(Bloomberg) -- Shareholders in Coteccons Construction JSC, one of Vietnam’s largest publicly traded builders, are calling for a board overhaul and an independent forensic audit of the company’s contracts amid claims the business is riven by conflicts of interest.

The push is being spearheaded by Coteccons’ largest shareholder Kustocem Pte., which is part of the Singapore-based Kusto Group Pte. co-founded by Kazakh businessman Yerkin Tatishev. It’s also supported by Singapore hedge fund Vahoca Pte., with the firms owning about 29% of the company between them.

Activist investing campaigns are relatively rare in Vietnam, where foreign ownership caps on some public companies can stop overseas investors from exerting full control. Coteccons’ share price has dropped by 39% over the past year, five times the decline in the benchmark index, amid falling profits and sales. Coteccons fell 6.4% Wednesday after news of the activist campaign went public.

The company didn’t provide a response to calls and written requests for comment.

In the letter sent to Coteccons in late April, Kustocem said an extraordinary shareholder meeting was needed to vote on the measures despite the ongoing Covid-19 pandemic and existing plans for an annual meeting in June.

Senior directors and managers are now “in the conflicts of interest situation that create existential risks on Coteccons’ business and long-term sustainability,” Kustocem Pte. wrote in the letter seen by Bloomberg.

Kustocem said Chairman Nguyen Ba Duong, Chief Executive Officer Nguyen Sy Cong and deputy CEO Tran Quang Quan are also directors at Ricons Construction, a separate construction company and subcontractor in which Coteccons owns a stake, which Kuatocem said made it unclear how bids were decided and how profits were allocated between the two companies. All three were directors at Ricons as of December 31, according to filings on the company’s website.

In its letter, Kustocem called for the current board -- which includes Tatishev -- to be replaced by five members from a list of candidates nominated by Coteccons’ eligible shareholders. It also said the detailed audit of work and deals done since January 2017 would preferably be done by “well-known international consultants.”

Amicable Attempt

Kusto Vietnam CEO Bolat Duisenov said Coteccons’ board of directors had rejected the request for an extraordinary meeting, forcing it to go to the Vietnam Securities Depository for a complete list of the company’s shareholders. It’s also contacted regulators seeking their support to run an EGM without the cooperation of Coteccons executives.

“In the beginning we tried to solve this very amicably, in a very silent way,” Duisenov said. Since then there’s been little traction and a loose coalition of investors representing about 40% to 50% of Coteccons shares were now in favor of Kusto’s requests, he added. “It would be a very bad reputational issue if the government bodies cannot support us.”

Vahoca Pte founder Herwig van Hove said that if the EGM push was unsuccessful, shareholders could skip the annual meeting, so the company may fail to reach the minimum number of investors needed for it be valid.

Needs Investors

“I think we can count on more than 50% of shareholders,” he said. “Vietnam is growing fast but an important factor to its growth is the foreign-backed investments it receives.”

Tony Foster, a Hanoi-based managing partner for law firm Freshfields Bruckhaus Deringer LLP, said it’s difficult for minority and overseas shareholders to put effective pressure on the boards of Vietnamese companies despite government attempts to woo foreign investment with promises of improved corporate governance.

“If you’re trying to challenge the controlling shareholders and you don’t have the ability to appoint the chairman, the general director and the majority of the board you’re going to have a very hard time,” he said.

(Updates with share price in third paragraph)

©2020 Bloomberg L.P.