Direct statements

The difference between direct and indirect speech may be clear to writers. But lawyers in Vietnam have struggled with the difference between direct and indirect investment. Unperturbed, the Indirect Investment Capital Account regulations, which took effect on 28 April 2014 (see Indochina Notes May 2014 edition) did not apply to direct investments. The State Bank of Vietnam (SBV) plugged the gap in Circular 19, which covers the opening and use of Direct Investment Capital Accounts.

This Circular requires foreign-invested enterprises (FIEs) to open Direct Investment Capital Accounts, one in VND and one in foreign currency, in order to receive and make payments in relation to direct investment in Vietnam. These accounts have to be used for receipt and repayment of capital contributions and loans to and by the FIE.

Piggy-bank top-up

The State Capital Investment Corporation (SCIC) was established in 2005 as a special state- owned corporation. Its mission was to invest state capital (presumably directly) in essential industries in order to strengthen the role of the state sector. It was supposed to act as a sort of State holding company.

On 16 June 2014, new regulations on SCIC operations were issued by the Government under Decree 57. This increased the SCIC’s charter capital by a factor of 2.6, to 50 trillion VND (approximately US$2.38 billion).

According to SCIC management, its long term strategy is to focus on investment in six main sectors: telecommunications, pharmaceuticals, insurance, material manufacturing, banking and construction. During 2014 – 2015, the SCIC will divest from 376 enterprises in non-core sectors, while retaining its long-term investments in FPT Telecom, Vinamilk, Hau Giang Pharmaceutical and Vietnam National Reinsurance Corporation.

SIM card replacement

Mobifone is one of the three major mobile phone service providers in Vietnam, with a market share of approximately 21 percent in 2013, ahead of VinaPhone (20 percent) but behind Viettel’s 40 percent. The equitisation of Mobifone was first mooted about a decade ago, but  the wake-up call has only just arrived. Under Decision 888 of the Prime Minister dated 10 June 2014 Mobifone was spun out from Vietnam Post and Telecommunication Group (VNPT). It is now under the direct control of the Ministry of Information and Communications. This ministry will submit an equitisation action plan to the Prime Minister for implementation and completion in 2015. Based on form, Ladbrokes should not be offering short odds on this.

Bankruptcy – professional job opportunities

In the decade since the Law on Bankruptcy came into effect in 2004, bankruptcy procedures have been invoked in only about 250 cases. This number pales into insignificance compared to the number of distressed businesses that have ceased operations without bothering about bankruptcy.

A new Law on Bankruptcy will come into effect on 1 January 2015. It provides for the appointment of an external insolvency administrator (trustee) from the private sector to help manage, liquidate (or rehabilitate, if possible) insolvent companies. Creditors and other parties applying to open bankruptcy proceedings will be able to nominate a trustee for the court’s consideration.

Under the new Law on Bankruptcy certain individuals, including the legal representative, owners, and chairman of the board may be held personally liable to the extent debts  incurred by the business have arisen as a result of their act or default. Such provisions may encourage a greater degree of fiduciary responsibility among those who manage or own companies. It may also provide a greater level of protection to creditors of businesses that continue to trade and incur debts while insolvent, and hence encourage those who act on behalf of or own companies to petition for protection under the Law on Bankruptcy. If so, the next decade could see more than 250 bankruptcy petitions.

Construction – house of cards

During the ten years since the introduction of the Construction Law, there has been a lot of construction in Vietnam, but many projects get mired in red tape. The new Construction Law, which will become effective as of 1 January 2015, may improve certain industrial sectors.

  • Construction permits will no longer be required for (i) buildings in an industrial zone, an export processing zone or a high-tech zone or (ii) for residential houses below seven floors with a total floor area under 500 m2 within an urban residential area, as long as in each case, they already have an approved 1/500 construction plan.
  • There is a separate construction planning process for construction within a special zone. These are new and include economic zones, industrial zones, export processing zones, airports, and sea ports.

The 2014 Construction Law also provides a more detailed framework for contracts in construction sector. For the first time, these will apply to private projects as well as State- funded projects.

Financing heights

In Resolution 73 dated 24 June 2014, the National Assembly ratified Vietnam’s accession to the Cape Town Convention and the Protocol on matters specific to aircraft equipment (CTC). Following the issuance of this resolution, the Vietnam Government deposited instruments of accession to the CTC at the UNIDROIT in September. The accession should reduce expenses for Vietnamese airlines and help them obtain incentives from airplane producers and international credit organisations.


Unfathomable depths

On 24 June 2014, in Decision 1037, the Prime Minister issued a master plan on the development of Vietnam’s seaport system by 2020, with orientations to 2030. It targets cargo throughput of approximately 400 million tonnes per year by 2015, 650 million tonnes per year by 2020, and 1 billion tonnes by 2030.

