Inspectorate recommends handing over MobiFone's AVG purchase case file to investigation agency

On the afternoon of March 14, the Government Inspectorate announced the conclusion of a comprehensive inspection of the Mobifone Telecommunications Corporation project.bought 95% of shares of Global Audio Visual Joint Stock Company (AVG).

Accordingly, the opinionThis is a very serious economic case. The Government Inspectorate recommends that the Prime Minister assign the competent investigation agency of the Ministry of Public Security to receive all records and documents to inspect the above project.to review, investigate, prosecute, and handle the right people, the right violations, and the right law...

The project has a total investment of 8,900 billion VND.

The Government Inspector said, tImplementing the direction of the Standing Secretariat and the Prime Minister, this agency has inspectedcomprehensive compliance with legal regulations during the implementation of the above project,includes all stages in the project implementation process: Investment proposal, investment project preparation; submission and approval of investment project; project implementation and investment efficiency.

The above project has a total investment of 8,900 billion VND, according to legal regulations.The Prime Minister decides on investment policies; the Ministry of Information and Communications (MIC) is the agency representing the state capital owner in enterprises, with the authority to review and approve investment projects.

AVG continues to lose money

The inspection conclusion stated clearly, qInvestment project implementation process, Mobifonewas irresponsible and violated in proposing investment projects, especially in assessing the financial and business situation of AVG Company.

The financial situation and business activities of AVG from its establishment to the time of determining the enterprise value for the purchase and sale of shares were very difficult. At the time of determining the enterprise value on March 31, 2015, it was very bad, with total assets of more than VND 3,260 billion; liabilities of more than VND 1,266 billion; the remaining value of fixed assets of about VND 208 billion.

From its establishment to the time of valuation, AVG continuously suffered losses, with accumulated losses up to March 31, 2015 being more than VND 1,632 billion (equal to 45% of charter capital)...

In addition, AVG uses capital for television service business mainly in the form of loans and appropriated capital; capital invested outside the enterprise accounts for a large proportion; as of March 31, 2015, investment outside the enterprise was more than VND 2,659 billion, accounting for 73.3% of charter capital.However, when reporting the investment proposal to receive AVG shares and prepare the investment project to submit to the Ministry of Information and Communications for approval, MobiFone reported dishonestly, incompletely, and incorrectly assessed the very bad financial situation of AVG, even positively assessing AVG's financial and business situation.

“From 2012 to 2014, AVG's revenue increased, gross profit is gradually increasing (although it is still at a loss as planned), all indicators show growth,” the inspection conclusion quoted MobiFone's assessment.According to the Government Inspectorate, this assessment is a violation of regulations on prohibited acts in the field of investment, management and use of state capital in enterprises. The responsibility belongs to the Board of Directors, Chairman and members of the Board of Directors of Mobifone.

AVG valuation results of consulting units are not objective

The Inspectorate also concluded that this unit violated and lacked responsibility in selecting valuation consultants; accepting valuation results; and using enterprise valuation results in negotiating the purchase of AVG shares.

Specifically, Mobifone selected Vietnam Joint Stock Commercial Bank for Foreign Trade Securities Company Limited (VCBS) and transferred the request file to this unit before issuing the request file, violating the prohibited acts stipulated in the Law on Bidding.

This unit also selected AMAX Investment Consulting and Valuation Company Limited (AMAX) but did not follow the bidding process; the responsibility belongs to the Network Development Board, the Investment Board, the Expert Team evaluating the proposal documents and the General Director of Mobifone. Along with that, according to the Government Inspectorate, the results of the AVG valuation by the consulting units were not objective, did not ensure legal basis and reliability; violated the regulations on valuation standards; and incorrectly limited many important contents.

When negotiating the share purchase price, Mobifone used the valuation result determined by AMAX to value AVG at VND16,565 billion to negotiate the share purchase price without deducting the payable debts of VND1,134 billion. This alone caused a loss of VND1,134 billion. When purchasing AVG shares, MobiFone did not exclude AVG's two investments outside the television sector with a total amount of more than VND2,473 billion, which is not in accordance with the direction of the Ministry of Information and Communications.

"Intentionally violating regulations"

With the conclusion that Mobifone was irresponsible and violated regulations in preparing and submitting investment projects, the Government Inspectorate also cited detailed evidence. Specifically, when choosing an investment plan, Mobifone did not conduct a survey, did not select a unit specializing in television services to advise on the business plan, and did not develop a new investment plan for comparison.

In planning the investment project, Mobifone was clearly aware of the two core issues: the purchase price of AVG shares and investment efficiency. However, the forecasts made on the number of pay TV subscribers, revenue, cost of capital, interest expenses, profits, etc. were mainly based on assumptions and lacked feasibility.

