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.

CORPORATE CRIMINAL LIABILITY IN VIETNAM

The Penal Code 2015, which takes effect from 1 January 2018, for the first time introduces criminal liabilities to legal entities in Vietnam. Before the Penal Code 2015, only individuals may be subject to criminal liabilities in Vietnam. This is a major change to the criminal law system in Vietnam. The attached slides are summary of our discussion about corporate criminal liability regime in Vietnam in Volume 2 of Principles of Vietnam’s Enterprises Law.

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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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Identifying a major shareholder of a joint stock commercial bank in Vietnam

Under the Law on Credit Institution 2010,

a major shareholder of a joint stock commercial bank in Vietnam (VN Bank) is a shareholder, who owns directly or indirectly at least 5% of the total voting shares of the VN Bank. Indirect ownership is defined as an organization or individual owning the charter capital or shareholding capital of a credit institution via a related person or trust investment; and
a SBV’s approval is required for “transfer of shares by a major shareholder” or “transfer of shares resulting in a major shareholder becoming a non-major shareholder and vice versa”.

Under the definition of a “major shareholder”, a holding company (Parent Co), which indirectly owns shares in a VN Bank through one of its subsidiaries (Sub Co) could be considered as a major shareholder of the VN Bank if the aggregate shareholding is 5% or more. However, in that case, it is not clear:

whether Sub Co or Parent Co or both are considered as major shareholders of the VN Bank. And if the Parent Co only owns a part of Sub Co, then whether the indirect shareholding of the Parent Co in the VN Bank should be calculated with reference to the shareholding of the Parent Co in Sub Co; and
whether a transfer of shares in Sub Co by a Parent Co is considered as a transfer of shares in VN Bank and is subject to SBV’s approval.

Vietnam Business Law