges The second category of delisting rules is enforced to protect theexchanges investment in reputational capital Aside from playing a role as anintermediary between companies and investors, exchanges also provide a vector ofservices such as standardized governance rules, monitoring of trading, clearing andsettlement, liquidity, and a signaling function (Macey et al 2008) Delisting rulesallow the exchange to conserve the reputational signal associated with the listingvenue Dismissing delinquent companies also control the norms expected by theremained listed firms To the extent that all firms whose shares are listed meet theexchange’s listing standards, investors can rely on the integrity of the firms listed onthe exchange.

Regarding the US market, there have been many empirical researches oninvoluntary delisting Most of it suggests a significant negative effect on the firms’stock price Nonetheless, there were reports of conflict between studies due to thedifferences in sampling and measurement methodology In 1990, studying theinvoluntary delisting in NYSE and ASE, Sanger and Peterson found out a fall ofabout 8.5% in the stock price of delisted firms on the delisting announcement day.Shumway (1997) authenticates an average delisting return of -30% for the firms thatare delisted for bankruptcy and other negative reasons Angel et al (2004) study theinvoluntary delisting from NASDAQ, and document that investors suffer a loss ofabout 22% in 60 days prior to delisting

While the empirical studies in the US concentrate on the delistinginformation effect, the studies of wealth dissipation accompanied with delisting stillremain scarce There was only one research coping with the information effect andinformation asymmetry of delisting to our knowledge by Park et al (2013) Theyverify a massive loss of about 70-80% as sampling the data in Korean exchangemarket, confirming the ominous nature of involuntary delisting Also, the behavior

in trading between individual investors and institutional and foreign shareholdershas been examined Furthermore, they report a change in share ownership of largeshareholders Finally, they reach to a conclusion that in emerging markets where theparticipation rate of individual investors is high and the market transparency is low,individual investors are at an informational disadvantage compared toorganizational and foreign ones.

Studying the sample from Japanese market, Shiroshita et al (2013) report thefollowing results First, the wealth effect to firms’ stock price of involuntarydelisting is -70% indicating that involuntary delisting is a highly disruptive event inJapan unlike the U.S where there is still some liquidity even after the delisting.Second, the one-year buy-and-hold abnormal return prior to the delistingannouncement is about -60%, indicating that stocks show a dramatic fall in valuebecome delisted Additionally, as announced of as high as -90% in one-year buy-and-hold abnormal return, the study documents that investors holding the stocksduring that period lose mostly all of their investment Third, while largeshareholders decrease their shareholdings prior to involuntary delisting, showingopportunistic behavior in order to evade massive losses, individual investors risetheir shareholdings; and thus, turn into the victims of the opportunistic behaviors oflarge shareholders Fourth, the greater the fall in the shareholding of the largeshareholders and the greater the increase in the shareholding of the individualshareholders, the larger is the one-year decrease in the stock price prior to delisting.Fifth, when the information asymmetry between the insiders and the market becomegreater, the reduction in the shareholding of the large shareholders and the increase

in the shareholding of individual shareholders become larger Finally, theshareholding of the large shareholders reduction and the shareholding of retailindividual investors’ increase are significant predictors of involuntary delisting

2.1.3 Voluntary Delisting:

In the context of voluntary delisting, the firm decides to go private, ornormally referred to as “Going private transaction”, because of the agreementbetween existing shareholders who have concentration of stocks in their hands andwho do not want their equity publicly traded Going private transaction is atransaction or series of transaction that transform a publicly traded company into aprivate enterprise

A going private transaction can be implemented by various technicaltransaction methods In the Western European or US business environment, goingprivate transaction usually takes a form as a “Leveraged buyout” (Djama et al.2012) Leveraged buyout is the acquisition of another company using a significantamount of borrowed money (bonds or loans) to meet the cost of acquisition and thecompany is then delisted Often, the assets of the company being acquired are used

as collateral for the loans in addition to the assets of the acquiring company In aleveraged buyout, there is usually a 9 to 1 debt/equity ratio Therefore, the bondsare not assessed in high investment grade and usually are junk bonds Leveragedbuyout is not a reasonable method in general Especially, in the 1980s, severalprominent buyouts led to the eventual bankruptcy of the acquired companies It can

be explained by the fact that firms obtaining an extremely high leverage ratio(approximately 90%) that the operating cash flow cannot compensate for theinterest payment In most situations, an unlisted company is specifically created forthe acquisition set up This act is referred to as a “Public to Private” On thecontrary, in the context of Continental Europe, where shareholder base is large andstable (Faccio and Lang, 2002), the most common practice for going privatetransaction is a Buyout offer with a Squeeze-out To perform a squeeze-out, thedominating shareholders use their legal rights to cash out the minority shareholders;this action makes firm go private by dismissing its capital Normally, squeeze-out isprevented by a strictly high level of threshold (90% or more of voting right inFrance)

