Inspection Conclusion No. 64/KL-TT Regarding Inspection of TNG Investment and Trading Joint Stock Company

Inspection Conclusion No. 64/KL-TT dated July 19, 2024, of the State Securities Commission Inspection regarding the inspection at TNG Investment and Trading Joint Stock Company.

On July 19, 2024, the State Securities Commission Inspection (SSCI) issued Inspection Conclusion No. 64/KL-TT regarding the inspection at TNG Investment and Trading Joint Stock Company (the Company/TNG). The full text of the conclusion is as follows:

In accordance with Inspection Decision No. 202/QD-TT dated May 8, 2024, regarding the inspection at TNG Investment and Trading Joint Stock Company (the Company/TNG), the Inspection Team conducted the inspection at the Company from May 17, 2024, to June 12, 2024.

Considering the Inspection Result Report dated June 17, 2024, from the Head of the Inspection Team, the State Securities Commission Inspection (SSCI) concludes the inspection as follows:

1. General Overview

TNG Investment and Trading Joint Stock Company, formerly the Bac Thai Garment Enterprise, was established on November 22, 1979, under Decision No. 488/QD-UB of the People's Committee of Bac Thai Province (now Thai Nguyen Province), with an initial capital of 659,400 dong. The Enterprise's products were children's clothing and labor protection gear according to the planning targets of the Provincial People's Committee. In 1997, the Enterprise was renamed Thai Nguyen Garment Company, entering into a joint venture with Duc Giang Garment Company, under the Vietnam Textile and Garment General Corporation, to establish Viet Thai Joint Venture Garment Company with a charter capital of 300,000,000 dong. The Company officially became Thai Nguyen Export Garment Joint Stock Company with a charter capital of 10 billion dong under Business Registration Certificate (BRC) No. 17030000036 dated January 2, 2003, issued by the Department of Planning and Investment of Thai Nguyen Province. On August 28, 2007, the Company changed its name to TNG Investment and Trading Joint Stock Company. On November 14, 2007, the Company was issued a Stock Listing Certificate by the Securities Trading Center (now the Hanoi Stock Exchange (HNX)). On November 22, 2007, TNG shares officially began trading on HNX, with the trading code TNG and a listed volume of 5,430,000 shares.

Currently, the Company operates under BRC No. 4600305723, amended for the 37th time on July 19, 2023, with a charter capital of 1,135,230,020,000 dong.

• Main business line: Garment manufacturing (excluding garments made from fur).
• Regarding shareholder structure and major shareholders: According to the shareholder list finalized by the Vietnam Securities Depository and Clearing Corporation (VSDC) on March 21, 2024, for the organization of the 2024 Annual General Meeting of Shareholders (AGMS), the Company has a total of 13,687 shareholders, owning 113,523,002 shares, including 04 major shareholders: Mr. Nguyen Van Thoi (owning 21,031,410 shares, accounting for 18.53%), Mr. Nguyen Duc Manh (owning 9,097,465 shares, accounting for 8.01%), Mr. Tran Canh Thong (owning 7,107,069 shares, accounting for 6.26%), Afc vf limited (owning 5,691,336 shares, accounting for 5.01%), and a group of related major shareholders (owning 6,498,576 shares, accounting for 5.72%).
• Subsidiaries and affiliated companies: The Company has 02 subsidiaries (TNG Land Joint Stock Company: 51.7% ownership; Bac Thai Investment and Construction Joint Stock Company: 70.5% ownership) and 01 affiliated company (Yen Binh TNG Golf Company Limited: 49% ownership). At the time of inspection, Bac Thai Investment and Construction Joint Stock Company was temporarily suspended from operations, and Yen Binh TNG Golf Company Limited had been dissolved.
• Production and business results of the Company: According to the audited consolidated financial statements (CFS) for 2022, 2023, and Q1/2024, the Company's net profit (NP) for 2022, 2023, and the first three months of 2024 were 292,996,521,233 dong, 219,442,316,421 dong, and 41,879,015,385 dong, respectively.
• Capital increase process from January 1, 2022, to present: From 2022 to the time of inspection, the Company had 02 rounds of share issuance to pay dividends and 01 round of share issuance under the Employee Stock Ownership Plan (ESOP) (Year 2022: issuance of 7,413,372 shares to pay dividends, increasing capital from 926,987,790,000 dong to 1,001,121,510,000 dong; and issuance of 5,005,607 ESOP shares, increasing capital from 1,001,121,510,000 dong to 1,051,177,580,000 dong; Year 2023: issuance of 8,405,244 shares to pay dividends, increasing capital from 1,051,177,580,000 dong to 1,135,230,020,000 dong).

