Following the relaxation of procedures for foreign investment under the new laws on Investment and Enterprises, the government has also relaxed the limits for foreign investment portfolios in a decree.
The decree also provides for the equitisation of state owned enterprises (SOEs), and this action is expected to attract more share acquisition in stock markets soon, as well as private equity. Previously, a foreign investor could purchase up to 49 per cent of the total shares in a public joint stock company (JSC) or a listed company. From September 1 2015, this general restriction will be removed under Decree 60/2015/ND-CP, dated June 26, 2015.
What will fill the void of the repealed law?
In the absence of this, new restrictions will be subject to World Trade Organization commitments or other specific domestic laws. If there is a certain restriction under domestic law that has yet to be specified, then the rule of thumb is 49 per cent. When there is no restriction under domestic law (for example, for production companies, or distribution companies), then there is no limit for the foreign shareholding ratio. This rule also applies to equitised SOEs, with the aim of attracting more foreign investment in the privatisation programme.
As for securities companies (or investment banking), those who are eligible to establish 100 per cent foreign owned securities companies are allowed to buy up to 100 per cent equity of local securities companies. Those who are not eligible can acquire up to 51 per cent total shares. Decree 60 also lifts all restrictions on foreign investors in regards to bond investments. With respect to share certificates or derivative products of JSCs’ stock, the restriction will be relaxed as mentioned above. For this purpose, open funds or securities funds that have foreign shareholding at more than 51per cent equity will be deemed foreign investors.
Decree 60 also addresses a myriad of other issues: the private placement of public companies, the share swap of public companies, public offering of shares in public companies for swapping shares in non-public companies, equity in limited liability companies, private placement filing at the State Securities Commission (SSC) for public companies, the public offering process, the use of an escrow account for public offering proceeds, public offering of investment certificates or shares abroad, redeeming shares, tendering offers, the sale of treasury shares, the listing of merged or amalgamated companies, upcom transaction registration and listing, real estate capital valuation, and contributions to real estate investment funds.
Opening the door to and creating more options for foreign portfolio investment, along with the deregulation of various procedures at SSC, are certainly attractive factors to foreign investors. However, it is unclear how other restrictions under such different ministries as Health, Education an Training, and Industry and Trade may impact the government’s intention to open the market. It should also be noted that Article 74.3 of the Law on Investment allows for the “non-compliant” restriction of business to be valid until July 1 2016, suggesting there could be more grounds for more clarification to come.
By Dr. Le Net Partner, LNT & Partners