There has been well-developed theoretical literature studying about why firm

go public through initial public offering However, researches analyze going privatetransaction, the following consequence and its determinants still remains scarce.The organizational foundation of US leverage buyout, the motivations behind andits aftermath to the minority shareholders has been discussed in the seminal paper ofDeAngelo et al (1984) In this research, the authors highlighted that a going privatetransaction provide additional gains through a decrease in listing expenses and themanagers incentives will be boosted by the introduction of new ownership structure.Other research conducted in the late of 20th century showed that the decision to goprivate depends on the market timing When the listing costs surpass the benefitsfrom listing, companies will decide to go private (Martinez and Serve 2011) Forexample, the decision is made when one of the following happens: (i) the benefitsreduce below the point when at which the benefits of being public exceed the costs

or (ii) the costs rise above the point where costs exceed benefits

2.2 The incentives to go private:

The incentives for firms to go private are classified into three groups:traditional motivations, motivations derived from the agency theory and motivationsrelated to financial structure (Djama et al 2012)

2.2.1 Traditional incentives

The most obvious benefit for firms if they become private is cost saving.Going public sharply increases expenses The costs that firm are charged includeboth direct and indirect costs

Direct costs rise in the process of following IPOs such as annual listing feesimposed by exchanges and regulatory authorities and trading costs DeAngelo et al.(1984) suggested a size hypothesis: as larger firms are potentially more efficient at

amortizing these fixed costs, the authors forecasted that undersized firms would bemore motivated to opt out the public market when the direct costs of being listedincrease.

Indirect costs contain information disclosure costs such as audit andpublication costs, compliance costs to meet regulatory and corporate governancestandards, and opportunity costs as well

To begin with, the compliance regulations lead to a complicated governancestructure, requiring high-level personnel, complex decision processes Therequirement of information disclosure is more likely cause company to lose vitalinside formation

Another problem in indirect cost is opportunity costs which is theundervaluation arising from asymmetric information among managers/owners andstock market investors While managers/owners have inside information and wellunderstand of the future returns actual distribution, outside investors have vagueknowledge of what happens internally Thus, when managers know that share price

is undervalued, they may strategically decide to go private (Kim and Lyn 1991), toextract private benefits and to avoid the opportunity costs of staying listed On thecontrary, IPO literature suggests that there are certain benefits compensate for theincrease of cost including high liquidity, easier to access the financial markets andrisk sharing with public shareholders Nonetheless, if these goals are not realized,firms tend to leave the market

2.2.2 Incentives derived from agency theory

The first scholar to propose and build agency theory independently almost atthe same time together is Stephen Ross (1973) and Barry Mitnick (1973) Rose isthe author of the agency theory in economics, while Mitnick constructed the

organizational agency theory Nevertheless, the foundation concepts of these twoapproaches are quite similar.

In the Western European countries, differing from other areas, going privatetransaction usually takes form of a leverage buyout, which is often the aim of lowconcentration ownership companies In this case, the dominant motivation to goprivate attributes to agency theory as leverage buyout normally viewed as aninstrument to alleviate the tense conflict of interest between managers and owners.The controversial issue of how to get managers act toward best interest of ownerssuggests two possible explanations of going private via leverage buyout (Jensen1968)

One reason is described by the incentive realignment hypothesis: the demand

to rearrange the incentives of the managers with those of the owners is mentioned

by Kaplan (1989a, 1989b) as an important factor in the delisting decision

Another explanation is describes by the Free Cash Flow hypothesis: highdebt/equity ratio accompanied with leverage buyout is supposed to diminish thewaste of free cash flow by the managers because high interest expenses requirehigher cash-flow to pay

2.2.3 Incentives related to financial structure

There are numerous incentives related to firm’s financial structure that push

a firm going private

First, companies decide to leave the market, as presented in many papers, forone of the key driving factor which is tax benefit Lehn and Poulsen (1989) andsubsequent studies about the US market note that tax benefits are an essentialsource of wealth gains because interest payments on corporate debt are taxdeductible Renneboog et al (2007) also presented that the significance of the taxbenefit derive from the fiscal regime and the marginal tax rate as regulations

Second, a leverage buyout helps transfer wealth from bondholders to stockowners

of the firm due to high debt/equity ratio Confronting this potential expropriation,bondholders will demand more covenants serving their interest in the debt contracts

in order to protect themselves

Another motive of going private is when firms need to consider the leverageratio According to Bharath and Dittmar, 2010; Martinez and Serve, 2011, if thefirm no longer needs capitalize via the equity market and is not financiallyconstrained, the decision to go private could reveal its preference for alternativesources of capital such as debt, despite understanding that there are fewer benefitsand many costs associated with being listed Also, lack of growth opportunities andinvestment projects are other motivations for firm to go private (Kim and Lyn,1991; Bharath and Dittmar, 2010; Martinez and Serve, 2011)

