Payment for shares in Vietnamese companies

Article 12.1 of the amended Ordinance on Foreign Exchange of the Standing Committee requires a foreign investor making an indirect investment including purchasing shares or capital contribution in a Vietnamese company to convert its foreign currency into Vietnamese Dong and transfer all payment through a Vietnamese Dong indirect investment capital account (CCA). Therefore, payment for shares in a Vietnamese companies should be made in Vietnamese Dong.

However, before Circular 32/2013 of the State Bank of Vietnam (SBV), it is not clear whether it is possible for a foreign investor to agree to denominate the share purchase price in US$ and pay the same in equivalent Vietnamese Dong. Article 22 of the Ordinance on Foreign Exchange requires all transactions “in the territory of Vietnam” must not be denominated in US$ except in case permitted by the SBV. Although a foreign investor does not reside in Vietnam, the CCA of such foreign investor is located in Vietnam. Therefore, a share purchase transaction between a foreign investor and a local seller could still be captured by the words “in the territory of Vietnam”.

Under Circular 32/2013 effective from 10 February 2014, it should now be possible for the parties to denominate the purchase price for shares in a Vietnamese company in US$. This is because:

  • Under Article 4.16 of the new Circular 32/2013, a resident supplying goods to a non-resident may denominate the price and receive payment in foreign currency; and
  • Under the Civil Code and the Commercial Law, goods may include valuable papers such shares.
Vietnam Business Law Blog

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).