Inspectorate proposes prosecution of MobiFone over AVG acquisition

According to the conclusions of the Government Inspectorate in Document No.355/KL-TTCP issued on March 14, the actual financial status and business activities of AVG since its establishment to the time it was acquired by Mobifone were very bad.

Its total assets were over VND3.26 trillion ($143.6 million), including VND1.267 trillion ($55.8 million) of payables and VND208.6 billion ($9.2 million) of the remaining value of fixed assets. The company was constantly in the red, accumulated losses of VND1.633 trillion ($72 million) from the establishment to March 31, 2015, equivalent to 45 per cent of AVG’s charter capital.

AVG’s capital from the audio services business line mainly came from loans. This company poured VND2.473 trillion ($109 million) into capturing up to 68 per cent of the charter capital in Mai Linh Silk Worm Seed JSC (SSJC Mai Linh) 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. Additionally, the information on the deals was obscure, but MobiFone still bought these two investments.

In Mobifone’s proposal submitted to the Ministry of Information and Communications (MIC) to invest into AVG, Mobifone misrepresented AVG’s financial status to the degree that it made a positive assessment: “The revenue of AVG from 2012 to 2014 increased, along with gross profit and all other indicators.”

Misrepresenting information is a violation of Article 9 of Law No.69/2014/QH13 on the management and utilisation of state capital invested in enterprises.

Mobifone’s irresponsible choice of the appraisal agency, negligence in checking the appraisal results, and relying on them to conduct the acquisition amount to a serious violation of the law.

Although AVG’s valuation was not objective and reliable—not to mention that it violated appraisal standards, Mobifone accepted the results, which showed the irresponsibility of MobiFone. Meanwhile, the cost for consultancy services was high at VND3.19 billion ($140,000) in the contract, of which Mobifone paid VND1.54 billion ($68,000).

Mobifone used the VND16.565 trillion ($730 million) price appraised by AMAX to negotiate and purchase 95 per cent of AVG’s shares. This figure included payable debts of VND1.134 trillion ($50 million). In fact, after excluding intangible assets of VND13.448 trillion ($592.5 million) and payable debts of VND1.134 trillion ($50 million), the equity of AVG was only VND1.983 trillion ($87.4 million) on March 31, 2015.

However, MobiFone acquired 95 per cent of AVG at VND8.889 trillion ($392 million)—a highly inflated price which caused a loss of about VND7 trillion ($309 million) to state capital in MobiFone, including AVG’s payable debts of VND1.134 trillion ($50 million).

During the share purchase MobiFone did not exclude AVG’s two investments outside the television sector (SSJC Mai Linh and An Vien BP), which was not in line with the directions of MIC.

In addition to the wrongdoings in formulating and submitting the acquisition proposal to MIC, MobiFone also violated regulations on share transfer contracts and payment for stake purchases and related costs.

In the agreement, MobiFone committed to provide financial assistance for AVG to pay debts of a total of VND1.094 trillion ($48.2 million). This commitment was not in conformity with the investment policy approved by MIC. MobiFone used 100 per cent of its equity to invest and resulted in a loss of VND1.3 billion ($57,270) in corporate income tax for the state budget.

As a result, MobiFone’s violations caused financial damages of VND7.006 trillion ($309 million) to the state capital in the company, as well as heavily impacted the business results in 2016 and the next years. MobiFone’s profit from financial activities in 2016 was reduced by VND321.7 billion ($14.14 million) and the accumulated damages up to December 31, 2017 were VND1.983 trillion ($87.36 million).

Based on the conclusions of the inspectorate, the chairman and the members of the Board of Directors, general directors, deputy general directors, the chief accountant, as well as relevant divisions will be subject to penal review and punished according to the law.