In the UK market in 2005, Weir et al successfully tested the cost model offinancial distress suggested by Opler and Titman (1993) The model implied thatthere is a trade-off between possible gains from incentive rearrangement andpotential lost from financial distress which strongly affects the decision to goprivate of firms

2.3 Previous researches related to delisting phenomenon:

2.3.1 Researches on foreign markets:

In regards to the geographical and cultural research frames, a vast majority ofstudies focus on U.S market data (DeAngelo et al 1984; Lehn &Poulsen 1989;Slovin et al 1991; Denis 1992; KieschnickJr 1998; Halpern et al 1999; Engel et al.2007; Gleason et al 2007; Leuz 2007; Mohan & Chen 2007; Bartlett 2009; Hansen

et al 2009; Harris 2009; Kamar et al 2009; Doidge et al 2010; Iliev 2010; Rao et

al 1995; Becker &Pollet 2008) and U.K market data (Weir et al 2005a, 2005b;Weir & Wright 2006; Renneboog et al 2007; Weir et al 2008; Achleitner et al

2010; Aslan& Kumar 2010; Kashefi Pour &Lasfer 2013) The current circumstancereflects the general trend of international papers focus on those countries, due to thelarger and more developed of their markets and the greater availability ofquantitative data In the recent times, scholars are more interested in carrying outempirical studies on going-private transactions in other European countries(Michelsen& Klein 2011; Martinez & Serve 2011; Croci& Del Giudice 2012;Geranio&Zanotti 2012; Belkhir et al 2013), Asia (Lee et al 2010; Yuh-Jiuan,Chung-Jen, Hsi-Cheng 2010), Africa (Algebali 2011) and Oceania (Chi et al 2010).

Regarding going-private transactions, there are four essential fields of topic(Onesti et al 2012) The first domain of research which majority of existing studiesconcentrating on is the reasons for delisting and the recurring characteristics or theearly signs that help to forecast the delisting of a company These studies takeadvantage of quantitative models (especially logistic regressions model), that aresuitable for identifying the variables most differentiating going private companiesfrom those maintaining quotation The example for this type of researches is recentpapers from Michelsen and Klein (2011), Belkhir et al (2013) and Kashefi Pourand Lasfer (2013) The second strand concerns how delisting affects the interests ofcompany’s shareholders and the financial performance after going private Most ofthese studies tend to focus on the effects of going private transaction (or delistingannouncement) on stock prices (Geranio and Zanotti 2012) Other studies, whichbenefit from the availability of wide-ranging and complete databases, measure andanalyze the change of financial performance after the delisting process (Aslan&Kumar 2010 and Croci& Del Giudice 2012) The third field of research deals withthe consequences of delisting on the corporate governance of the delisted firms and

on the wider perspective – the interest of its stakeholders The methodology adopted

in this case is mainly speculative and theoretical (Schneider &Valenti 2010;Schneider &Valenti 2011), meanwhile, researching on empirical contributions,qualitative methods are well utilized (Achleitner et al 2010) Finally, the lastdomain of research regards the relationship between corporate governance systems

and the laws and regulations of financial markets, on one hand, and the decision to

go private, on the other hand (Leuz 2007; Doidge et al 2010; and Iliev 2010)

2.3.2 Researches on Vietnamese stock markets:

Regarding the Vietnamese stock market, there are only a few research worksthat directly related to delisting phenomenon Most of the existing papers, focus ondelisting, are journals which are mainly written to provide information, givecomments or evaluate on stock removal in Vietnamese stock exchange The content

of all research papers and journals studying on Vietnamese delisting phenomenoncan be divided into two sets of subject

First, studies concentrate on the definition and classification of delisting, thecauses of delisting and motivation, benefits for company and shareholders afterdelisting

Second, journals provide information about the delisting situation, analyzethe causes, motivations, effects and consequences of delisting activities on theVietnamese stock exchange in a subjective perspective Generally, the journalsabout delisting are usually not in form of scientific researches or scientific papers,but they were published as news reports

In regards to the content, news journals have reached the conclusion aboutthe number of delisted companies and the process that they removed their stock,including quotations of interviewed experts in this field of study Nevertheless, thestatements reported in the article seem to represent the subjective and preliminaryviewpoint of the authors, not completely and clearly differentiated delistingactivities in conformable to global classification standard There are two essentialtopics of those papers

