Decree 60 signing signals intent to lift FOL and improve market access

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June 2015

On 26th June 2015, the Government issued Decree 60/2015 which amends certain regulations instructing the Securities Law 2006; notably changing some of the rules of engagement governing foreign ownership limits of joint stock or public companies. These changes will come into effect from 1st September 2015. One of our sources is the Vietnam Business Law website. As follows;

Voting shares only will count as part of FOL calculation – Only shares with voting rights attached will count towards the applicable foreign ownership limit. In other words foreign investors will be able to hold an unlimited number of non-voting shares unless otherwise provided in the charter of the public company in question.

HSC Comment – This opens the door for non-voting depositary receipts (NVDR) and other classes of non-voting shares being issued in future. However this new regulation will need to be reconciled with foreign ownership limits in other laws as they don’t generally distinguish between voting or non-voting shares at the moment. In other words follow up regulation will be required to further instruct this clause.

Any institution more than 51% foreign owned will be viewed as a foreign investor – Rate of foreign ownership of a joint stock company consists of the total combined stakes held by (1) foreigners and (2) institution where a 51% or more stake is controlled by foreign investor.

HSC comment – Decree 60/2015 effectively confirms definition of foreign investors to subsidiaries (to a first level subsidiary for example) as was done in the investment law 2014. This law defines foreign investor as (1) individuals with foreign nationality and (2) organization established under foreign law running businesses in Vietnam. Thus Decree 60 only determines the rate of foreign ownership of a joint stock company consists of the total combined stakes held by (1) foreigners and (2) institution whose 51% or more stakes are controlled by foreign investor.

As for FOL limits international treaty obligations if any hold sway – Where a public company operates in a sector(s) which is subject to specific foreign ownership limits under an international treaty then the specific foreign ownership limits provided in that international treaty will apply.

HSC comment – This is a very important qualifying tool in the decree. As it states that any future obligations that Vietnam enters into under TPP for example will automatically be applied to Decree 60 without the need for further top down regulation (other than perhaps a circular level document at the ministry level to instruct it). Not to mention existing obligations under WTO for example.

As do local laws where they stipulate a specific limit on FOL – Where a public company operates in a sector(s) which is subject to specific foreign ownership limits under other laws then the specific foreign ownership limits provided in other laws will apply.

HSC comment – This is where the restricted & non-restricted list being prepared by the Ministry of Planning & Investment becomes very important. Decree 60 does not set foreign limits it merely acts on the limits set elsewhere in other regulations and laws. In other words follow up regulation will be required to further instruct this clause.

A level of 49% is now the effective floor for FOL – Where a public company operates in sectors which are conditional to foreign investors but have no specific foreign ownership limit then the applicable limit is 49%. This is the foreign ownership limit currently applicable to most public companies in Vietnam. The Ministry of Planning and Investment is in charge of publishing a draft list of sectors which are conditional to foreign investors.

HSC comment – Once again the critical importance of the list being currently updated by the MPI is referenced. The 49% limit then becomes a floor for foreign ownership instead of a ceiling as was the case up till now. And for those sectors which are viewed as non-restricted or for which higher limits have been set by international treaties or by other local laws the limits will be set higher on a case-by-case basis. In other words follow up regulation will be required to further instruct this clause.

If no limits are specified then 100% ownership is allowed – Where a public company operates in sectors which are not conditional to foreign investors and have no specific foreign ownership limit then the limit is 100% (i.e. unlimited foreign ownership), unless otherwise provided in the charter of the public company.

HSC comment – This is in theory at least a major concession. If the company is in a non-restricted list and no specific limits have been set in either international treaty obligations or in other local laws then the limit will be automatically set at 100%. Provided of course the company’s own charter allows for this. We sense a rush of people checking company charters. In practice of course, any charter can be changed by EGM subject to MPI approval.

These submissions are extracted from reports accomplished by Ho Chi Minh City Securities Corporation (HSC)’s Research Division team led by Fiachra Mac Cana, Managing Director, Head of Research

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