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.
Under the LCI 2010, the concept of indirect ownership is only provided in the definition of “major shareholder”. Therefore, it is reasonable to take the view that indirect ownership is only used for the purpose of determining the ownership of a major shareholder but not for the purpose of determining whether a single shareholder or a group of related persons comply with the ownership caps under the LCI 2010. Under the LCI 2010, a single individual/institutional shareholder cannot own more than 5%/15% of the charter capital of a VN Bank and a group of related persons cannot own more than 20% of the charter capital of a VN Bank. This is a reasonable interpretation because if indirect ownership is used for the determining whether a single shareholder or a group of related persons complies with the ownership caps under the LCI 2010, then the ownership of a single shareholder is equivalent to the ownership of such single shareholder and its related persons and should be subject to the same ownership cap.
However, Decree 1/2014 which applies to ownership of foreign investor does not follow the construct of the LCI 2010. Decree 1/2014 provides generally that “ownership” means both direct ownership and indirect ownership. This indicates that the term ownership in any context under Decree 1/2014 should include both direct ownership and indirect ownership. However, as discussed above, if indirect ownership is used to determine whether a single foreign shareholder or a group of related persons comply with the ownership caps under Decree 1/2014, then the cap of 20% of charter capital for a foreign investor and its related parties is not relevant since the shareholding ownership applicable to a single foreign investor will also include shareholding of such investor’s related persons. Therefore, it is unlikely that indirect ownership will be used to determine whether a single foreign shareholder or a group of related persons comply with the ownership caps under Decree 1/2014.
On the other hand, when a foreign investor purchases shares in a VN Bank under Decree 1/2014, indirect ownership could still be used to determine the appropriate approval procedures applicable to such investor. For example, if an acquisition by a foreign organisation results in less than 10% direct shareholding ownership but more than 10% shareholding ownership including both direct and indirect, such foreign organization should still be required to apply for SBV’s approval (see Here). Such interpretation would prevent the foreign organisations from using different related parties to acquire less than 10% shares to avoid obtaining SBV’s approval.
This post is contributed in part by Luu Hoang Hai, an associate of Venture North Law Limited.