2. Results of Inspection and Verification

2.1. Compliance with legal regulations on information disclosure (ID)

2.1.1. Regarding the process and organization of ID

• The Company has built and promulgated the Regulation on ID in accordance with Clause 1, Article 300 of Decree No. 155/2020/NĐ-CP dated December 31, 2020, detailing the implementation of some articles of the Securities Law (Decree No. 155/2020/NĐ-CP).
• The Company has established an electronic information page at the address: https://tng.vn/. The Company's electronic information page has a dedicated section for shareholder relations to perform ID.
• The person performing ID is Mr. Dao Duc Thanh, authorized by Mr. Nguyen Van Thoi – Legal Representative, to perform ID from March 11, 2024, under authorization document No. 92/GUQ-TNG.
• The Company performs ID through the SSCI's ID System, the HNX electronic information page, and the Company's electronic information page in accordance with Clause 4, Article 7 of Circular No. 96/2020/TT-BTC dated November 16, 2020, of the Minister of the Ministry of Finance guiding ID on the securities market (Circular No. 96/2020/TT-BTC).

2.1.2. Regarding compliance with legal regulations on ID

The Company basically performs its ID obligations according to regulations; however, there are some violations and shortcomings, specifically:

• The Company did not disclose information on time according to legal regulations for the following documents: Credit Contract No. 01/2022/469075/HĐTD dated August 15, 2022, and Credit Contract No. 01/2023/469075/HĐTD dated August 2, 2023, signed between TNG and the Bank for Investment and Development of Vietnam (BIDV) – Thai Nguyen Branch; Credit Contract No. 01/2022-HĐCVHM/NHCT220-TNG dated June 15, 2022, signed between TNG and the Joint Stock Commercial Bank for Industry and Trade of Vietnam (Vietinbank) – Thai Nguyen Branch, in accordance with Point b, Clause 2, Article 15 of Circular No. 96/2020/TT-BTC; Report on the status of interest and principal repayment for bonds in 2022 (code TNG122017), and CFS for Q1/2024 (code TNG122017), in accordance with Point c, Clause 2, Article 19 and Clause 2, Article 20 of Circular No. 96/2020/TT-BTC; Report on the status of use of proceeds from bond issuance for bonds with remaining debt audited by a qualified auditing organization in 2022 and the semi-annual period of 2023, and Report on the status of implementation of commitments by the issuing enterprise to bondholders in 2022 and the semi-annual period of 2023 (for the private corporate bond issuance round (code TNGH2023001)), in accordance with Clause 16, Article 1 of Decree No. 65/2022/NĐ-CP dated September 16, 2022, of the Government amending and supplementing some articles of Decree No. 153/2020/NĐ-CP dated December 31, 2020, of the Government regulating the offering and trading of private corporate bonds in the domestic market and offering corporate bonds to the international market (Decree No. 65/2022/NĐ-CP).

• ID did not contain full content according to legal regulations: The Corporate Governance Report for 2022 and 2023 did not contain full content according to legal regulations at Clause 1, Article 4 of Circular No. 96/2020/TT-BTC (did not record some Board of Directors (BOD) meetings, specifically: the meeting on September 25, 2023, regarding the advance payment of dividends from the 2023 net profit; the meeting on January 28, 2022, approving the portfolio of documents for registering the offering of bonds to the public; the meeting on April 13, 2022, approving the guidance for purchasing bonds to the public (code TNGH2226001); the meeting on July 26, 2022, approving the signing of contracts and transactions with related parties).

