New restrictive rules on casino gambling machines

Like many Asian countries, to attract tourists, Vietnam has allowed investment in casinos and casino gambling machines. However, the new rules on casino gambling machines under Decree 86/2013 issued in July 2013 seem to be more restrictive. Under Decree 86/2013, which will take effect from 1 October 2013:

  • A lodging business (e.g. hotel or resort) must have a 5-star rating by the General Department of Tourist in order to have a licence to operate casino gambling machines (gaming licence). Previously, the threshold is 4-star in Hanoi and Ho Chi Minh City and three stars elsewhere;
  • The number of gambling machines that can be installed now depends on the number of hotel rooms. For every five hotel rooms, the owner can install one gambling machine. Previously, a 5-star hotel can have up to 100 gambling machines regardless of the number of hotel rooms;
  • A separate gaming licence valid for 10 years is required for casino gambling machines. A gaming licence can only be issued after the hotel or resorts have been put into operation. Therefore, an investor may have to take risk that its gaming room(s) may be left vacant until the gaming licence is issued;
  • The owner of the hotel or resort may hire a management company to management the gaming business. However, the management fee must not exceed a cap to be provided by the Ministry of Finance (MOF);
  • The gambling machines must be brand new, be examined and certified by independent surveyor and satisfy the technical standards to be published by the MOF. The owner must keep records of all gambling machines; and
  • Gambling rules must be prepared and sent to the MOF and other local authorities for monitoring. Gambling rules must also be displayed in the gaming rooms. 
Vietnam Business Law Blog

A closer look at Circular 6/2019 of the State Bank of Vietnam (SBV) reveals that it could create more problems than it solves. The key issue under Circular 6/2019 is the broader use of the “direct investment capital account” (normally referred to as DICA).

To understand the issue, one would need to know how DICA works. Under the foreign exchange regulations, DICA must be opened by a company in Vietnam, which has “foreign direct investment” (the FIE). Foreign investor/shareholders of an FIE will contribute capital to the FIE by transferring monies to DICA. Foreign investors/shareholders will get their monies back from Vietnam also by transferring monies from DICA to their own bank accounts (even in case the foreign investor/shareholder sells its investment to another investor). This simple arrangement works well for simple foreign direct investment activities in the 1990s where there is limited M&A activities and foreign investors are mostly foreign manufacturers who do not plan to sell their investment down the road.

On 8 July 2019, the State Bank of Vietnam (SBV) expresses its view and recommendation to credit institutions in Vietnam (CIs) on peer-to-peer lending activities (P2P Lending). The SBV’s view is as follows:

·       P2P Lending is built on a digital platform which connects borrowers and lenders without having to go through financial intermediaries (such as CIs). All lending activities will be recorded on the platform.

·       The SBV acknowledges that P2P Lending is not specifically regulated by current regulations.

·       Besides its potential to create additional way to mobilize capital, P2P Lending can give rise to the following risks: (1) misleading information provided by P2P Lenders about the product’s safety, (2) the lack of oversight on P2P Lending’s platform in terms of cybersecurity, (3) P2P Lenders’ using customer information for predatory lending activities, and (4) P2P Lending being considered as activities of CI.    

Since the end of 2018, the Commission for the Management of State Capital at Enterprises (CMSC) will become the new Owner Representative Agency (Cơ quan đại diện chủ sở hữu) of 19 large SOEs including State Capital Investment Corporation (SCIC), Petro Vietnam (PVN), Vietnam Electricity (EVN), Vietnam National Petroleum Group (Petrolimex). This change causes some SOEs to have CMSC as the common Owner Representative Agency, which may cause these SOEs to become related persons according to the Enterprise Law 2014, because:

The Ministry of Finance has recently released draft amendment to the current regulations on duty-free goods under Decree 167/2016. We discussed below some proposed amendments:

·        The definition of “goods temporarily imported to Vietnam” is amended to include goods temporarily imported from “non-tariff zones and bonded warehouses”. Under existing regulations, it is not clear whether or not goods from non-tariff zones and bonded warehouses can be sold in duty-free stores.

·        Bags, packaging for the purpose of carrying duty-free goods are now also considered duty-free goods.

M&A lawyers in Vietnam usually spend a great deal of time (and client’s monies) to figure out how and when payment for an M&A transaction should be made. This is partly due to the fact that the SBV has not issued any guidance on foreign exchange control for investment activities under the Investment Law 2014 since 2015. From September 2019, hopefully, the situation will be significantly improved thanks to the new Circular 6/2019 of the SBV. Under Circular 6/2019,

·        Foreign-invested enterprises, which must open a Direct Investment Capital Account (DICA), include, among others, (1) enterprises which are incorporated by, among others, foreign investors and are issued an Investment Registration Certificate (IRC), and (2) enterprises which are first incorporated by Vietnamese investors but are later acquired by foreign investors who own 51% or more of the charter capital of such enterprises. Previously, enterprises under (2) are not required to open a DICA if they do not have an Investment Registration Certificate. However, it appears that an enterprise, which is a subsidiary of a DICA enterprise, is not required to open a DICA.

·        The DICA is used by a DICA enterprise to handle fund transfers for capital transactions such as capital contributions by shareholders/members of the DICA enterprise or loans from foreign lenders. For M&A transactions including secondary transfer of shares/capital contribution, the DICA plays an important role because the SBV requires payment for secondary transfer of capital in a DICA enterprise to be made via DICA. The bank which operates DICA could require various supporting documents in order to allow monies can be transferred in or out of the DICA.