First, about the causes of delisting, regarding involuntary delisting, most ofthe papers concluded that the result is because firms were unable to satisfy

requirements set by stock exchange or violated the regulations of the government.However, in case of voluntary delisting, various contrary statements has beenannounced, leaving this subject remains controversial Ngoc Thuy (2012), in ajournal, quoted Mr Nguyen Vu QuangTrung – Vice President of Hanoi StockExchange: “Previously, voluntary delisting mostly attended to merge andacquisition process of companies such as North Kinh Do (NKD), Mirae Fiber(KMF) Nevertheless, in the recent times, the motivation of companies is not thesame Also, Ngoc Thuy, in the journal “Voluntary delisting, not simple” (2012),quoted Mr Dang Thanh Tam, Board Chairman of Saigon communicationtechnology JSC: “Once the stock market lost its role as a funding channel for firms,listing is no longer meaningful” However, this point of view has been objected by

Dr DinhTheHien, in a news report by Hai Nam (2011): “delisting imperceptiblyreduces the capital liquidity of shareholders and stock liquidity of company”

Second, regarding the consequences of delisting, the journal authors sharethe same idea According to Manh Ha (2012), for firms in general, the practice ofdelisting benefits them in different ways but also leaving a “stain” in their profile.They would self-tarnish their reputation in the eye of the authorities as well as theinvestors, especially in case of cooperating or setting up business with foreigncompanies About the effects on stock market, Mai Thu (2012), Manh Ha (2012),Phuong Nhi (2011) and Yen Nhi (2014) all agreed that the delisting phenomenonrecently will leave the stock market in temporary disorder; however, it plays therole of the remedy, purify and strengthen the Vietnamese stock market, and also aninevitable elimination in the process of development

Overall, there have been a variety of journals discussing motivations oroutcomes of the delisting trend in Vietnamese stock exchange, but the results aremainly inferred from delisting occurrences and subjective assumptions of theauthors, without any authentic scientific evidences

A number of quantitative researches have studied on the investor’s behaviorsand corporate governance of the companies listing on Vietnamese stock market.Beside scientific journals and articles directly related to delisting, there arenumerous studies which do not directly investigate but its finding, to an extent, isrelevant in different levels and aspects to this topic In a research in 2013:

“Restructuring the model of Vietnamese stock market”, Nguyen Son – StateSecurities Commission has proposed a merge of two Vietnamese stock exchangeswhich are Hanoi stock exchange (HNX) and Ho Chi Minh stock exchange (HOSE)

to mitigate market biases and conflicts between two trading floors NguyenDucHien(2012) applied financial behavior to identify and measure biases in thebehavior of individual investors, which also explains the abnormality emergingwhen individual investors buy delisted company’s stocks Several other studieshave initially mentioned a number of econometric models to test the factors / groupfactors related to listed companies and public companies The methods applied,although not directly applicable to the company being delisted, but can be referred

to and modified when constructing a model evaluate factors lead to delisting onVietnamese stock market

2.4 Previous researches about determinants of delisting:

In this section, the empirical studies on the determinants of both involuntaryand voluntary delisting are presented These factors are classified into two majorgroups, namely, firm’s financial performance and corporate governance

2.4.1 Financial performance:

When investigating the factors affecting on delisting rate, many prior studiesconcentrate on financial performance They suggest that accounting numbers shown

on the financial statement played a crucial role in delisting Also, financial ratioshave been applied to predict potentially problematic corporations.

2.4.1.1 Involuntary delisting:

Using a sample of 58 delisted firms and 112 listed firms in the Taiwan StockExchange from 2000 to 2008, Yuh-Jiuan, Chung-Jen,Hsi- Cheng (2010) appliedlogistic regression model to identify the influence of financial factors oninvoluntary delisting rate By choosing delisted status as dummy variable, theirresult notes that only two financial indicators, namely Debt ratio (total liabilities tototal assets) and ROE, show statistical significance Specifically, the delisted firmsare more likely having a higher leverage and experiencing a lower ROE

Also researching on the effects of financial indicators on involuntarydelisting probability, Wang and Campbell (2010) used another model called Ohlson(1980) to examine the delisted companies in China stock market between 1998 and

2008 After testing the model, Wang and Campbell find two most influentialvariables in delisting rate are Debt ratio (total liabilities to total assets) and NetIncome They conclude that if total liabilities exceed total assets and Net Incomewas negative for the last two years, the companies are more likely to be delisted

2.4.1.2 Voluntary delisting:

Rao et al (1995) consider the relationship between financial characteristicsand the probability of going private of 229 voluntary delisted firms identified fromWall Street Journal Index and Research Compustat Status Report for the period1981-1992 All the proxy variables were computed over a period of five yearsimmediately preceding the dates when firms went private The examined financialratios include Revenue growth rate, Change the dividend payout ratio, Debt ratio,Ratio of cash flow to total assets, Dividend yield, Changes in equity, P/E, P/B,Tobin's q ratio and Total assets After running Probit regression model withdependent variable is a dummy variable, they conclude that: (1) the higher P/E, thegreater P/B, and the higher Revenue growth rate, the less likely a firm will go

private; and (2) the greater the ratio of cash flow to total assets and the higher thedividend yield, the greater is the probability that the firm will be taken private.

