The new rules on public offering of securities in Vietnam under the Securities Law 2019 and Decree 155/2020 contain several changes to the previous rules under the Securities Law 2006 and Decree 58/2012. Here are some notable new changes.

This post is written by Nguyen Khanh Linh and Nguyen Quang Vu.

1.         Forms of public offering of securities

According to Decree 155/2020, “the initial public offering of shares to establish an enterprise in an infrastructure or high-tech sector, or establish a shareholding credit institution, and “public offer of capital contribution contracts for investment”, are no longer considered as a separate form of public offerings. The forms of public offering under Securities Law 2019 now only consist of:

(a)        public offering for raising additional capital to the issuing organization;

(b)        public offering to become a public company by changing ownership structure without increasing the charter capital of the issuing organization; and

(c)        A combination of the forms described at (a) and (b).

2.         Requirements for initial public offering of shares

IPO and FPO

Under the Securities Law 2006, the rules on public offering of shares apply to all public offering in general. However, the Securities Law 2019 has divided public offerings into Initial public offering (IPO) of a joint stock company; and follow-on public offering (FPO) of a public company. Each type of public offering is subject to separate requirements.

IPO Requirements

An IPO is subject to the following requirements, among others:

(a)        the contributed charter capital of the issuer must be at least 30 billion VND on the offering date;

(b)        the issuer has profit over the last 02 years and has no accumulated loss as at the offering date;

(c)        at least 15% of the voting shares of the issuer must be sold to at least 100 investors, who are not major shareholders. If the charter capital of the issuer is more than VND 1,000 billion, then the free float ratio is reduced to 10%;

(d)        major shareholders of the issuer must undertake to hold at least 20% of issuer’s charter capital for at least one year from the IPO date; and

(e)        the issuer is not under criminal investigation or has been convicted with the crime in economic management.

Previously, under Securities Law 2006, the issuer only requires 10 billion VND of the contributed charter capital and the profit of the previous one year.

IPO by limited liabilities companies (LLCs)

Previously, under Decree 58/2012, only state-owned LLCs can convert into joint stock companies by way of IPO. Under Decree 155/2020, all LLCs (or members of a LLC) can make IPO for the purpose of conversion into a joint stock company.

Other issues

Under Decree 155/2020,

·       an issuance plan of a public offering approved by the shareholders meeting could authorize the Board to determine the offering price; and

·       if the public offering involves both new shares issued by the issuer and secondary shares of the issuer’s shareholders, the issuance plan must include principle regarding the priority of allocation of new shares and secondary shares.

3.         Requirements on follow-on public offering

FPO requirements

Under the Securities Law 2019 and Decree 155/2020, a follow-on public offering is subject to the following requirements, among other things:

(a)        complying with the requirement on paid up charter capital as noted at 2(a);

(b)        the issuer’s business is profitable during the last year before the year of the FPO and has no accumulated loss;

(c)        the aggregate par value of new shares to be issued will not exceed the existing charter capital unless there is a firm underwriting commitment by an underwriter; and

(d)        if the capital is raised to fund an investment project, the issuer must successfully raise at least 70% of the proposed amount of capital.

Issuing price under par value

If the trading price of the shares of the issuer is lower than par value then the issuer may conduct a FPO at a price lower than par value of the shares (i.e., VND 10,000). The trading price of the share is calculated based on the average reference price of the 60 days period before the record date of the shareholder list which is used for the shareholders meeting to approve the relevant FPO plan. The issuer also must have sufficient accumulated share premium as recorded in the latest audited annual financial statement to cover the deficit in share premium caused by the FPO at a price lower than par value of the shares.

4.         Other issues relating public offering of shares

Offering and listing

Under the Securities Law 2019 and Decree 155/2020, when an issuer submits the application for public offering of shares to the State Securities Commission (SSC), it must also submit the listing application to the relevant exchange. Under Decree 58/2012, an issuer has 12 months after a public offering of shares to list the issued shares.

Restriction on publicity

Decree 155/2020 prohibits an issuer, shareholder of an issuer, related persons or insiders of an issuer, related persons of an insider of an issuer to make public statement or assurance to investors in the future prices of the shares in any manner. 

Cancellation of the public offering

The Securities Law 2019 provides three new circumstances where a public offering of shares can be cancelled:

(a)        the issuer fails to satisfy the free float requirement described at section 2(c);

(b)        in case of FPO, the issuer fails to raise required capital for the investment project which the FPO is raising funds for; and

(c)        the public offering can be cancelled by an effective court judgement or decision, arbitration decision or decision of a competent authority.

Changes to the plans for use of proceeds

Under Decree 155, the plan for use of proceeds can only be changed when the amount involved is less than 50% of the total proceeds and the change is authorized in advance by the shareholders meeting in accordance with the company's charter. The change must be reported to the SSC and made public within 24 hours from the date of change.

Previously, under Decree 58/2012, there is no cap on the changed amount, no requirement that the authorization by the shareholders meeting must comply with the charter, and the time limit for reporting to the SSC is 10 days from the date of the change.

Less documents in application for public offering

Unlike Decree 58/2012, Decree 155/2020 no longer requires an issuer to include documents relating to a real estate project (e.g., investment registration certificate, land lease decision, and land clearance) or mining project, or infrastructure project (e.g., project approval decision), if the public offer is to raise financing for the real estate project, mining project or infrastructure project.

Decree 155/2020 also does not require the issuer to provide documents to evidence the applicable foreign ownership regarding the issuer.

Underwriter

The underwriter of a public offering can only underwrite the issuance of a number of securities whose value cannot exceed the issuer’s equity capital plus or 15 times of the difference between the current assets and short-term liabilities as recorded in the issuer’s latest quarterly financial statements.

Public offer in multiple tranches

If an issuer issues shares in multiple tranches then each tranche would not last more than 90 days and the period between two tranches must not exceed 12 months.

Escrow bank

Decree 155/2020 requires the escrow bank where the escrow account is opened must not be a related person of the issuer or the offering shareholder, and the escrow account must be different from the checking account of the issuer or the offering shareholder. Decree 58/2012 does not have such specific requirements.

Public offerings by restructured companies

 Decree 155/2020 has specific public offering conditions for issuers being companies which have undergone restructuring including merger, consolidation, split, division, and other form of restructuring. On the other hand, Decree 58/2012 only regulates public offering by issuers who have been merged or consolidated.