It is not clear whether voting rights of members of the Member’s Council of a Single LLC is based on (1) the amount of charter capital that such member represents, or (2) principle one person-one vote. Article 75.5 of the Enterprises 2014 provides that unless otherwise provided in the charter, each member of the Members’ Council of a Single LLC has one vote. This provision suggests that in the charter of the Single LLC, the owner of a Single LLC can allocate different voting rights to members of the Members’ Council who are usually the representatives of the owner in the Single LLC. The most common criteria is based on the amount of charter capital of the Single LLC represented by each member. The ability to allocate different voting rights to different members of a Single LLC is important since the owner of a Single LLC may have different shareholders who want to directly manage the Single LLC.

In the latest draft amendment to the Securities Law 2006, compared with the earlier draft, the following new points , among others, are introduced :

·        “Indirect ownership” of securities is defined to mean holding securities through a “related person” or an entrustment arrangement.

·        The criteria of a professional investor is reduced. A company with a paid-up charter capital of VND 100 billion (about US$ 4.5 million) instead of VND 1,000 billion  can now qualify as a professional investor. An individual with a portfolio of VND 2 billion (instead of a trading volume of VND 2 billion per month) or annual taxable income  of VND 1 billion can now qualify as a  professional investor.  Qualifying as a professional investor is important since only a professional investor or a strategic investor could participate in a private placement of shares by a public company.

·        Major customers or counterparties are no longer considered as a related person of a public company.

·        The latest draft amendment seems to allow for issuance of shares at a price below par value if the current trading price of the issuer is lower than par value.

Below is a list of key approvals and contracts required for a wind farm project in Vietnam (the Project):

  • Permission by provincial People’s Committee for the Project to carry out wind measurement;

  • Report on wind measurement result to the provincial People’s Committee;

  • Approval of the Pre-Feasibility Study of the Project;

  • Approval of the basic design part of the Feasibility Study of the Project;

  • In-principle Approval of the Project under the Investment Law 2014;

For a project financing or limited recourse financing in Vietnam, a mortgage over shares (or equity capital) of the project company usually forms part of the security package due to the ease of creating and perfecting a mortgage over shares. That said, when an enforcement event occurs and if the borrower or the project company does not cooperate, the lenders (usually foreign lenders), who wish to immediately taking over the mortgaged shares, may find it difficult to actually enforce the mortgage due to the need to complete various licensing procedures for the sale or transfer of the mortgaged shares.

Thanks to the flexibility offered by the Enterprises Law 2014 and the Investment Law 2014, lenders may now consider taking some extra measures to increase their ability to enforce the mortgaged over shares of a project company in Vietnam. In particular,

On 29 March 2019, the State Bank of Vietnam (SBV) issued Circular 3/2019 to amend and supplement some articles of Circular 32 of the SBV dated 26 December 2034 on restrictions in using foreign exchange within the territory of Vietnam (Circular 32/2013). Circular 3/2019 will take effect from 13 May 2019.

First, a bit of background, under the Foreign Exchange Ordinance, “in the territory of Vietnam” all transactions, payment, price denomination must not be made in foreign currencies except as permitted by the SBV. The SBV usually takes quite a restrictive (and, in our opinion, not reasonable) on what transactions are considered to occur “in the territory of Vietnam”.

The following is a non-exhaustive list of licenses, permits and requirements on environment which an industrial park in Vietnam need to comply with.

1. Environment impact assessment report (EIAR – Báo cáo đánh giá tác động môi trường) or environment protection plan (EPP – Kế hoạch bảo vệ môi trường).

2. Confirmation on completion of the environmental protection works (Xác nhận hoàn thành công trình bảo vệ môi trường).

The following is a non-exhaustive list of licenses, permits and requirements on firefighting and prevention applicable for an industrial park in Vietnam which are subject to the monitor of firefighting and prevention and may pose a risk of fire and explosion.

1)          Appraisal of firefighting and prevention design (Thẩm duyệt thiết kế về phòng cháy chữa cháy) by the competent authority before commencing the construction.

2)          Acceptance of firefighting and prevention (Nghiệm thu về phòng cháy và chữa cháy) by the competent authority before putting the construction works into operation.

3)          Compulsory fire and explosion insurance for the properties of the industrial park.

Foreign banks located outside of Vietnam extending cross-border loans to borrowers in Vietnam should be aware of the following:

  • Under WTO commitments, Vietnam gives an “unbound” commitment regarding cross-border lending services. The Comprehensive and Progressive Agreement for Trans-pacific Partnership (CPTPP) also does not open for cross-border lending services. This means that the Vietnamese Government has discretion to allow or disallow cross-border lending;

On 11 January 2019, the Supreme Court issued Resolution 1 guiding the application of several regulations on interest, interest rate and relevant penalty (Resolution 1/2019). Resolution 1/2019 will take effect from 15 March 2019. Below are some salient points of Resolution 1/2019

  • Resolution 1/2019 clearly states that the interest rate caps of the Civil Code 2005 and 2015 will not apply to credit contracts between banks and its customers. In the past, there has been long debate regarding whether the interest rate caps of the Civil Code 2005 and 2015 will apply to credit contracts.

  • If the interest rate, overdue interest on principal and overdue interest on interest are higher than the permitted cap, the exceeding interest which has been paid will be deducted from the principal of the loan.

Collective action mechanism among bondholders is one of the common features in terms and conditions of a corporate bond.  Two important features of collective action mechanism are:

·        the use of a bond trustee to act for the benefit of bondholders; and

·        the use of bondholders’ meeting to allow a decision of a majority (or super-majority) of bondholder regarding the bond (e.g. changing the terms of the bond) to bind minority bondholders who disagree with such decision.

Arguably, if the provisions of bondholders’ meeting are included in the terms of the bond and a bondholder agrees to such term then the provisions on a civil transaction under Civil Code 2015 may allow the use of bondholders’ meeting in Vietnam. However, the validity of a decision of a bondholders’ meeting which is not approved by all bondholders is still questionable under Vietnamese law. This is because: