will have its own details and structures. That being said, a foreign investor
intending to do deal in Vietnam should take into account the following factors,
among other things:
Corporate form of the target company
A target company in Vietnam may be:
- a limited liability company (LLC) (công ty trách nhiệm hữu hạn) incorporated under the Enterprise Law. A LLC may be a single-member LLC (One Member LLC), which is owned by a single member, or a two or more members LLC (Multiple Member LLC), which is owned by two or more members; or
- a joint stock company (JSC) (công ty cổ phần) incorporated under the Enterprise Law. A JSC can be a public JSC (which usually has 100 or more shareholders) or a private JSC. A public JSC may also be a “listed company” (công ty niêm yết) if the shares of the relevant company is listed on a stock exchange.
The corporate form of the target company may affect a transaction significantly. For example, a foreign investor may not be able to acquire more than 49% of a public JSC while it can acquire 100% of a LLC doing the same business. The selling shareholders in a public JSC can be subject to substantially lower capital gain tax than the selling shareholders in a private JSC.
Nature of the existing owner(s) of the target company:
A target company in Vietnam may be owned and controlled by:
- local private investors, in which case the target company is considered as a domestic company. Investing in a domestic company may or may not require an Investment Certificate;
- foreign investor, in which case the target company is considered as a foreign invested enterprise. A foreign invested company incorporated on or after 1 July 2006 should operate either as a LLC or JSC under the Enterprise Law. However, a foreign invested company which was incorporated before 1 July 2006 and has not re-registered as a LLC under the Enterprise Law will operate in a legal vacuum and be subject to many uncertainties. Investing in a foreign invested company is usually subject to an Investment Certificate; or
- Vietnamese Government, in which case the target company is considered as a State-owned enterprise. Investing in a State-owned enterprise may be subject to separate rules on equitisation (or privatisation) of State-owned enterprises.
Nature of the business of the target company
Depending on the business of the target company, there may be specific restrictions on foreign investment or other special requirements applicable to the proposed acquisition or the target company.
In March 2018, the Government issued a new Decree (Decree 40/2018) on multiple level marketing (MLM) activities. Decree 40/2018 takes effect from 2 May 2018 replacing Decree 42/2014. In general, Decree 40 inherits many regulations of Decree 42/2014 and its implementing Circular (Circular 24/2014). That said, Decree 40/2018 introduces various new and stricter requirement on MLM activities. In particular,
A MLM enterprise must now register its activities with provincial competent authorities, where there are MLM activities conducted by its consultants. A MLM enterprise must appoint an individual representative in each province where it does not have branch or representative office. Under Decree 42, a MLM enterprise only needs to notify provincial competent authorities where there are MLM activities conducted by its consultants.
A MLM company must now make an escrow deposit of VND 10 billion or 5% of the charter capital, whichever is higher instead of VND 5 billion with a local bank or a foreign bank branch in Vietnam. The deposit is to secure for the MLM company’s obligations with respect to the members of the MLM network.
A shareholder (especially a foreign shareholder) in a Vietnamese joint stock bank (VN Bank) must know how much its shareholding in the VN Bank is. This is because (1) there are ownership caps applicable to a single shareholder or a group of related persons, and (2) a “major shareholder” is required to obtain an approval from the State Bank of Vietnam (SBV). Since the Law on Credit Institutions 2010 (LCI 2010) and Decree 1/2014 introduces the concept of “indirect ownership”, it may be difficult to determine the exact shareholding ownership of a shareholder in a VN Bank for the purpose of (1) and (2) above. 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.
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:
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.