MPI’s views on foreign investment in certain service sectors

From time to time, the Ministry of Planning and Investment (MPI) comments on applications by foreign investors who want to invest in service sectors in Vietnam. It is interesting to know the MPI’s views on these applications as the MPI can take the same view when it comes to the same application in the future. Below is a summary of the MPI’s views from various official correspondences issued by the MPI in November and December 2012:

• “Services for construction of high-rise buildings (CPC 512) and for construction of civil construction works (CPC 513)” are permitted under the WTO Commitment;
• A foreign invested company may only register for “maintenance and repair services” as an after-sale service for the goods that the company sells to its customers. This is because the WTO Commitments only cover maintenance and repair services for personal and household goods (CPC 663);
•  “Freight transport agency service (including freight transportation brokerage services mainly making arrangements for transport or making schedules for transport on behalf of carrier or recipients), brokerage services for loading goods on to aircrafts, goods collection services, bulk goods transportation services; other supporting services for freight transportations; warehousing services; and road transportation services” are permitted in case the foreign investor only owns 51% of the charter capital of the project company;
• “Management consulting services and market research services” are permitted; and
• Foreign investment in “human resources consulting services” is not permitted but foreign investment in “human resources management consulting services” is permitted.

Vietnam Airlines Restructuring Plan

On 16 January 2013, the Prime Minister approved the restructuring plan for Vietnam Airlines, the national and largest carrier in Vietnam. The notable points of the restructuring plan include:

• Vietnam Airlines to be equitised within 2013. This may be an encouraging news for foreign investors interested in Vietnam Airlines who have waited for a long time since the intention to equitise Vietnam Airlines have been floated. However, the Prime Minister does not provide any further details on the proposed equitisation of Vietnam Airlines (e.g capital structure and how many shares will be owned by the Government after equitisation). This indicates that there are still works to be done;
• Vietnam Airlines to reduce its shareholding in Vietnam Air Petrol Limited Company (VINAPCO) from 100% to more than 50%. Vinapco is currently the only petrol company, which supplies fuel to commercial aircrafts in Vietnam;
• Vietnam Airlines to divest entirely from its holdings in various companies not relating to air transportation services including Techcombank (a large private joint stock bank with 20% investment from HSBC), Bao Minh Insurance Company, and Hoa Binh Securities Company; and
• Vietnam Airlines may adopt a sale and lease back arrangement for certain aircrafts currently owned by it.

General Director of single member LLC holding concurrent office

Under Article 70.3(b) of the Enterprise Law, the General Director of a limited liability company (LLC) with one member being organization must not be a related person of the members of the Members' Council. However, there is no provision that explicitly prohibits the General Director from holding the position of a member of Members’ Council itself. Therefore, technically, it is legally possible for the General Director of single member LLC to concurrently hold the position of a member of the Members’ Council of the LLC. That being said, if the General Director cannot be the related person of the members of the Members' Council (assuming for the purpose of avoiding conflict of interest), then logically, neither the General Director can be a member of Members’ Council.

Circular 213/2012 on activities of foreign investors on Vietnamese securities market

In December 2012, the Ministry of Finance (MOF) issued Circular 213/2012 on activities of foreign investors on Vietnamese securities market (Circular 213/2012). Circular 213/2012 will take effect from 15 February 2013 replacing Decision 121/2008 of the MOF on the same subject. The salient points of Circular 213/2012 include:

• Not applicable to non-public companies: Circular 213/2012 does not apply to (1) direct investment by way of share purchase or capital contribution and merger and acquisition, (2) trading of shares by non-public companies, and (3) trading of capital contribution in limited liability companies. On the other hand, Decision 121/2008 applies to, among other things, (1)  purchase unlisted shares which may include shares of non-public companies and (2) making capital contribution in Vietnamese companies which may include capital contribution of limited liability company. The reduced scope of application of Circular 213 may allow a foreign investor investing an a non-public company without having to obtain a securities trading code from the Vietnam Security Depository Center (VSD);
• Member funds established in Vietnam with more than 49% foreign capital is regarded as a “foreign investor”. Under Decision 121/2008, only member funds with more than 100% foreign capital is regarded as a “foreign investor”;
• Disclosure obligation for “related foreign investors”: A group of related foreign investors include (1) a group of foreign funds managed by the same fund manager, (2) sub-funds of the same master fund, (3) multiple investment managers fund, and (4) funds having the same trading representative in Vietnam. A group of related foreign investors must designate the single contact point to make public disclosures about its trading activities in Vietnam. In addition, a group of related foreign investors is prohibited from manipulating trading activities; and
• Issuance of Securities Trading Code before submission of legalized copies: Many foreign investors have complained that the requirement to have legalized copies of documents submitted to the VSD is cumbersome and takes time. Responding to the complaint, Circular 213/2012 now allows certain foreign investors to be issued a Securities Trading Code before submitting the required legalized copies of documents.