M&A Forum 2016

Dr. Nguyen Anh Tuan – Partner at LNT was speaking in the panel discussion of M&A Forum 2016 held by Vietnam Investment Review. He was sitting next to other speakers from foreign companies and Government representatives.

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Dr. Nguyen Anh Tuan – an expert in Antitrust/ Competition practice

The topic was regarding “M&A in wider economic boundaries”. This event earned a lot of media attentions such as: VTV, FBNC especially Bloomberg channel.

LNT & Partners is pleased to be a part of M&A Forum this year.

‪#‎Legal‬ ‪#‎MA‬ ‪#‎VIR‬ ‪#‎Forum‬ ‪#‎Vietnam‬ ‪#‎Acquisition‬

Other media: 

http://mavietnamforum.com/sukien/

https://www.talkvietnam.com/tag/nitil-jaiswal-from-bloomberg/

http://eventerbee.com/event/vietnam-ma-forum-2016,904791879630445

A Liberalised Framework

This article is our newest publication from “FDI Growth Economies Special Focus (2016)” which will be published in June 2016 by the International Financial Law Review (IFLR). This section is written by Mr. Bui Ngoc Hong – Managing Partner of LNT & Partners

Bui Ngoc Hong of LNT & Partners assesses the impact of Vietnam’s new FDI framework on the country’s growth prospects.

According to the Ministry of Planning and Investment of Vietnam, in 2015 FDI into Vietnam reached $24.11 billion, an increase of 10% year-on-year. The first four months of 2016 witnessed a surge of FDI into the country, with new FDI reaching $6.88 billion. This represents an increase of 85% over the same period last year.

It remains to be seen whether this wave of new investment will last. From a regulatory and policy perspective, one possible explanation is that many legislative improvements have recently been introduced to attract more FDI into the country.

A new framework

Vietnam’s new legal framework for FDI comprises two main elements: domestic laws and Vietnam’s commitments to international treaties. The latter are mainly in the form of free trade agreements (FTAs). With respect to domestic laws, the new Law on Enterprises (LOE) and new Law on Investment (LOI) were implemented on July 1 2015. On December 27 2015, Decree 118/2015/ND-CP became effective, completing the new legal platform for investment activities in Vietnam.

Vietnamese laws have narrowed down the areas where foreign investment is restricted. A foreign investor should generally be entitled to invest in and own their invested share capital in Vietnam in any sector, unless exceptionally
restricted in accordance with: (i) industry-based regulations and international treaties; (ii) laws on state-owned enterprises (SOEs), particularly those on the privatisation of SOEs; and, (iii) securities law in cases of investment in public, listed companies, or securities companies.

The restrictions in industry-based regulations and international treaties are being reduced due to recently concluded FTAs. Regarding the restrictions set out in the laws on SOEs, in October 2015 Vietnam’s Prime Minister instructed 10 state-owned conglomerates to divest their entire state-ownership. It is notable that these so-called mega-SOEs operate in crucial sectors such as insurance, mining, infrastructure and real estate, dairy, plastics, trading, and telecommunications. This development offers one of the biggest opportunities for foreign investors to enter into lucrative sectors, acquiring long-established brands and strategically located lands, together with a highly skilled managerial work-force in these privatised SOEs. This move is a signal of the government’s determination to leave private business to the private sector.

With respect to the restrictions in the securities law, according to Decree 60/2015/ND-CP, a local Vietnamese public company can now include the maximum ratio of foreign ownership in its charter. This means a foreign investor’s proposed investment into a local public company should have the company’s by-law restrictions lifted through the public company’s general meeting of shareholders.

Investment forms for foreign investors 

A foreign investor can choose to conduct their FDI in Vietnam by way of: (i) entering into a contractual arrangement – either a public-private partnership agreement (PPP) or a business co-operation contract (BCC); (ii) forming a joint venture (JV) with local investors, especially in those sectors where foreign ownership is yet to open fully; or, (iii) wholly owning a company (a wholly foreign owned company, or WFOC), in sectors open to foreign investors.

As for contract forms, foreign investors must use a BCC in certain restricted sectors. Foreign investors who would like to test the water before setting up their legal entity for market expansion may also choose a BCC. Meanwhile, the PPP is mainly used for infrastructure projects. This has great potential given that Vietnam is calling for more privately financed infrastructure projects. The PPP is advantageous to foreign investors because, once negotiated and agreed between the investors and the authority, a PPP agreement under Vietnamese law will generally have the same contractually-binding effects and enforceability as a private transaction, despite the negotiated matters being of a public nature.

The other two forms – the JV and WFOC – require foreign investors to own partially or wholly a Vietnam-based company. This foreign ownership can be achieved either by setting up a new company or through the foreign investor’s acquisition of share capital in an existing local company.

If choosing to set up a new company, whether a JV or WFOC, foreign investment is project-based, which must undergo two steps. First it is necessary to obtain an Investment Registration Certificate (IRC) approval for the proposed investment project. Second it is necessary to obtain an Enterprise Registration Certificate (ERC), setting up a company to run the approved project.

If choosing to acquire share capital in an existing local company (via M&A), the procedure is significantly simplified. No IRC is required. The general requirement is that the foreign investor conducts the M&A deal, and has it recorded in the relevant corporate registration documents of the target company (for example, the target’s amended ERC or the shareholders’ book) to reflect the foreign investor’s acquired share capital. Approval for the proposed M&A deal is only required when the target company is registered to engage in business lines conditional to foreign investment, or the target has 51% or more of its charter capital held by either: (i) a company with 51% or more charter capital held by foreign investors; or, (ii) a company with 51% or more of its charter capital held by the company in point (i).