The study of Becker and Pallet (2008) concerned with voluntary delistingcompanies that went private in the United States from 1981 to 2006 The impacts ofthe financial indicators on voluntary delisting rate are tested Becker and Pollet(2008) also used logistic regression model Dependent variable (delisting) is adummy variable and the independent variables include Book-to-market ratio forequity, Asset growth, Stock return volatility, market capitalization (normalized),and ROA According to the result of regression model, there are exist positiverelationship between Book-to-market ratio for equity and ROA with the delistingrate, while the relationship between stock return volatility and company size(market capitalization) with the decision of going private is reverse relationship

2.4.1.3 General Delisting:

Algebali (2011) assessed the impact of financial characteristics on thedelisting risk of IPO companies that are listed on the Egyptian Exchange during theperiod of 1992-2009 The logistic regression models with dependent variable(delisting) is a dummy The research find that firm size, liquidity, growth rate inassets, cash coverage, operating performance, offering size, IPO activity, initialreturn, institutional ownership and insider ownership variables have significantrelationship with delisting risk Meanwhile, financial leverage has a significantlypositive influence on delisting probability

2.4.2 Corporate Governance:

There is a voluminous amount of literature linking corporate governancestructures with firm performance and adverse organizational outcomes likebankruptcy or takeovers (Daily & Dalton, 1994; Weir, Laing, & McKnight, 2002;

Ho & Williams, 2003; Ajinkya, Bhojraj, &Sengupta, 2005; Goktan, Kieschnick,

&Moussawi, 2006)

Much of this literature contends that likelihood of an adverse organizationaloutcome is significantly associated with the effectiveness of corporate governance.

2.4.2.1 Involuntary delisting:

When researching the Taiwan stock market, Yuh-Jiuan, Chung-Jen, Cheng (2010) observed the impact of corporate governance on the involuntarydelisting risk of 130 companies during the period of 2000 - 2008 The empiricalresult show the significantly impact of the corporate governance on the risk ofcompany’s delisting In specific, delisted firms have smaller board size and lowerpercentage of independent outside directors Additionally, companies with BODmembers pledging a significant percent of their shares tend to go dark

Hsi-In the study namely “Corporate Governance and Hsi-Involuntary Delisting:Empirical Evidence” written by Muhammad Nasir Malik et al.(2014), corporategovernance characteristics in developing a logistic regression model is used topredict the probability of involuntary delisting of a firm from Shanghai StockExchange (SSE) and Shenzhen Stock Exchange (SZSE) The authors identify theeffects of corporate governance characteristics at three years prior to the delistingevent, two years prior to the event, and one year prior to the event The corporategovernance characteristics examined in this study are board characteristics (boardactivity, board size, board independence, and presence of audit committee) andownership characteristics (shareholder activism, ownership concentration, andinsider ownership) Their result shows that insider ownership, together withownership concentration, is the most important variable in predicting delistingevents in China

2.4.2.2 Voluntary delisting:

Charitou et al (2007) examines whether the likelihood of becominginvoluntarily delisted from NYSE is associated with a firm’s board of directors andownership characteristics The study compares 161 firms that were delisted fromNYSE between 1998 and 2004 to a set of industry and size-matched control firms

The factors being tested include: the fraction of independent directors serving on theboard, the number of directors in the board, the number of meetings of board ofdirectors during three years prior to the delisting, insider ownership (naturallogarithm of the percentage of voting power owned by officers and directors as agroup), After running the logistic regression model with dependent variable is adummy variable (dummy variable equal to 1 if the company was delisted),researchers conclude that companies having more independent board and largerinsider ownership are less likely to be voluntarily delisted.

In Europe, the influence of corporate governance were also confirmed byThomson et al (2007) and Martinez and Serve (2011) Thomson et al (2007) haveused the ratio of protecting small shareholder that is developed by La Porta et al(1998) as a measure of the regulation’s corporate governance Thomson's team findthat the higher level of protection small stock and more strictly use of regulations inthe corporate governance, the higher the density of delisting but the lowerpossibility of bankruptcy or closing When researching on the French stock market,Martinez and Serve (2011) evaluate the impact of Financial Securities Laws againstthe decision of voluntarily delisting from the French companies from 1997 to 2006.Their study concludes that the subsidiary companies, because of lacking financialcapacity to pay for corporate governance, will tend to be voluntarily delisted or goprivate

