HCM City wants to share profits with Phu My Hung
HCM City wants to share profits with Phu My Hung
The operator of the high-end urban area Phu My Hung has contributed $18 million to the Phu My Hung joint venture, but the Vietnamese party has not shared the profits.
In a petition to the Ministry of Planning and Investment, the HCM City People’s Committee said that in some cases in which state-owned companies cooperated with foreign enterprises in joint venture firms, they did not share profits although the joint ventures earned big profits for many years.
The reason was that the ownership rate of the State firms in joint venture companies was too small, so they could not decide on the distribution of profits.
The Phu My Hung Development Co., Ltd is a joint venture between the Central Trading & Development Corporation of Taiwan and Tan Thuan Industrial Development Company Limited, a State-owned firm under the management of HCM City authorities.
The legal capital of the joint venture company is $60 million, including $18 million contributed by the Vietnamese partner, accounting for 30%, and $42 million of the Taiwanese firm, accounting for 70%.
According to the report, Phu My Hung Development Limited operated well in 2010-2014 and earned high profits. The Vietnamese side has many times asked the partner for profit sharing but without the right of control. The company has not made a decision.
The Council of Phu My Hung Development Co. decided not to distribute profits to the capital contributors. The estimated profit for the Vietnamese partner is about VND1.444 trillion (about $68.7 million).
HCM City authorities asked the Ministry of Planning and Investment for amending the regulation on profit sharing in the cases of joint ventures between State-owned enterprises and foreign partners.
Accordingly, it should be specified that joint venture enterprises must share profits on an annual basis after paying taxes and other financial obligations as prescribed by law, and guarantee the payment of all debts and other due assets obligations after profit sharing.
A representative of Phu My Hung Development Co., Ltd said that as stipulated in Article 61 of the Law on Enterprises 2005, joint venture companies only distribute profit to members if they do business at profit, fulfil taxes and other financial obligations and guarantee the payment of all debts and due asset obligations after profit sharing. The company had to pay nearly VND6 trillion ($300 million) of land-use right fees before selling products.
"If the company shares profits with members, it will have to borrow from banks to cover this amount, with an interest rate of about 10% a year. This will reduce the company’s profits, plus with the current loans, the interest burden would be too great. In addition, it is unable to borrow such a huge loan," the representative said.
According to the representative, even the foreign partner in the joint venture, Phu My Hung Asia Holdings (PMH AH), which holds up to 70% of legal capital, also will not receive profit sharing, but with conditions that the Vietnamese member in the JV will not also share profits.
Therefore, the member council voted to not share profits for the years 2010-2012 in its meeting on May 8, 2014.
