Lawyer in Vietnam Oliver Massmann Lifting Foreign Ownership Limits in Public Listed Companies

1. www.duanemorris.com
©2010 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP.
Duane Morris – Firm and Affiliate Offices | New York | London | Singapore | Los Angeles | Chicago | Houston | Hanoi | Philadelphia | San Diego | San Francisco | Baltimore | Boston | Washington, D.C.
Las Vegas | Atlanta | Miami | Pittsburgh | Newark | Boca Raton | Wilmington | Cherry Hill | Princeton | Lake Tahoe | Ho Chi Minh City | Duane Morris LLP – A Delaware limited liability partnership
OLIVER MASSMANN - Partner, General Director
DUANE MORRIS VIETNAM LLC
VIETNAM SCRAPS FOREIGN OWNERSHIP
LIMITS IN INVESTMENT
How much you know & What you can do?
1

2. www.duanemorris.com
AGENDA:
• INVESTMENT LAW, ENTERPRISE LAW AND THEIR
IMPLEMENTING DECREES – WHAT IS NEW?
• FOREIGN EQUITY CAP LIFITED UNDER DECREE NO.
60/2015/ND-CP
• CONCLUSION
2

3. www.duanemorris.com
Vietnam 2014 Economy at a glance
• GDP: US$187.5 billion
• GDP per capita: US$2,028
• GDP Growth: 5.98 %
• Inflation: 4.09%
• Population: About 90.73
million
• Labor force aged 15 and above:
54.48 million
• Total export and import
turnover: : US$ $298 billion
• Minimum wage: VND 2.7
million (US$ 147) per month
(Jan 2015)
3

4. www.duanemorris.com
Vietnam has the fastest-growing middle and affluent
class in the region (Boston Consulting Group)
4

5. www.duanemorris.com
WTO analysis of liberalization of market access
Vietnam ties in first place with Singapore
• *Typical restrictions: number of opened sectors, JV
requirement, limits on foreign-owned shares, permission
requirement
5
Country Limitation of
market access*
Country Limitation of
market access*
Malaysia medium Myanmar high
Indonesia medium Cambodia medium
Philippines medium Laos medium
Singapore low India high
Thailand medium China medium
Brunei high Vietnam low

6. www.duanemorris.com
Investment environment in Vietnam
• Main governing laws: Investment Law, Enterprise Law and their
implementing documents
• Forms of doing investment in Vietnam:
– Economic entity establishment;
– Business cooperation contract: a contractual arrangement
between two or more investors without creating a legal entity
– Public-Private Partnership; a contractual agreement
between competent state authorities and investors, an
enterprise project in order to implement an investment
project;
– purchase of shares or capital contribution.
6

7. www.duanemorris.com
Investment environment in Vietnam
• Forms of enterprises in Vietnam
– Limited liability company: members are liable to the extent of their
capital contributed
– Shareholding Company: charter capital (authorized share capital) is
divided into shares and members are liable to the extent of their capital
contributed
– Partnership: established between two or more partners;
– Business Cooperation Contract: an agreement without constituting a
legal entity and each party is individually responsible for paying taxes.
– Branch: a branch of a foreign company permitted to conduct
commercial activities
– Representative Office: represents the parent company, no actual
business operations. A suitable tool for market research
7

8. www.duanemorris.com
Definition of foreign investor
• New Investment Law: Very simple definition!
Foreign investor is any foreign individual or
organization incorporated under foreign law doing
business investment activities in Vietnam
8

9. www.duanemorris.com
Foreign investors – Who are they?
• Foreign nationals and foreign corporate entities
• Foreign Invested Economic Organizations (FIEO):
those whose members or shareholders are foreign
investors
• FIEO under the M&A rules: narrower scope (see
next slide)
9

10. www.duanemorris.com
FIEO under the M&A procedures
10
A
Offshore Investor
F1
Company in Vietnam
with 51%+ ownership
by A
F2
Company in Vietnam
with 51%+ ownership
by F1
F3
Company in Vietnam
with 51%+ ownership by
A and F1
F1, F2 and F3 are considered
as FIEO and subject to
investment requirements
applicable for Offshore
Investor
Others: subject to
requirements applicable for
domestic investor

11. www.duanemorris.com
• Prohibited business activities:
– Trade in the narcotic substances as specified;
– Trade in the chemicals and minerals as specified;
– Trade in specimens of wild flora and fauna as specified in Appendix
1 of Convention on International Trade in Endangered Species of
Wild Fauna and Flora; specimens of rare and/or endangered species
of wild fauna and flora as specified;
– Prostitution;
– Human trafficking; trade in human tissues and body parts;
– Business pertaining to human cloning.
• Freedom to conduct business activities not prohibited by law
 less risk in doing business
Prohibited business activities
11

