The Government Inspectorate has just announced the conclusions of comprehension inspection on MobiFone’s acquisition of a 95-per cent stake worth approximately VND8.9 trillion (US$391 million) in AVG.
According to the Government Inspectorate's conclusions, MobiFone has been irresponsible and violated the regulations on proposing investment projects, especially in assessing AVG's financial and business status.
AVG has operated at a loss for years and made many abnormal investments
Accordingly, AVG was in difficult financial and business situation from its establishment to the time it was acquired by MobiFone. AVG’s total assets were evaluated at over VND3.26 trillion (US$143.5 million). Liabilities amounted to nearly VND1.27 trillion (US$55.8 million).
From its establishment until March 31, 2015, AVG was constantly in the red with the accumulated loss of around VND 1.633 trillion (US$71.8 million), equal to 45 per cent of its charter capital.
Capital of AVG used for audio service business mainly came from loans and appropriated capital. The company’s outsourcing investment accounted for VND2.66 trillion (US$117 million), equaling 73.3 per cent of its charter capital.
Notably, it poured VND2.473 trillion (US$109 million) into acquiring up to 68 per cent of the charter capital in Mai Linh Silk Worm Seed JSC and An Vien BP JSC.
This figure was 13 times higher than the initial investment of these two companies' shareholders and carried significant financial risks. Furthermore, the information on the deals was obscure and should be further clarified but MobiFone still bought these two investments.
In MobiFone’s proposal to acquire AVG’s shares submitted to the Ministry of Information and Communications (MIC) for review and approval, MobiFone misrepresented AVG’s financial status to the degree that it made a positive assessment.
“From 2012 to 2014, there was an increase in AVG’s revenue, gross profit and all other indicators.” This misrepresentation violates the Law on the management and utilization of State capital invested in enterprises.
Responsibility shall be held by Board of Members and relevant key officers of MobiFone, Government Inspectorate stated.
Company offering the lowest cost for consultancy services was selected
According to the Government Inspectorate, MobiFone’s irresponsible selection of the appraisal company, negligence in checking the appraisal results, and relying on them to conduct the acquisition lead to a serious violation of the law.
AMAX Valuation & Investment Consultancy Company Ltd. (AMAX) was awarded as the consulting agency for the deal based on the lowest quotation among those of the three companies other than bidding, which violates regulations.
Mobifone used the VND16.565 trillion (US$730 million) price appraised by AMAX to negotiate and purchase a 95 per cent stake in AVG without excluding the payable debts of VND1.134 trillion (US$50 million). This particularly caused VND1.134 trillion (US$49.9 million) in damages.
In fact, after excluding intangible assets of VND13.448 trillion (US$592.5 million) and payable debts of VND1.134 trillion (US$50 million), the equity of AVG was only VND1.983 trillion (US$87.4 million) as of March 31, 2015.
When compared to the purchase price of 95 per cent of AVG’s stake at nearly VND8.9 trillion (US$391 million), it shows the risk of serious loss of about VND7.006 trillion (US$308.3 million) to the State in MobiFone.
Although the valuation results of AVG made by AMAX was not objective and reliable—not to mention that it violated appraisal standards, Mobifone accepted the results, showing the irresponsibility of MobiFone.
This deal has negatively impacted MobiFone’s telecom business activities, causing a great reduction in business efficiency from 2016 and subsequent years.
Prosecution on MobiFone's acquisition of AVG is proposed.
Considering this case to be extremely serious, the Government Inspectorate recommends the Prime Minister to assign the competent investigation agency under the Ministry of Public Security to receive all the files and documents related to the case for investigation and prosecution in accordance with the law.
In economic terms, the Government Inspectorate recommends the MIC and MobiFone will take responsibilities of handling and recovering the amount that Mobifone has spent purchasing AVG's shares.
Mobifone shall pay VND1.3 billion in corporate income tax to the State budget. Chairman of the Board of Members and other key officers of Mobifone will be responsible for resolving and recovering VND1.54 billion in consultancy service cost paid to two companies (AMAX and VCBS).
At the same time, based on the Government Inspectorate’s conclusions, the Chairman and the members of the Board of Directors, General Director, Deputy General Directors, Chief Accountant, as well as relevant divisions will be subject to penal review and disciplines according to the law.
Prior to the announcement of the Government Inspectorate’s inspection conclusions, on March 12, MobiFone and AVG held a meeting to cancel the share transfer contract entered by the two firms in 2015.
Accordingly, AVG's shareholders, who transferred shares to MobiFone, will refund all amount from the sale of shares already paid by MobiFone together with the interest of the amount and relevant fees. MobiFone will also return AVG the number of shares and assets transferred.