2.4.3 Previous research in Vietnam:

In Vietnam, only few academics study directly related to the topic ofDelisting in Vietnam stock market Delisting phenomenon is mostly presented innews articles which reflect the situation, comment, or review of this issue

Among all the papers concerning this phenomenon, the most noticeable andvaluable is a scientific journal “Voluntary delisting on the stock exchange;phenomenon and mainsprings of companies” which was published on Economy and

Development magazine issue 193 (II) in July 2013 by two co-authors Truong ThiNam Thang and Dinh Anh Tuan

In this scientific journal, two authors defined the terms of compulsorydelisting, voluntary delisting including going dark (stock will be traded on anotherstock exchange) and going private which have not been popular among Vietnamesescholars Furthermore, benefits and adverse effects of delisting have been clarified.Also, the authors bring into comparison the delisting legislation system betweenVietnam and other developed stock market such as U.S, U.K, German, France,Singapore and Hong Kong After that, they pointed out that Vietnamese law systemhas a more advanced clause in the decision to remove the stock which is must beapproved by at least 50% of minority shareholders Although the main purpose is toprotect the interest of minority shareholders, the law has not prescribed the terms ofcompensation for shareholders and the plan to operate after delisting process Afteranalyzing the delisting cases from the beginning of 2012 until the first quarter of

2013, Truong Thi Nam Thang and Dinh Anh Tuan documented the reasons anddeterminants of delisting in Vietnamese stock market Finally, the paper providedsome directional recommendations for the authorities, companies and the investors.Despite its pioneered position in Vietnam, compared to other researches of foreignscholars, this study has numerous flaws in both the way the authors approachingand reasoning For example, the benefits and drawbacks of delisting described inthe paper are mainly based on general theories recapitulated from prior foreignresearches, which have not been testified and justified by Vietnamese stock marketdatabase

However, because of being the first academic research on delisting inVietnam stock market, the study is still limited in some aspects Specifically, theirapproach methods just focus on the incentives of voluntary delisting Although, theauthors tried to explain the real delisting motives (distinct from published reasons),these explanation is based on subjective conclusion, no trustworthy scientificbackground behind In addition, the advantages and disadvantages of delisting

mentioned in this study are just general theory that is has not been proved andverified by the examples on Vietnam stock market At the same time, studies havenot clarified the impact of the delisting on each object like small shareholders,businesses and the market Research methods in the paper is summarizing,analyzing documents and using secondary information (mainly of newspaperarticles reporting, which does not really bring much new knowledge.

Therefore, with 10-page scientific paper, this new study gives readers briefinformation about the delisting and the number of delisted companies in Vietnambetween 2013 to Q1/2013

Chapter III: OVERVIEW OF VIETNAM STOCK MARKET AND ITS

DELISTING PHENOMENON IN RECENT YEARS 3.1 Vietnam Stock Market Overview:

Up to July, 2014, the total number of companies listed on stock exchangeswas 863, including:

 Companies listed in HNX: 374

 Companies listed in HOSE: 314

 Companies listed in UPCOM: 175

3.1.1 Period 2000 - 2005:

The establishment of Vietnam's stock market was marked on thecommissioning of Securities Trading Center in Ho Chi Minh City on 20 July, 2000and implemented the first transaction on 28 July, 2000 At that moment, there wereonly two listed companies and two types of shares (REE and SAM) with a capital of

279 billion and a handful of government bonds were listed to trade

In 2001, the VN-Index reached 571.04 points maximum after 6 early months

of the year However, only in less than four months, from June to October, the listedshares have lost up to 70% of the value, the VN-index dropped from 571.04 points

on 25 April 2001 down only about 200 points in October 2001

The situation of Vietnam's stock market had nothing outstanding until 8March 2005, Hanoi Stock Exchange Center (HNX) came into operation Period

"Awake" have gradually appeared since 2005, when the percentage of holding byforeign investors was raised from 30% to 49% (excluding banks)

In five years, it seemed that the market did not attract the attention of thewider public and the up and down of evolution did not create social impact to affectthe operation of the economy and the lives of every citizen

We can clearly identify it through the table below:

Table 1: Stock exchanges information summary from 2000-2005

Market capitalization of shares

Number of customer accounts 2.90

8

8.774

13.520

15.735

21.616

31.316

Source: Stoxplus

According to the statistic of State Security Commission of Vietnam, by theend of 2005, the total market value of Vietnam securities estimated approximately40,000 billion, accounting for 0.69% of Gross Domestic Product (GDP) Vietnam'sstock market had 4,500 billion shares, 300 billion investment fund certificates andnearly 35,000 billion of government bonds, local government bonds, attracting