2.2. Compliance with legal regulations on corporate governance

2.2.1. Documents related to corporate governance (CG)

• During the inspection period, the Company amended its Charter 05 times and it was approved by the General Meeting of Shareholders (GMS) in accordance with Clause 1, Article 270 of Decree No. 155/2020/NĐ-CP.
• The Company has built and promulgated the Regulation on the operation of the BOD and it was approved by the 2021 Annual General Meeting of Shareholders in accordance with Clause 4, Article 278 of Decree No. 155/2020/NĐ-CP; the Company has built and promulgated the Regulation on the operation of the Audit Committee.
• The Company has built and promulgated the Internal Regulation on CG and it was approved by the 2021 Annual General Meeting of Shareholders in accordance with Clause 2, Article 270 of Decree No. 155/2020/NĐ-CP.

2.2.2. Person in charge of corporate governance

From May 5, 2022, to the present, Mr. Dao Duc Thanh has been the person in charge of CG according to BOD Resolution No. 1168/2022/NQ-HĐQT dated May 5, 2022. Mr. Dao Duc Thanh is simultaneously the authorized person for ID of the Company.

2.2.3. Regarding the operation of the BOD, Audit Committee, and Board of Directors

• Structure and operation of the BOD: At the time of inspection, the Company's BOD had 07 members, of which 02/7 BOD members were independent BOD members, and 4/7 members were non-executive BOD members. During the inspection period, the Company organized 52 BOD meetings (Year 2022: 30 meetings; Year 2023: 12 meetings; Year 2024: 10 meetings), with at least one BOD meeting held each quarter.

• Audit Committee (AC): The Company organizes management and operation according to the corporate governance model stipulated at Point b, Clause 1, Article 137 of the Enterprise Law, including: GMS; BOD and AC subordinate to the BOD, and the General Director. At the time of inspection, the Company's AC had 03 members, of which the Chairman of the AC was an independent BOD member; other members of the AC were non-executive BOD members, in accordance with Clause 2, Article 282 of Decree 155/2020/NĐ-CP. During the inspection period, the Company organized 09 AC meetings (Year 2022: 03 meetings; Year 2023: 04 meetings; Year 2024: 02 meetings).

• Board of Directors, Executive Board: At the time of inspection, the Company's Board of Directors and Executive Board had 09 people. Mr. Nguyen Duc Manh, General Director, has a family relationship with Mr. Nguyen Van Thoi, Chairman of the BOD, and does not meet the conditions stipulated at Point b, Clause 5, Article 162 of the Enterprise Law.

2.2.4. Regarding the organization of the GMS:

During the inspection period, the Company organized 03 meetings of the Annual General Meeting of Shareholders.

• Regarding the deadline for organizing the GMS: The Annual General Meetings of Shareholders for the years 2022, 2023, and 2024 were organized within a period of 04 months, from the end of the financial year, in accordance with Clause 2, Article 139 of the Enterprise Law.

• Regarding the record date for attending the GMS: The Company disclosed information on the electronic information pages of HNX and the Company, ensuring at least 20 days before the expected record date, in accordance with Point b, Clause 4, Article 11 of Circular No. 96/2020/TT-BTC and Clause 1, Article 273 of Decree No. 155/2020/NĐ-CP.

• Regarding the notice of meeting and meeting documents: The Company disclosed information on the electronic information pages of HNX and the Company regarding the documents for the Annual General Meeting of Shareholders, ensuring at least 21 days before the opening date of the GMS, in accordance with Point a, Clause 3, Article 10 of Circular No. 96/2020/TT-BTC.

According to the Company's report and the list of notices sent to shareholders confirmed by the Thai Nguyen City Post Office, the Company sent meeting notices in accordance with Clause 1, Article 143 of the Enterprise Law; however, the Company did not register for the return mail service.

