The requirement was mentioned in a new regulation on the management of State corporations’ finance and State investment in those areas beyond their core line of business that the Government made public recently. The legislation will take effect as from March 25, 2009.
Under the legislation, State corporations are allowed to proactively mobilise capital to support their production but only when their debt is not to exceed their charter capital by three times.
While the 41-page regulation mandates that a State corporation’s total investment in other businesses, including long-term and short-term investments, does not surpass its charter capital, it also permits State corporations to determine the methods of investment they wish to make in other business operations.
State corporations are allowed to contribute capital to banking, insurance and securities businesses but their investment is required not to surpass 20 percent of those businesses’ charter capital. In case they want to increase their stake, these corporations need to submit their proposal to the Prime Minister for consideration and approval.
However, State corporations are forbidden from contributing money to and buying holdings in risk investment funds, securities investment funds, and securities companies. They are also not allowed to buy shares of enterprises where managers, directors and major shareholders have blood-relations with their directors.
Those State corporations which had invested in the areas beyond their core business with investment being higher than the required level, or contributed capital to risk investment funds, securities investment fund or securities companies are required to adjust those investment levels within two years since the day this regulation takes effect.
In addition to clearly defining the authority, obligations and responsibilities of the management board, general director and directors in managing their corporations’ finance, and related works, the new regulation also requests that State corporations should take 10 percent from their net profit to send to their own financial contingent fund.