Year in Review – Vietnam Law in 2016
Record levels of FDI and M&A activity: As of November, Vietnam had attracted more than US$18 billion of foreign direct investment (FDI) in 2016. Consumer and real estate have been two of the most attractive sectors for investments from international investors, which is largely attributable to the relatively strong domestic economic growth numbers and the low average age of the Vietnamese population. In the first seven months of 2016, the estimated value of M&A transactions was over US$3.8 billion, a 28% increase from the same period in 2015. Reasons for this record level of M&A activity in Vietnam include the Vietnamese Government's recent push for foreign investment via the liberalisation of certain laws in this area and the lifting of the cap on foreign ownership in public companies. The Vietnamese Government is predicting even higher levels of both FDI and M&A activity in 2017.
Increased foreign ownership in public companies: Decree 60/2015/ND-CP, which became effective in September 2015, removed the blanket foreign ownership limit of 49% in public companies, permitting public companies operating in sectors that are unconditional for foreign investment to adjust their foreign ownership cap to 100%. Listed companies in conditional sectors may also increase their foreign ownership limit from 49% to the maximum permitted by laws applicable to their particular business lines. This major boost to foreign investment has seen a considerable increase in foreign investment activity, M&A and FDI transactions as outlined in the preceding paragraph. However, there is still much work to be done on this front, as the Government is still trying to come up with a definitive list of conditional business lines to give greater clarity to companies rather than applying an ad hoc review, which has deterred many public companies from seeking an increase to their ownership limits.
New rules for insurance businesses: Decree 73/2016/ND-CP, effective from 1 July 2016, provides new guidelines to implement the Law on Insurance Business. Decree 73 amends the investment conditions applicable to foreign investors acquiring shares or capital in both private and public insurance companies, though the precise scope of these changes is still unclear. Other notable changes include foreign insurers now being potentially permitted to invest into Vietnam through a wholly owned investment vehicle (rather than the previous requirement stipulating that the direct investing entity must be a foreign insurance company with 10 years of operation) and detailed provisions on the minimum required capital for each type of insurance business.
Trading of unlisted public company shares: Circular No. 180/2015/TT-BC, effective from January 2016, guides the registration of securities for trading on the trading system for unlisted securities. Public companies not eligible to list on Vietnam's two stock exchanges must register for trading on the Unlisted Public Company Market (more commonly known as UPCoM) within 30 days from the date of completion of the registration of the public company. Additionally, within 30 days of the closing date of an IPO, an unlisted public company or equitised enterprise must register for trading on UPCoM, compared to the one-year time limit granted in preceding regulations. Although stricter requirements have been brought in to push public companies to register for UPCoM trading, the consequences of non-registration are still unclear and, as a result, default of the registration requirements is still commonplace.
Year to come – Vietnam Law in 2017
New Civil Code: The new Vietnamese Civil Code will be effective from 1 January 2017. With an array of changes and amendments from the preceding Civil Code, there are a number of particular note. The new Civil Code introduces a 20% p.a. interest rate cap to loans. This is subject to a specific law providing otherwise and, as a result, it appears that this limit will not apply to loans from Vietnamese credit institutions (ie banks and finance companies). If the parties have not agreed an interest rate, it will be set at 10%. Additionally, the new Civil Code provides for six case precedents from the Supreme Court to be applied to specific matters. Whilst not the introduction of a comprehensive court precedent system, this is a new source of law for Vietnam, which could pave the way for court precedents to be increasingly utilised when adjudicating a matter or when applying ambiguous laws. Further amendments have also been made to rights over property, the limitations period (which has been increased from two to three years) and a reduction in the burden of proof for tortious liability.
Equitisations: In Vietnam, 'equitisation' refers to the process whereby a State-owned company is converted into a 'normal' company with shareholders (though the State usually retains a large majority in the equitised company). In 2014, the State announced its aim to equitise 432 SOEs by 2016 in a bid for the Government to reduce public debt and restructure the Vietnamese economy. However, only 160 SOEs have since been equitised and the remaining 272 (with an estimated value of US$17.5 billion) are expected to be finalised by 2018. Equitisation of SOEs could provide opportunities for ordinary investors to participate in the purchase of shares through public sale, or through direct negotiation for strategic investors, of companies which currently dominate the Vietnamese market. This includes companies such as SATRA, one of the largest retailers in the south of Vietnam which has 70 subsidiaries, affiliates and joint ventures, employing more than 16,000 staff.
Divestment by the State from leading companies: Similar to the equitisation program, the State is looking to divest some or all of its interest in certain leading companies in Vietnam to raise additional capital for the budget. The State's interests are usually held by the State Capital Investment Corporation (SCIC). SCIC has been ordered to divest from 10 of Vietnam's largest blue chip companies. Vinamilk, which removed its 49% foreign ownership cap this year, has seen a surge of interest from foreign investors in 2016. The remaining nine companies are Bao Minh Insurance Corp, Vietnam National Reinsurance Corporation, Tien Phong Plastic JSC, Binh Minh Plastic JSC, Vietnam Property Infrastructure JSC, FPT Corp, FPT Telecom, Ha Giang Mineral Mechanics JSC and Sa Giang Import Export Co.
Divestment of State-owned breweries, Habeco and Sabeco: The State is planning on completely divesting its stake in two of the largest breweries in Vietnam: Saigon Beer, Alcohol and Beverage JSC (Sabeco) and Hanoi Beer, Alcohol and Beverage JSC (Habeco) in 2017. It has been reported that the State is to sell its 89.59% stake in Sabeco in two separate tranches, with the first tranche of 53.6% upon the company being listed and the remainder to be sold later in 2017. The State's 82% stake in Habeco will also be divested, though the method of divestment has not yet been announced. Potential buyers for the controlling stakes of each brewery reportedly include, among others, Carlsberg, Thai Beverage PCL, Asahi and Heineken, with the competitors eagerly awaiting further information from the Government on the process and regulatory requirements of the divestments.
Circular on Consumer Financing: In late 2016, the State Bank of Vietnam (SBV) issued a second draft circular on consumer financing. While it appears finance companies will not be subject to the 20% p.a. maximum interest rate under the Civil Code, the Circular will introduce several new regulations which could significantly impact on consumer lending activities conducted by finance companies. For example, the new draft imposes a limit on loan disbursements in cash of VND10 million (US$444) per customer (including both disbursed amounts and amounts to be disbursed).