Following the relaxation of the foreign investment procedures set out in the new Law on Investment and the Law on Enterprise, the government has relaxed the requirements on portfolio foreign investment and the privatisation of state-owned enterprises.
Decree 60/2015/NÐ-CP also provides for the privatisation of state-owned enterprises, which is expected to attract more share acquisitions and private equity investments. The existing regulations state that foreign investors may purchase up to 49% of the total shares of a public joint stock company or listed company. From September 1 2015, this general restriction will be removed under Decree 60.
Instead, the new restriction will be subject to World Trade Organisation commitments or other specific domestic laws (eg, the 30% cap in the banking sector). If there is a specific restriction under domestic law that has yet to be specified, the 49% cap will apply.
Where no restriction under domestic law exists (eg, for production companies or distribution companies), no limit on foreign shareholding will apply. This rule also applies to privatised state-owned enterprises in order to attract more foreign investment in the government's privatisation programme.
Securities companies (and investment banks) that are eligible to establish 100% foreign-owned companies can buy up to 100% of the equity of local securities companies. Those that are ineligible can acquire up to 51% of the total shares.
Decree 60 also lifts all restrictions preventing foreign investors from investing in bonds. The restrictions on share certificates and derivative products of a joint stock company's stocks will also be relaxed in the same manner as above. For this purpose, open funds and securities funds that have foreign shareholding greater than 51% equity will be deemed foreign investors.
In addition, Decree 60 has made changes to:
- the private placement of public companies;
- share swaps of public companies;
- public offerings of shares in public companies by swapping shares in non-public companies or equity in limited liability companies;
- private placement filings with the State Securities Commission (SSC) for public companies;
- public offering processes;
- the use of escrow accounts for public offering proceeds;
- public offerings of investment certificates or shares abroad;
- the redemption of shares;
- tender offers;
- the sale of treasury shares;
- listing requirements for merged or amalgamated companies;
- Unlisted Public Company Market transaction registrations and listings; and
- real estate capital valuations and contributions to real estate investment funds.
While opening the door to, and creating more options for, foreign portfolio investment (along with the deregulation of various SSC procedures) is certainly attractive to foreign investors, it is unclear how restrictions imposed by other ministries (eg, the Ministry of Health, the Ministry of Education and the Ministry of Industry and Trade) will affect the government's intention to open up the market.
Under Article 74.3 of the Law on Investment, non-compliant restrictions of business will remain valid until July 1 2016, suggesting that there could be further clarifications and explanations.
For further information on this topic please contact Net Le at LNT & Partners by telephone (+84 8 3821 2357) or email (net.le@LNTPartners.com). The LNT & Partners website can be accessed at www.lntpartners.com.
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