Obstacles for a hostile takeover in Vietnam

Given the lack of clarity on tender offer rules and the difficulty in enforcing such rules in practice, it is not so difficult for an investor to accumulate significant stake in a public joint stock company (target company) in Vietnam. However, if such investor is not supported by the Board of the target company, then the unwelcomed investor may find a hard time to participate in the management of the target company even if the investor can acquire control of the target company at shareholder level. This is because:

Major amendments to regulations on sale of State capital in State-affiliated enterprises

In March 2018, the Government issued Decree 32/2018 containing major amendments to the regulations on sale of State capital in State-affiliated enterprises. The amendments will take effect from 1 May 2018. State-affiliated enterprises are joint stock companies (State-owned JSC) or limited liability companies with two members or more (State-owned LLC) a part of which is owned by the State or by a wholly State-owned enterprises (Wholly SOE). New amendments under Decree 32/2018 include:

Stricter pricing control

· Decree 32/2018 requires the State-seller to retain licensed valuer to value the State’s capital and to determine an asking price before commencement of the sale process even if the State-affiliated enterprises are listed companies. Under Decree 91/2015, it appears that if a State-affiliated enterprise is a listed company, then there is no need to retain a licensed valuer. Decree 32/2018 also provides that the asking price is only valid for a period of six months from the date of the valuation report. This suggests that a re-valuation is required if a sale is not completed within six months of the date of the valuation report.

· For a listed State-affiliated company, if the asking price determined by the valuer is lower than the average share price of the company during the period of 30 consecutive trading days before public announcement of the sale, then such average share price will be used as the asking price. It is not clear if the average share price is a arithmetic average or weighed average (which takes into account the trading volume each trading day).

· The licensed valuer when valuing the State’s capital must take into account the value of land leased by the State-affiliated enterprise and “history” of such State-affiliated enterprise. Decree 91/2015 only requires the value of land granted (not leased) to the State-affiliated enterprise to be taken into account. However, Decree 32/2018 does not specifically require the valuer to take into account whether the sale stake is a minority stake or a control stake.

The importance of shareholding ownership ratio of a foreign investor in a Vietnamese commercial bank

It is important to determine the shareholding ownership ratio of a foreign investor in a Vietnamese commercial bank (a VN Bank), since:

there is different foreign ownership cap applicable to each type of foreign investor in a VN Bank (see here);
there are different requirements applicable to a foreign investor in a VN Bank depending on the shareholding ownership ratio of such foreign investor. For example, a foreign investor with 10% or more shareholding ownership must, among other things, have an international credit rating and must have a total assets of US$ 10 billion or more (for investors being financial institutions) or a charter capital of US$ 1 billion or more (for investors being non-financial institutions);
there are different approval procedures applicable to a foreign investor acquiring shares in a VN Bank depending on the shareholding ownership ratio that the investor intends to acquire. For example, an acquisition resulting in a less-than 5% shareholding ownership ratio by a foreign investor is not subject to approval by the State Bank of Vietnam (SBV). An acquisition resulting in a shareholding ownership ratio between 5% to less-than 10% is subject to an approval procedures different from an acquisition resulting in a a shareholding ownership ratio of more than 10% (see here); and
there are different transfer restrictions applicable to a foreign investor in a VN Bank depending on its shareholding ownership ratio. For example, a foreign investor with a less-than 5% shareholding ownership is not subject to any share transfer restriction. A foreign investor with a shareholding ownership ratio between 5% to less-than 10% may transfer shares subject to SBV’s approval for transfer shares by a major shareholder. A 10% or more foreign investor is not allowed to transfer shares for at least three years.

However, determination of the foreign ownership ratio held by a foreign investor in a VN Bank is not always straightforward since the Law on Credit Institution 2010 and Decree 1/2014 may take into account “indirect ownership” (sở hữu gián tiếp) when determining the foreign ownership ratio held by a foreign investor (see here).

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Comment

Decree 163/2017 on logistic services in Vietnam

Decree 163 of the Government on logistics services was issued on 30 December 2017 (Decree 163/2017). It is going to take effect on 20 February 2018 and replace Decree 140 of the Government on logistics services dated 5 September 2007 (Decree 140/2007). Below are salient changes in Decree 163/2017.

Decree 163/2017 no longer requires the logistics services providers to meet the condition of adequate equipment and personnel. That condition was applied to some logistics services, but under Decree 163/2017, the logistics services providers have only to meet conditions specific to the logistics service that they provide.

Decree 163/2017 allows foreign investors to apply, at their discretion, investment conditions regarding logistics services under an international treaty where multiple treaties are applicable.

Decree 163/2017 classifies logistics services in accordance with Vietnam’s commitments to the WTO. By contrast, Decree 140/2007 has its own classification of logistics services which is not consistent with the description of logistics services under the WTO Commitments. And the investment conditions and foreign ownership limit provided in Decree 163/2017 are generally consistent with the WTO Commitments. Therefore, it is easier to compare the Decree 163/2017 with the WTO Commitments.

The table below sets out the applicable foreign ownership limit under Decree 163/2017, to the extent possible, in comparison with Decree 140/2007:

Vietnam Business Law