12. www.duanemorris.com
Investment procedure
• Under the Investment Law and Enterprise Law: 2 separate steps - Application for
Investment Registration Certificate (“IRC”) and Application for Enterprise Registration
Certificate (“ERC”)
• Step 1: IRC
– IRCs for projects required to obtain preliminary approval of the National Assembly/ People’s
Committee are issued within 05 working days upon issuance of such approval
– For other projects, IRCs are issued within 15 days (instead of 35 days as in the old law) upon
receipt of the application dossier
• Step 2: ERC
– Submit an application dossier to the licensing authority upon issuance of the IRC
– ERCs are issued within 03 working days upon receipt of the application dossier
• Under recent Decree guiding the Investment Law: 2 steps can be combined and
application dossiers for IRC and ERC can be submitted at the same time to the
investment registration authority only.
• The IRC and ERC will be given to the investors at the same time at the investment
registration authority.
12

13. www.duanemorris.com
M&A procedures for foreign investors
• Appears to be simple!!! Only registration required, no more IRC
 Satisfying the requirements for investment
 Submitting application dossier
 Assessment by the licensing authority and decision making after 15 days
• Subjects:
 foreign investors making investment in conditional business activities for
foreign investors;
 F1, F2 or F3 holding 51% or more of the targeted economic enterprise after
the M&A
 Exclusion: Company other than F1, F2 and F3:
 Registration to amend the ERC (for LLCs)
 Notification of the change in foreign shareholders (for JSCs)
13

14. www.duanemorris.com14

15. www.duanemorris.com
FOREIGN EQUITY CAP LIFTED IN
PUBLIC COMPANIES
15

16. www.duanemorris.com
Rules on foreign ownership in a listed company
• If Vietnamese law, including international treaties, provides for a specific
ownership cap, the maximum foreign ownership (MFO) must not exceed such a
cap.
• If Vietnamese law treats a business activity as conditional on foreign investment
(pursuant to the list of conditional sectors under the Investment Law) but does
not yet provide any ownership limit, MFO must not exceed 49%.
• If Vietnamese law provides ownership limit for public companies in specific
business sectors (for example, 30% for banking), MFO must not exceed such
limit.
• If a public company conducts different business activities in which MFOs have
been provided differently, the MFO will not exceed the minimum ratio specified
in relation to the business activities which such company is conducting, unless
otherwise stipulated in any applicable international treaty
• In cases that do not fall within the above 4 groups, MFO can be up to 100%.
16

17. www.duanemorris.com
Positive effects of the relaxed foreign equity cap
• Foreign investors are no longer restricted from investing in public
listed companies
• More investment opportunities for foreign private equity investors
to invest in majority stakes in companies. However, the
Government still takes certain control over conditional business
sectors where MFO is still limited in the Investment Law and the
company’s charter (if any).
• Enhance market liquidity and capitalization levels.
• Easier to find strategic investors (lessons learned from recent failed
IPOs of Vietnam Airlines and other big companies).
• Accelerate companies’ restructuring and equitization of state-
owned enterprises17

18. www.duanemorris.com
How the new foreign equity cap be
implemented until now
• MFO in public securities companies and fund management
companies (up to 100%) can be implemented immediately
without further guiding documents
• Circular No. 123/2015 guiding the procedures to
implement the MFO in securities companies has been
issued on 18 August 215 and takes effect from 01 October
2015. However, the MPI has not issued any document
guiding the specific MFO in other conditional business
sectors.  foreign investors now cast certain doubts about
the implementation feasibility of Decree 60.
18

19. www.duanemorris.com
But MFO is not the only hindrance for foreign
investment …
• Limited stakes offered for sale in state-owned
enterprises, especially large SOEs (only 3-5%)
• Financial statements not in compliance with
international accounting and auditing standards 
difficulties for investors to evaluate the real value of
the target company
• Lack of transparency in company management
19

20. www.duanemorris.com
What steps investors should take to determine MFO in
a target company
• Step 1: Whether the MFO in business activities of the target company
is specified in international treaties to which Vietnam is a party (for
example, WTO, TPP)
– If Yes: such cap applies
– If No: move to Step 2
• Step 2: Whether the MFO in business activities of the target company
is specified in the Investment Law, on the National Information Gate
on foreign investment or in any relevant Vietnamese law
– If Yes: Such cap applies
– If No: Move to Step 3
• Step 3: Whether the remaining business activities of the target
company is conditional for foreign investors
• If Yes: 49% MFO applies - If No: up to 100% MFO applies
20

