The Securities Law 2019 removes the requirement for an approval by the State Securities Commission (SSC) for transactions involving 10% or more of the Charter Capital of a securities company. Instead, only a private placement of shares by a securities company is subject to SSC’s approval. Accordingly, it is not clear if an M&A Approval is required if a foreign investor acquires secondary shares from existing shareholders in a Vietnamese securities company.

A foreign investor purchasing shares in a company doing businesses sectors which are subject to market access conditions applicable to foreign investors will have to obtain an M&A Approval under the Investment Law 2020 from the relevant Department of Planning and Investment (DPI). Businesses carried on by a securities company are conditional businesses. However, Article 4.3(e) of the Investment Law 2020 provides that if the provisions of the Investment Law 2020 and other laws promulgated before the 1 January 2021 differ on (i) investment processes or procedures, or (ii) investment guarantee, except that the authority, processes, procedures, investment conditions, securities and securities market activities will follow the Securities Law 2019.

The Investment Law 2014 replaced by the Investment Law 2020 contains the same provision. In the past, under the Investment Law 2014 a foreign investor in a securities company does not need to obtain an M&A Approval on the grounds that (1) the Securities Law 2006 requires the approval by the State Securities Commission (SSC) for any transaction involving 10% or more of the Charter Capital and (2) the SSC’s approval is different from the M&A Approval under the Investment Law 2014.

Due to the removal of the SSC approval for transactions involving 10% or more of the Charter Capital of a securities company under the Securities Law 2019, it is not clear if an M&A Approval is required if a foreign investor acquires secondary shares from existing shareholders in a Vietnamese securities company. There are two possible interpretations:

Interpretation 1 – An M&A Approval is required in this context since there is no SSC approval contemplated by the Securities Law 2019 and, therefore, there is no difference between the Securities Law 2019 and the Investment Law 2020; or
Interpretation 2 – An M&A Approval is not required in this context since the exception under the Investment Law 2020 will still apply to securities companies regardless of whether or not an approval from the SSC is required.

Interpretation 2 seems to be more reasonable for the following reasons:

It is difficult to figure out the differences in terms of investment procedures between the two laws, especially the Securities Law 2019 has its own investment procedures applicable to investment in security companies.
If Interpretation 1 is adopted, then there is inconsistency in the application of the Investment Law 2020 on substantially the same issue. In particular, an M&A Approval is not required in case of private placement of shares by a securities company (since there is an SSC approval in such context) while an M&A Approval is required in case of a secondary transfer.
Under the Securities Law 2006, a foreign investor holding less than 10% shares in a securities company is also not subject to M&A Approval in practice despite that there is also no SSC approval in such case. Accordingly, the change under the Securities Law 2019 should be treated in the same manner as a foreign investor holding less than 10% shares in a securities company.

This post is written by Ha Thanh Phuc and Nguyen Quang Vu.

Vietnam Business Law