28300 trading accounts In 2005, the growth rate of the stock market was doubled

2004, mobilized 44,600 billion

3.1.2 Period 2006-2007: Period of stock market explosion

With the growth amounted to 60% from the beginning to the middle of 2006,Vietnam’s stock market has become the second rapidity of growth rate in the worldand the capitalization volume increased 15 times within 1 year

Vietnam's stock market in 2006: VN-Index increased 2.5 times later yearfrom early year The total market capitalization reached USD 13.8 billion in late

2006 (22.7% of GDP) worth of shares by foreign investors’ holding approximatelyUSD 4 billion, accounting for 16.4% of the total market’s capitalization

In 2006, a new record of VN-index was set up at 809.86 points milestone.Compare to early year, the VN-Index had the growth rate to 146% and HASTC-

Index was 170% This was the stock market’s growth rate that the world must admit

to be too impressive

Securities Act became effective as from 1 January 2007, which contributed

to promote market development and enhance integration into international financialmarkets At that time, VN-Index peaked at 1170.67 points and HASTC- Index hit apoint of 459.36

In general, the evolution of the market and the price of securities in thetransactions were more volatile, the index of the two trading floor oscillatedstrongly

3.1.3 Period of year 2008: The stock market closed with sharp decline

In 2008, the supply continued to be a significant addition through thegovernment promoted equalization of state enterprises, especially large-scaleenterprises, effective business and sale of state-owned shares in the enterpriseequalization, along with a series of banks, securities companies, businesses toissue bonds and shares to increase authorized capital, leading to stock market risk ofredundant "goods "

By the end of December, the market fell sharply due to the global economiccrisis

3.1.4 Period of year 2009: Unexpected and impressive growth.

Due to the influence of the global financial crisis catastrophe, Vietnam’sstock market in the first months of 2009 declined However, with the timely support

of the Government, Vietnamese stock market has prospered again

From 1 January 2009 to 31 January 2009, VN-Index rose 171.96 points(58%) End of 2009, the total market capitalization of Vietnam’s stock market was

620 trillion; the number of listed companies reached 447 companies, the number of

investors reached 739,000 accounts; value list of foreign investors in the stockmarket as of December 2009 nearly $ 6,6 billion With these results, according tothe State Securities Commission (SSC), Vietnam's stock market had strong growthdue to the positive impact of macroeconomic prosperity and the positive continuity

of the listed companies’ operation

3.1.5 Period of year 2010: The rise and fall of a year of Vietnam’s stock market

Entering 2010, Vietnam's stock market continued to grow stronger as theforeign exchange market continued to stabilize, the State Bank removed bottlenecks

of interest rate input and output From 1 January 2009 to 30 June 2010, VN-Indexincreased from 312.49 to 542.37 points (50%), HNX-Index increased from 78.06 to179.69 points (more than 60%)

In the period from July to August, the stock market plunged into coast whentwo indices hit the lowest level in a year Overall, in 2010, Vietnam's stock markethas witnessed consecutively the rise and fall of variation

The number of stock market in 2010: 250 transactions; 261 new listedshares; 423.89 points was the bottom of the VN-Index; 97.44 points was the bottom

of the Index; the peak of VN-Index was 549.51 points; the peak of the Index was 187.22 The figure of 3,884,838 billion was the highest value oftransaction; 547,607 billion was the lowest value of transaction, 1,288 was thenumber of accounts of foreign investors that Vietnam Securities Depository issued

HNX-in 12 months, from 30 November 2009 to 30 November 2010

3.1.6 Period 2011-2012:

The year of 2011 was an extremely difficult year for the stock market inVietnam In the end of the first quarter of 2011, there were 24 securities companiesreported losses; with total loss of 574 billion According to statistics from the StateSecurities Commission, the number of securities trading account has exceeded 1

million Alarming phenomenon was the number of regular active accounts (activeaccounts) which became common in large stock companies just only 20-35% Inaddition, the number of "virtual" accounts and "dead" accounts occupied asignificant portion; liquidity in the market declined.

Entering 2012, Vietnam's stock market was still full of unexpected waves.End of 2012, the VN-Index increased 17.7% compared to the end of 2011 at 413.73points; HNX-Index was less active than 2.8% at 57.09 points They had a lot ofdifficulties but 2012 still had a pretty nice ending when the last transaction of theyear (28/12/2012) closed with green on the 2 exchanges Looking back at 2012,Vietnam's stock market was still quite unstable due to both objective and subjectivereasons

3.1.7 Period 2013 - July 2014:

Vietnam's stock market in 2013 has made positive changes due to the stablesignals of macroeconomic; the macro solutions were gradually effective andpositive solutions in the field of securities, as follows:

Movements of the market price index: As the end of the year 31 December

2013, the VN - Index stood at 505 points, up 23%; HN - Index stood at 67 points,

up 15% compared to the end of 2012 Vietnam's stock market was considered one

of 10 countries which had the strongest level of recovery and higher growth than thestock markets in the world

