Multiple ministries responsible for 'illegal' state telco acquisition of pay TV firm: watchdog

By Staff reporters   March 15, 2018 | 06:47 pm PT
Multiple ministries responsible for 'illegal' state telco acquisition of pay TV firm: watchdog
AVG’s value is less than VND2 trillion. Photo by VnExpress
The state lost over $310 million after MobiFone valued eight times over the odds for a 95 percent stake in AVG.

Vietnam's top watchdog has announced the findings of its investigation into state-run MobiFone’s acquisition of pay TV firm AVG, which caused a loss of over $310 million to the state.

According to the Government Inspectorate, the Ministry of Information and Communications had violated the Investment Law by approving MobiFone’s acquisition of AVG without the Prime Minister’s approval.

The ministry approved the deal despite the fact details of the price of the 95 percent stake in the TV operator and the project’s investment efficiency had not been fully assessed, the inspectorate added.

The ministry reported to the Prime Minister and relevant agencies that 30 percent of funding for MobiFone’s acquisition of AVG was expected to come from the telco’s own equity, and the rest from loans. However, funding for the project was not clearly identified when the ministry approved the acquisition. In fact, 100 percent of funding for the acquisition came from MobiFone’s own equity.

The ministry had acted irresponsibly and approved the acquisition without a legal basis, violating the law and causing huge losses to the state, the watchdog concluded.

The deal was not a state secret, but the Ministry of Information and Communications asked the Ministry of Public Security to treat as such, and also asked the latter for its input on the deal, which was not under its jurisdiction. This again had violated the law, the inspectorate said.

The Ministry of Planning and Investment, the Ministry of Finance, the Ministry of Public Security and the Government Office were also responsible for a number of wrongdoings relating to MobiFone’s acquisition of AVG.

The Government Inspectorate has asked the Prime Minister to instruct the Ministry of Public Security to investigate the case.

Huge loss

According to the inspectorate, the real value of the private pay TV operator Audio Visual Global JSC, better known as AVG, is less than VND2 trillion. But Vietnam's third largest telco MobiFone negotiated the AVG acquisition deal at VND16.565 trillion, as estimated by investment consultants AMAX.

In evaluating AVG, AMAX failed to calculate its outstanding loans of over VND1.13 trillion, and used incorrect input data to evaluate its tangible assets not recorded on the balance sheet, which raised the company's value by over VND13.4 trillion.

Consequently, MobiFone spent VND8.89 trillion on the 95 percent stake in AVG instead of VND1.9 trillion, causing a loss of VND7 trillion to the state, said the inspectorate.

MobiFone deliberately violated state regulations by selecting the consultant to calculate AVG's value. The telco chose AMAX from three potential consultants because it was the cheapest and did not follow the required bidding process, the inspectorate concluded.

The anti-corruption watchdog also found MobiFone had shown negligence by accepting the AMAX valuation, which it said was biased, illegal and groundless.

MobiFone and AVG have already decided that the state-run telco should withdraw its entire investment from AVG.

The move came after Vietnam’s Communist Party instructed the government to look into MobiFone’s acquisition of AVG following reports of violations by inspectors last Friday.

In early 2016, MobiFone captured public attention by announcing it was breaking into the pay TV market through the acquisition of a 95 percent stake in AVG, without revealing any information about the deal.

In August 2016, the Vietnamese government ordered an across-the-board inspection into the acquisition.

Deputy Prime Minister Truong Hoa Binh directed the Government Inspectorate and relevant agencies to start the investigation, saying any violations would be subject to a criminal probe.

"The acquisition is a big investment for the company [MobiFone], so it should be looked at carefully," Mai Tien Dung, chairman of the Government Office, said at the time.

Any organization or individual who unlawfully takes advantage of their position or authority for personal gain will be strictly punished according to the law, and this will be publicized, Dung added.

The Government Inspectorate, the country's top watchdog, announced it had launched a probe into MobiFone in September 2017.

MobiFone was hoping the acquisition would help it rival other giants Viettel and VNPT, both already present in the pay TV market.

The company had set a target of luring one million customers to its television service in 2016 and becoming one of the three biggest pay TV providers in Vietnam by 2020.

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