The liberalisation of foreign investment caps in Vietnam

TMF Vietnam Managing Director Suresh Kumar shares his views on the changes to Decree 60, with the liberalisation of foreign ownership caps on public companies, and the impact to businesses and investors in Vietnam.

The Vietnamese government introduced Decree No. 60/2015/ND-CP (Decree 60) on 1 September 2015, shortly after launching the new laws on investment and enterprises, with aims to improve its institutional framework as well as attract foreign investment capital to restructure and modernise the local economy.

Decree 60 has had a positive effect on investor sentiment, as it:

Demonstrates the country is opening up its borders to the integrating global economy. Public companies are able to attract foreign capital into Vietnam securities. The exception being companies carrying out the following business activities:

  • operating in a sector where relevant Vietnamese laws or trade agreements provide a foreign equity limit
  • operating in a sector “conditional for foreign investment” where relevant applicable laws are silent on any specific equity cap; the public companies will be subject to the cap of 49%
  • operating in business lines and industries with different provisions on foreign ownership ratio, then the foreign ownership ratio will not exceed the lowest ratio applicable to the business lines and industries, unless otherwise provided under international treaties.

Improves stock market liquidity, and mergers and acquisition (M&A) activity in the country. Market observers have seen the number of trading codes granted for foreign investors surge. According to the Vietnam Securities Depositary (VSD), by the end of May 2016, there was a three-month record high with 19,150 foreign investors granted trading codes for securities, including 16,209 individuals and 2,941 institutions.

According to statistics from the Ho Chi Minh City Stock Exchange (HOSE), the VN Index benchmark reached 618.44 points at the end of May 2016, a high compared to 564.75 points at the end of September 2015.

Allows those with larger stakes in a company to be involved in decisions. Since the launch of Decree 60, many public companies have proactively offered more room for foreign equity ownerships to support M&A activity. For example:

  • Saigon Securities Inc., an established local securities company, was first to announce it was open to a full foreign acquisition in 2015, followed by Everpia Vietnam JSC (EVE) and Vinh Hoan Finsheries
  • Bank for Investment and Development of Vietnam Insurance Joint Stock Corporation’s foreign ownership rose to 49%, from 21.5% in February 2016
  • Vietnam Dairy Products Joint Stock Company (VNM) consulted with shareholders selling off seven subsidiaries to make it more attractive to foreign investors. Revenue in 2015 was US$1.7 billion.

With the implementation of Decree 60, foreign investors need to be well-prepared and informed when acquiring shares of public companies resulting in ownership of 51% or more, as the investments will be deemed as foreign invested enterprises (“FIEs”) rather than local companies.

Companies will be required to review and amend current charters of these former “local companies”. This includes dividing the current enterprise (business) registration certificate into the investment registration certificate and the enterprise registration certificate.

The lifting of foreign investment caps provides opportunities for investors looking to invest in Vietnam and its growing economy.

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