This unit used the AVG valuation result conducted by AMAX, which was VND16,565 billion, as the basis for negotiating with AVG shareholders on the share purchase price, without any basis for comparison. However, when preparing the investment project, MobiFone still assessed that "the plan to buy back shares from Global Audiovisual Joint Stock Company is superior to the plan Mobifone invested itself". Next, this unit still prepared and submitted the project to the Ministry of Information and Communications for approval.

According to the Inspectorate, this shows a lack of responsibility and intentional violation of regulations. The responsibility lies with the Board of Directors, the Board of Management and related departments of Mobifone.

Risk of damage of about 7,006 billion VND

The inspection conclusion stated that Mobifone also violated the signing of agreements and contracts for share transfer, payment for share purchase and costs related to the project.

According to the Government Inspectorate, Mobifone's use of 100% of its equity capital to invest in the project is inconsistent with the content of the investment project reported to the Ministry of Information and Communications (30% equity capital, 70% loan capital).

“The payment period for the AVG share transfer contract was 19 days (from December 28, 2015 to January 15, 2016), which showed signs of abnormality,” the Inspection report stated.

In the conclusion, the Government Inspectorate also pointed out that the above violations, violations of regulations, and lack of responsibility of Mobifone pose a serious risk of causing damage to the State's capital at Mobifone of about 7,006 billion VND.

Violations of the Ministry of Information and Communications

The Government Inspectorate pointed out that the Ministry of Information and Communications, with its role and responsibility as the agency representing the state capital owner in enterprises and state management of information and communications, is responsible for reviewing and deciding to approve the project.

Although the investment project has not been approved by the Prime Minister, the Ministry has issued a decision approving Mobifone's television service investment project.

The inspection conclusion mentioned 4 frequency channels that the Ministry of Information and Communications granted to AVG to pilot the "Investment project to build digital transmission and broadcasting infrastructure and develop digital pay-TV entertainment activities" in association with Binh Duong Provincial Radio and Television Station (approved by the Prime Minister for pilot implementation).

According to the provisions of the Law on Radio Frequencies, these 4 frequency channels are national resources with high commercial value; when assigned to units for use and exploitation, they must be auctioned or selected for the right to use radio frequencies to collect money for the state budget, but the Ministry of Information and Communications did not withdraw them to organize an auction or select for the right to use, but instead proposed that the Prime Minister "allow Mobifone to continue using the 44 frequency channels granted to AVG to serve the business activities of television and telecommunications services".

Although not approved by the Prime Minister, the Ministry has allowed Mobifone to continue using these four frequency channels, which is a violation of the Radio Frequency Law.

Because there was no auction and no valuation, the damage could not be determined (according to AMAX's valuation, the value of the 4 frequency channels is over 112 million USD, equivalent to 2,429 billion VND).

According to the conclusion of the Government Inspectorate, the purchase price of 95% of AVG shares and investment efficiency are two important factors. In the project appraisal report and documents sent to the Prime Minister and the Ministry of Planning and Investment, the Ministry of Finance, although the Ministry of Information and Communications still had concerns and had requested assistance many times, although it had not been clarified, the Ministry still submitted the project investment policy to the Prime Minister for approval and decided to approve the investment project.

From the above conclusions, the Government Inspectorate pointed out that the Ministry of Information and Communications was irresponsible in appraising the Project; approving the investment project without ensuring legal basis, violating the provisions of the law, causing serious damage to State capital, and needs to be reviewed and canceled.

Mobifone's acceptance of the transfer of 95% of AVG shares is not a state secret, but the Ministry of Information and Communications has sent a document requesting the Ministry of Public Security for comments and has listed this transaction as confidential, which is not in accordance with regulations.

The Ministry of Information and Communications requested the Ministry of Public Security to give opinions on many issues that are not under the state management of the Ministry of Public Security, even under the fields of specialized management ministries (on investment policies, investment procedures and processes; on the issue of share purchase prices, investment efficiency of projects...) to seek opinions from the Ministry of Public Security, which is not in accordance with the provisions of law.

Therefore, the Ministry of Information and Communications cannot base on the opinion of the Ministry of Public Security to claim that it has complied with the instructions of competent state agencies.

When the Government Inspectorate sent a document requesting the Ministry of Information and Communications to consider and decide according to its authority prescribed by law on declassification or continued confidentiality, the Ministry of Information and Communications did not do so and at the same time requested the Government Inspectorate to report and ask for the Prime Minister's opinion, which is not in accordance with regulations.