The Investment Law 2014 introduces entirely new procedures “acquisition registration” for investment by foreign investors in the form of capital contribution or acquisition of equity interests in existing companies in Vietnam. However, due to its novelty, the new procedures may raise various unexpected consequences:
- Acquisition by a foreign investor of equity interest in a foreign-invested enterprise which is incorporated by an Investment Certificate under Investment Law 2005 is now technically subject to acquisition registration procedures instead of procedures to amend the Investment Certificate under Investment Law 2005. This is a major change to a well-established practice under the Investment Law 2005 and may result in unexpected delay to an acquisition of equity interest in a foreign-invested enterprise;
- An existing foreign investor in a foreign-invested enterprise which is incorporated by an Investment Certificate under Investment Law 2005 will now need to comply with the acquisition registration procedures when it contributes new capital to the foreign-invested enterprise. It is not clear whether additional capital contribution by such an existing foreign investor is still subject to procedures to amend the Investment Certificate as in the case of the Investment Law 2005;
- After a foreign investor acquires equity interest in a local target company and completes acquisition registration for the initial acquisition, the foreign investor will still have to comply with acquisition registration requirement each time the local target company increases its charter capital and issues new equity interest to its existing members. Therefore, a foreign investor will run the risk of not being able to make follow-up investment in case subsequent acquisition registration is rejected;
- If a local target company plans to expand its scope of business including business lines that are conditional to foreign investors after an acquisition by a foreign investor then it is not clear if the initial acquisition registration needs to be reviewed or amended to reflect the expanded scope of business of the local target company. The Investment Law 2014 has no procedures for reviewing or amending an acquisition registration; and
- A foreign investor may make an acquisition of a local target company which is not subject to acquisition registration (non-registration acquisition), if the acquired stake is less than 51% of the charter capital or if the local target company operates in sector which is not conditional to foreign investor. However, after a non-registration acquisition, if (1) the local target company expands its business to sectors which are conditional to foreign investor or (2) the equity holding of the foreign investor exceeds 51% (e.g. due to dilution of local investors), then it is not clear whether the foreign investor needs to obtain an acquisition registration. It is also not clear what would happen if the acquisition registration is required but is rejected by the authority. This is because a minority foreign investor may not be able to control whether (1) or (2) will happen.