21. www.duanemorris.com
How to go beyond the MFO in public companies
• Seek a fund management company to purchase shares of
the target company, hold such shares on trust for the
foreign investors and sell the shares back to foreign
investors when the room for foreign investment is more
open. This approach is recognized under Vietnam laws; or
• Find a local individual or corporate entity to act as a trusted
nominee. This approach does not expressly provide for
such nominee arrangement but is preferred by foreign
investor in practice as it helps to circumvent market access
restrictions.
21

22. www.duanemorris.com
High expectation in foreign investment surge
• Foreign investment in public companies will increase
after relaxed MFO in Decree 60
• Combined effects with the AEC, TPP and EU- Vietnam
FTA:
22

23. www.duanemorris.com
AEC Market Snapshot – Asia’s main
investment hub
• GDP: US$2311.3 billion (2012)
• GDP per capita: US$3748.4 (2012)
• Population: 620 million, 60% under the age of 35
• AEC % of world GDP: ~3.3%
• AEC % of world population: 9%
• AEC’s merchandise exports: US$1.2 trillion - ~54% of total
ASEAN GDP and 7% of global exports
• If ASEAN were one economy, it would be the 7th largest in
the world – 4th largest by 2050 if growth trends continue
23

24. www.duanemorris.com
EVFTA – Comprehensive agreement
• Trade in goods
Market access for goods – tariffs
Rules of Origin
Export duties
Technical Barriers to Trade (TBT)
Sanitary and Phytosanitary Measures
Customs and Trade Facilitation
Administrative Cooperation in Customs Matters
• Services and investment:
National treatment
Liberalisation commitments / market access
Investment to state dispute settlement
24
Cross-cutting issues
Dispute Settlement and Investment
Dispute Settlement
Government Procurement
State Owned Enterprises & Subsidies
Intellectual Property Rights
Geographical Indications
Trade and Sustainable Development
Cooperation and Capacity building
Annexes (car; green tech and pharma)

25. www.duanemorris.com
EVFTA – Main features
 Symmetrical elimination of nearly all tariffs (over 99%)
 Removal of almost all export duties and cap on remaining
ones
 Services commitments going beyond GATS
 Negotiations on Investment protection and disputes
settlement on-going
25

26. www.duanemorris.com26

27. www.duanemorris.com
How will TPP benefit Vietnam?
70%
70% of the total export value of Vietnam’s textile industry is from TPP countries. By participating in
the TPP, the market is expected to double. Export turnover to the US may reach USD55 billion in 2025
0%
The average tax rate on textile products into
the US market is currently 17.5%, after TPP
it falls down to 0%
0%
The whole import tariffs on footwear currently
from 3.5% to 57.4% also falls down to 0%
USD 335.7 billion
According to a study by East – West Centre (USA), Vietnam’s GDP may increase by USD35.7 billion,
equivalent to 10.5% until 2025. At the same time, Vietnam’s exports also increase by 28.84%, equivalent
to USD67.9 billion
Investment increases by 9.2%
TPP helps Vietnam’s GDP increase by 1-2%/year as a result of an increase in investment by 9.2% (mostly
inbound investment), consumption increase by USD6.9 billion and production increase by USD2.4 billion
Opportunities to
export flagship
products
Create more than 6
million jobs in textile
industry until 20
Liberalizing investment
environment among TPP
countries
Expectation on more competitive business
environment, cheaper goods and services at
higher quality
TPP offers free market access for enterprises
operating in service sectors
27

28. www.duanemorris.com28

29. www.duanemorris.com29

30. www.duanemorris.com
TPP and AEC intersection
30
Thailand
Malaysia
Brunei
CanadaAustralia
Cambodia
Indonesia Myanmar
Peru
Philippines
Japan
Laos
Mexico New Zealand
Singapore
The United States
Vietnam
Chile

31. www.duanemorris.com
Questions & Answers

32. www.duanemorris.com
DUANE MORRIS VIETNAM LLC
Thank you very much!
HANOI OFFICE HO CHI MINH CITY OFFICE
Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower
83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1
Hanoi, Vietnam Ho Chi Minh City, Vietnam
Tel.: +84 4 39462200 Tel.: +84 8 3824 0240
Fax: +84 4 3946 1311 Fax: +84 8 3824 0241
Contact email:
omassmann@duanemorris.com
32