• Regarding the conduct of the meeting and voting approval at the GMS:

According to the Company's report and the content of the working regulations for the Annual General Meeting of Shareholders for each year, all issues in the GMS program were approved by the method of raising voting cards. Each shareholder was issued one voting card, which recorded the number of shares entitled to vote (owned and proxy) of the shareholder and had the Company's hanging seal. With this voting method, the Company did not retain voting ballots at the GMS.

The Company must bear responsibility for the accuracy and truthfulness of documents related to the convening and approval of GMS results; and bear responsibility for shareholder complaints and lawsuits (if any).

2.3. Regarding the offering/additional issuance of securities

• During the inspection period, the Company implemented 02 rounds of share issuance to pay dividends (Round 1: issuance of 7,413,372 shares, implementation date June 8, 2022; Round 2: issuance of 8,405,244 shares, implementation date July 5, 2023); and 01 round of share issuance under the Employee Stock Ownership Plan (ESOP) (issuance of 5,005,607 shares, implementation date September 13, 2022).

• In 2022, the Company implemented 01 round of public bond issuance, bond code TNGH2226001 (number of issued bonds: 3,000,000 bonds, par value: 100,000 dong/bond, total issuance value: 300,000,000,000 dong, issuance date: May 16, 2022, maturity date: May 16, 2026, fixed interest rate: 10%/year, interest paid every 03 months). According to the Company's offering result report, the Company sold to 08 registered bond purchasers with a total quantity of 3,000,000 bonds.

The Company used the proceeds from the offering according to the plan approved by the BOD at Resolution No. 1362/2022/NQ-HĐQT dated May 23, 2022, regarding the adjustment of the purpose of use of proceeds in the public bond offering round. The report on the status of use of proceeds from the public bond issuance round was audited by Deloitte Vietnam Company Limited.

• During the inspection period, the Company did not implement private corporate bond offerings, but there were 02 rounds of private corporate bond offerings with maturities during the inspection period, specifically:

• Bond code TNG119007: total value 136,000,000,000 dong; term 03 years; issuance interest rate: 11.5%/year; issuance date: October 20, 2019; delisting and maturity date: October 25, 2022. According to the Company's report and documents provided by the Company, the Company transferred 139,976,195,890 dong, including principal payment for bond TNG119007 and interest payment for the final period (period 12), to the VSDC account for payment to bondholders.

• Bond code TNGH2023001: total value 150,010,000,000 dong; term 03 years; issuance interest rate: 10%/year; issuance date: September 30, 2020; maturity date: September 30, 2023. According to the report sent by the Company to HNX, the bondholders, and the confirmation from Vietinbank-CN Thai Nguyen, the Company has completed the obligation to pay principal, interest, and fees for Bond TNGH2023001.

3. Conclusion

During the inspection period, the Company basically complied with securities legal regulations regarding the content of the inspection. However, the Company still had some violations and shortcomings as stated in Section 2 of the Inspection Conclusion.

4. Handling measures applied within competence

Based on the Administrative Violation Record No. 213/BB-VPHC dated June 12, 2024, established between the Inspection Team and the Company, on June 20, 2024, the SSCI issued Decision No. 250/QĐ-XPHC imposing administrative penalties on the Company.

5. Recommendations for handling measures

The SSCI requests the Company to urgently take measures to rectify and overcome the following shortcomings after the inspection, specifically as follows:

• Regarding ID obligations: Strictly comply with regulations on ID, ensuring information is disclosed fully, accurately, and on time according to regulations; rectify full ID for the Corporate Governance Report for 2022 and 2023 according to regulations;
• Regarding corporate governance: Strictly comply with enterprise law and securities law regulations regarding the convening and organization of GMS meetings, voting, and approval of GMS resolutions; implement sending meeting notices by methods to ensure delivery to the shareholder's contact address; ensure retention of voting ballots at the GMS meeting; comply with regulations on conditions and standards for appointing the General Director/Director according to the Enterprise Law.

The SSCI requires the Company to implement the rectification and remedial measures immediately after the inspection within a period of 30 days from the date of signing the inspection conclusion. The result report must be sent to the SSCI within 05 days from the end of the rectification and remediation period.