Tuan A Phung, Managing Partner, VCI-Legal: Interview

Interview: Tuan A Phung

What impact did the changes to conditional business lines have on the business environment?

TUAN A PHUNG: In line with the Law on Amendment and supplements to the Law on Investment in 2016, the number of conditional businesses has been reduced from 386 down to 267, and has continued to be reduced to 243 conditional business lines. The lines in question are company valuation services in relation to initial public offerings; consultancy services in relation to assessments of investment projects; management training services for investment and construction projects; establishment and assessment services for investment and construction projects; and management and operation services for common infrastructure facilities. More importantly, a long-term problem of having a new law issued without being able to enforce it has now been addressed. Article 11 of the Law on Promulgation of Legislative Documents stipulates “the draft of the elaborating documents (decree and circular) must be prepared and submitted together with the law project or ordinance project, and must be so promulgated that it comes into force at the same time as the document, article, clause or paragraph being elaborated upon.”

Prior to the passage of the new regulation, local and foreign investors, as well as government bodies, were forced to wait for these elaborating documents, which can take months or years, before they were able to implement the regulations.

How did the changes in foreign ownership laws impact Vietnam’s stock exchange?

TUAN: With Decree No. 60 2015/ND-CP, the Decree No. 58/2012/ND-CP – guiding the implementation of the Law on Securities – is amended with more specific provisions that help open the doors to foreign investment in Vietnamese securities. In particular, the new regulation allows foreign investors to acquire upwards of 100% of the shares of a public company, unless that company falls into one of the restricted categories listed below. The limits in question include those provided for by treaties such as those stemming from Vietnam’s commitments with World Trade Organisation (WTO) members and sector-specific laws of itself, for example, the Law on Credit Institutions regulating banking activities. The limits are also applicable to conditional businesses as specified in the laws applicable to these conditional businesses, and in the absence of specific limits it will be limited to 49%.

In addition, these limits are applicable to state-owned enterprises undergoing privatisation, divestiture or with voluntary limits imposed by the shareholders of a public company as specified in the company’s charter. This new regulation was welcomed by many foreign investors seeking to attract foreign capital inflows into Vietnam’s stock market and improve its overall liquidity. However, there is a provision that needs to be clarified. Article 2(a) of Decree No. 58, amended by Decree No. 60, stipulates the rate of foreign ownership on Vietnam’s securities exchange market. These rates shall be stipulated as follows: when a public company operates in an investment and business sector subject to conditions applied to foreign investors, but not one with specific regulations on the rate of foreign ownership, the rate of foreign ownership will be 49%. There are two ways to interpret this: either the conditions for foreign investors are the general conditions specified in Annex 4 of the Law on Investment, meaning those named in the list of 243 conditional business lines; or it is conditioned on a foreign investor’s relationship with the WTO schedule for market access — or if international treaties do not specify any condition, then there is no condition on the foreign investor. Indeed, what it means is that should the target company operate in conditional business and no specific foreign ownership limit is set, then the standard limit should be 49%.