New requirements on strategic investors investing during the equitisation of a State-owned enterprise

Decree 126/2017 replacing Decree 59/2011 on equitisation of State-owned enterprises introduces various new requirements for a strategic investor who invests during the equitisation of a State-owned enterprise (equitised SOE). These new requirements (especially the pricing requirement) are more difficult for a strategic investor to satisfy. In particular,

The equitized SOE must decide to select the strategic investor and the strategic investor must commit to invest before publication of the public offering document for the public auction. Under Decree 59/2011, the strategic investor may decide to invest either before or after the public auction;
Despite being required to commit to invest before the public auction, in most cases, the strategic investor must pay a price not lower than the average bidding price at the public auction. Under Decree 59/2011, there is no such requirement and the minimum price is the lowest successful bidding price. This requirement under Decree 126/201 seems to repeat the mistake under Decree 109/2007. There is unlikely any sensible investor who will commit to invest without knowing the price that it has to pay first;

The Sabeco – ThaiBev transaction – "Official" confirmation of a common deal structure

The Sabeco – ThaiBev transaction announced on Monday is no doubt the biggest equity deal in Vietnam so far. The deal structure (see below) as reported by newspaper involves Vietnam Beverage acquiring 53.59% shares in Sabeco. Vietnam Beverage is wholly owned by Vietnam F&B Alliance Investment. Thai Bev, in turn, owns 49% of Vietnam F&B Alliance Investment. From the look of it, it appears that ThaiBev is investing in Sabeco by setting up a “non-foreign” investor through various corporate layering.

HOW CAN A FOREIGN INVESTOR ACQUIRE LAND USE RIGHTS IN VIETNAM?

In Vietnam, private ownership over land is not recognised under the Constitution and Land Law 2013. Instead, one may acquire certain rights which are close to the ownership rights over the land (land use rights) in accordance with the land regulations. A foreign investor does not fall under the scope of subjects that are entitled to obtain land use rights in Vietnam, but a local company (Local Co) wholly or partly owned by such foreign investor may acquire land use rights to conduct its investment projects.

Processing activities by an foreign invested enterprises (FIE) in Vietnam

It is not clear under Vietnamese law if an FIE needs to obtain a Trading Licence (Giấy phép kinh doanh) to provide commercial processing services (gia công thương mại) to other companies. Under Decree 23/2007 on goods purchase and sale activities and other related activities of FIEs, commercial processing is regarded as an activity relating to sale and purchase of goods. Accordingly, technically, if an FIE wishes to involve in commercial processing, such FIE should obtain a Trading Licence.

On the other hand, after Decree 23/2007, Ministry of Trade issued Circular 4/2007 under which, an FIE can process goods if (i) the processing activity is consistent with the objectives set out in the Investment Certificate of this FIE; (ii) the processed goods are not banned or suspended from import and export or if the processed goods are subject to import and export licence, the FIE can enter into the processing contract only when the import and export licence is obtained; and (iii) FIE has completed its capital construction investment and has commenced production and business activities. It appears that a Trading Licence is not required under Circular 4/2007.

Two regulations regarding processing activities of an FIE may cause certain confusion. Although Decree 23/2007 is a higher legislation, in practice, it appears that Circular 4/2007 still applies and FIEs do not obtain Trading Licence for their processing activities.

This post is contributed by Le Minh Thuy, a trainee lawyer at Venture North Law.

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Vietnam Business Law