Market capitalization: capitalization was around 964 trillion (199 trillionincreased over at the end of 2012) and equivalent to 31% of GDP

The value of transaction: the average of the transactions’ scale reached 2,578billion per transaction, up to 31% compared to 2012

Since early 2014, the Vietnam’s stock market has had many changescontinuously as witnessed spectacular breakthroughs (in the first 2 months of the

year that increased liquidity and achieved very high levels of mold new record).However, by the end of the first quarter, this growth has stalled and plummeted inApril due to the caution of investors By the end of the second quarter, marketperformance fluctuated sharply, but the mainstream was increasing End of June,VN-Index closed at 578.13 points The cash flow in the first 6 months of 2014 alsojumped over the same period last year, with more than 312 trillion was "dumped"into the stock market, in which 228 trillion traded on Ho Chi Minh City and nearly

84 trillion traded on Hanoi

3.2 Legal framework:

3.2.1 Conditions of listing:

Until July of 2014, according to Decree 59, conditions for stock companies

in order to be posted on HNX and HOSE are:

1 Article 53, conditions of posted stock on Ho Chi Minh Stock Exchange (HOSE):

1.1 Conditions of posted shares:

a) Being a joint stock company with contributed authorized capital at the time ofposted registration from 120 billion VND or above;

b) There are at least 02 operated years in the form of a joint stock company up totime of posted registration (except for equitized state-owned enterprises associatingwith posting); minimum of profit-after-tax rate on equity (ROE) of the latest year is5% and operations of the two years preceding the registration year for posting must

be profitable; no overdue debts more than 01 years; no accumulated losses until theyear of posted registration; which complies with laws on accounting and financialreporting;

c) Disclosing all debts to the company of the Board of Directors’ members,Supervisory Board, Director (General Manager), assistant manager (DeputyDirector-General), chief accountant, major shareholders and relevant people;

d) At least 20% of shares have voting right of the company because at least threehundred (300) shareholders are not held by major shareholders , except stateenterprises transformed into a joint stock company under regulations of the PrimeMinister;

e) Shareholders are individuals, organizations having representative ownership aremembers of the Board of Directors, Supervisory Board, Director (GeneralManager), Deputy Director (Deputy CEO) and the Chief Accountant the Company;major shareholders are related to members of the Management Board, SupervisoryBoard, Director (General Director), Deputy Director (Deputy CEO) and chiefaccountant of the company must commit to hold 100 % of shares owned by themduring 06 months from the date of posting and 50% of these shares during thefollowing 06 months, excluding shares of government which is held by mentionedindividual;

f) There are posted admission forms valid according to regulations

1.2 Conditions of listing bonds:

a) Being a joint stock company, limited liability company with contributedauthorized capital at time of listing registration from 120 billion VND or morefollowing by value on account book;

b) Business activities of 02 years preceding the year of registration for posting must

be profitable, no overdue debts more than 01 years and financial obligations to theState must be completed;

c) At least one hundred (100) people own bonds of the same issue turn;

d) Bonds of an issue turn have the same maturity date;

e) There are admissions forms listed bonds legally

1.3 Conditions for listing public fund certificates or shares of mass invested companies:

a) A closed-end fund with a total value of fund certificates (nominal value) releasesfrom 50 billion VND or more or invested stock companies have contributedauthorized capital at time of registration post from 50 billion VND, based on thevalue recorded in the account book;

b) Members of the Representative Committee of the Invested Fund or members ofthe Management Board, Supervisory Board, Director (General Director), DeputyDirector (Deputy CEO), Chief Accountant, major shareholders are people relating

to members of the Board of Directors, Supervisory Board, Director (GeneralDirector), Deputy Director (Deputy CEO) and Chief Accountant (if any) of massinvested stock company must commit to hold their 100% of fund certificates orshares in the 06-month period from the posted date and 50% fund certificates orshares during the next 06 months;

c) Having at least 100 certificates holders of mass funds or at least 100 shareholdershold shares of the mass invested stock company, excluding professional investors;d) Having admission forms of posted certificates or shares of mass investedcompanies public eligible

In case of stock listed registration of credit institutions that are joint stockcompanies, apart from conditions specified in paragraph 1 and 2 of this Article, theymust be approved by the State Bank of Vietnam

2 Article 54 Conditions for posting stock at the Hanoi Stock Exchange (HNX)

2.1 Conditions for posted shares

a) Being a joint stock company with contributed authorized capital at time of postedregistration from 30 billion VND under the value on account book

b) There is at least 01 year of operation under the form of a joint stock company attime of posted registration (except for equitized state-owned enterprises associatingwith posting); Profit after tax rate on equity (ROE) years preceding the registering