The plan focuses on building international gateway ports in Hai Phong, Ba Ria–Vung Tau and key economic areas in the central region (when possible), aiming to receive vessels of up to 100,000 tonnes (8,000 TEU containers) or larger. It also makes provisions to develop specialised ports for large-scale metallurgical complexes, petrochemical plants, and coal-fired power centres.

Banking, finance and capital markets

Foreign exchange change, part 1

The Foreign Exchange Ordinance was amended in early 2013. On 17 July 2014, the Government issued Decree 70, providing some implementation details.

  • Payment and transfer of money in relation to the import and export of goods and services must be made through licensed credit institutions (previous regulations allowed exemptions subject to the approval of the SBV).
  • Non-Vietnamese residents are no longer able to make deposits in foreign currency in savings accounts.
  • FIEs can open a VND capital contribution account at the same credit institution where the foreign currency account was opened in order to carry out its direct investment activities in Vietnam.
  • The period within which foreign investors have to remit income from direct investment activities (e.g. dividends) is extended to 30 working days from the date of purchase of foreign currency (previously 30 calendar days).

Foreign exchange change, part 2

Forex services that banks can provide have been elucidated in Circular 21 of the SBV dated 11 April 2008 (Circular 21), which replaces the current Circular 3 effective on 15 October 2014. Circular 3 contained a general power to engage in forex services which could be interpreted by the banks themselves. Under the new Circular 21 there is a specific list of what is allowed, hence less room for manouevre.

A credit institution, which meets certain fundamental conditions can conduct basic forex activities. Stricter conditions apply to non-basic forex activities such as purchasing, selling, and holding bonds or other valuable papers on the international market and many derivative forex activities.

Circular 21 requires a bank which is currently doing forex business to obtain a new operating licence or to update its existing master operating licence to cover forex activities. Banks must complete this re-application for a forex licence by 15 October 2015.

Securities exchange change

The local stock market is loosely expecting some new listings in the coming year as the Prime Minister issued Decision 51 on 15 September 2014 urging SOEs to carry out their equitisation and listing plans soon. Under this decision, an equitised SOE must register as a public firm and apply for trading on the UPCoM, the market for unlisted public companies, within 90 days after receiving a new business registration certificates. Equitised SOEs are required to list on the HCMC or Hanoi stock market within one year after they receive their business registration certificate if they meet the listing conditions.


Bancassurance is hardly the sexiest word in the dictionary, and indeed it is quite possible that  most dictionaries do not bother to carry it. Yet on 2 July 2014, the Ministry of Finance (MOF) and the SBV jointly issued Circular 86 in an effort to make it a bit more attractive. Despite recent growth in the sector, the results for insurers have been less than ideal. Sales penetration through banks remains limited compared with many other countries, partly due to tight regulatory controls over insurance agent credentials. This has reduced the commercial feasibility of engaging in a relationship.

The current Law on Insurance Business requires all insurance agents to undergo rigorous training regimes and be suitably qualified before they may sell insurance policies. The law does not make a distinction between the training needed by bank staff for the purpose of bancassurance and those required by other insurance agents, even though bank employees often already have qualifications in the financial industry. The new Circular 86 partially eliminates this issue by making a distinction between bank staff engaged in bancassurance and ordinary insurance agents, thereby reducing the amount of training required by such bank staff.

Circular 86 requires a credit institution to satisfy the following conditions in order to conduct life insurance agency activities: (i) its operating licence must cover the insurance agency activities; (ii) it must enter into insurance agency contracts with life insurers; and (iii) its staff must possess insurance agency certificates.

Life insurance agency activities conducted by credit institutions are subject to some limitations, such as limitations on acting for other insurers, and restrictions on insurance commissions payable by the insurers to its agencies.

Another unrecognisable word

An insurance concept that would rival bancassurance for lack of recognition would be the surety bond. As it gets hot in the summer, the Government waved through Decree 68 on 28 June 2014 adding guarantee insurance (effectively surety bonds) to the list of non-life insurance products.

A Vietnamese non-life insurance company will now be able to compete with banks in this market. It can now issue guarantee insurance to guarantee contractual obligations of its customers in favour of a third party. If the customer fails to perform the guaranteed obligations, the insurance company is obliged to perform the guaranteed obligations and will have a right to require reimbursement from the customer.

Bad debts

The SBV, the Ministry of Justice and the Ministry of Natural Recourse and Environment jointly issued Joint Circular 16 in June 2014 on the enforcement of mortgages or pledges. Most importantly, Joint Circular 16 permits assets granted as security to be sold privately without going through a public auction.