Local status entitlement

This is the new legal regime’s most liberal improvement in favour of foreign investors, especially in those sectors where foreign investment is still subject to restrictions. In particular, under the LOI, a foreign invested enterprise (FIE) in which foreign investors hold, directly or indirectly, at least 51% of the FIE’s charter capital, will be treated as a ‘foreign investor’ in applying investment conditions and investment procedures. The others are treated as a ‘domestic investor’ with local status, and will be entitled to enjoy investment conditions and investment procedures applicable to domestic investors such as the freedom to invest in sectors still restricted to foreign investors.

This recognition of the LOI opens legal ways for foreign investors to enter into virtually any and all business sectors in Vietnam. As long as the foreign investor’s investment is structured to be entitled to local status, a foreign investor can invest, own and control their investment, even in sectors not yet open to foreign investment.

Highly restricted areas
Logistics
Vietnam has a large potential logistics market, currently valued at approximately $60 billion and with an annual growth rate of 20%. As of 2016, all of Vietnam’s market openings to foreign investors in logistics services have become due. These can be grouped into three categories.

Group one is where foreign ownership is lifted completely, ie setting up a WFOC is allowed. This group includes: warehousing and storage services; freight transport agency services; and, maritime transportation services (except for operating a fleet under the national flag of Vietnam). Group two is where foreign ownership can be up to a majority, but a JV is still required. This group includes road transport services and transportation agency services (except for freight transport agency services). In group three foreign ownership is restricted to 50% or less. It includes: loading and unloading services; towage services in Vietnamese seaports; shipping agency services and maritime transportation services which operate a fleet under the national flag of Vietnam; internal waterway and rail transportation services; and, air transport business services.

Retail sector
Vietnam’s current population is approximately 92 million, more than 60% of which are of working age. Vietnam’s economy is growing fast (the GDP was 6.7% in 2015) and the middle-class is growing rapidly. During the last 10 years, Vietnam has been one of the world’s most buoyant retail markets. The current annual revenue of Vietnam’s retail market is approximately $110 billion. Over recent years, the Vietnamese consumer trend has shifted from traditional to modern shopping channels, offering huge opportunities for the retail sector.

A foreign investor can legally set up their subsidiary in Vietnam in the form of a WFOC to retail almost anything. There are a small number of restricted products such as cigarettes, books and newspapers, pharmaceutical products and drugs, explosives, processed oil and crude oil, and rice. The restrictions to foreign retailers are not in the form of a maximum foreign ownership. Rather, it resides in a tool that is potent to the retail sector: the Vietnam authority’s discretion to permit opening retail outlets– or the socalled Economics Needs Test (ENT). The ENT applies to all FIEs. With the ENT, the establishment of more than one outlet is subject to approval based on the number of existing service suppliers in a particular geographic area, and the stability of the market and geographic scale. These criteria are vague, and difficult to judge. They give the licensing authority a high degree of discretion to permit – or otherwise – a FIE to open retail outlets beyond the first. The success of a retail business depends heavily on the number of outlets, which in this case is subject to approval of the authority.

Under the Trans-Pacific Partnership Agreement (TPP), Vietnam has committed to abolish the ENT within five years from the TPP’s effective date. This is positive news for foreign investors from TPP countries. Even so, during the next five years, a foreign-invested retail company must either accept being subject to ENT restrictions, or use special legal structures for their investment so as to enjoy local status, to win end-customers and build their retail outlets in this buoyant sector.

The pharmaceutical sector
Vietnam is the ASEAN’s third-largest by population. With living conditions improving rapidly, pharmaceuticals is one of the most lucrative sectors in the country. However, foreign investment into pharmaceuticals is welcomed only
in manufacturing, and is highly restricted in pharmaceutical retail. Despite the restrictions, as a result of the LOI’s liberal provisions, a foreign investor in pharmaceuticals can still find ways to achieve their commercial purposes either by using a special legal structure, licence partnerships, or product manufacturing arrangements.

Looking forward
Vietnam has recently made great efforts to improve its legal framework to attract more foreign investments. With the economy expanding and opening to foreign investors, the country seems to have committed to joining and playing by the rules of the global market. The playing field has become almost level, so foreign investments have never been so welcome. The coming years should see much more interesting competition and cooperation among investors.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This article is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact the author Hong Bui at (Hong.Bui@LNTpartners.com) or visit the website: Http://LNTpartners.com

BBGV Breakfast Seminar: Law on Investment 2015 in Action

Event details

The BBGV is hosting a Breakfast Seminar about: Law on Investment 2015 in Action.

LNT & Partners proudly supports and speaks at this event.

Please join Mr Tuan, Deputy Director of the Legal Department of the Ministry of Planning and Investment and Dr Net from LNT & Partners as they provide information on the new provision in the investment law; how it can affect your business structure and discuss whether the new provisions provide an improved investment climate for foreign owned companies.

Date and Time: Friday 14th August 2015, from 7:30AM to 9:00AM

Venue: Cat Ba Room, InterContinental Asiana Saigon, HCMC

The new Law on Investment became effective in July 2015, purported to make landscape reform to Vietnam business environment for foreign investors. How this new law will affect the business in practice and benefit your business? How would current projects already invested in Vietnam co-op with the new law? What would be the procedure for foreign investors to establish or acquire a company in Vietnam? How about the HS Code requirement in the Investment Registration Certificate?

These Questions will be answered by Mr Quach Ngoc Tuan, Deputy Director of the Legal Department of the Ministry of Planning and Investment (MPI) and Dr Le Net, partner at LNT & Partners.

Entrance Fees: – BBGV Members: VND 500,000 – Non-members: VND 600,000

RSVP to Nga at nga.nguyen@bbgv.org or call 08 3829 8430

Reservations not cancelled within 48 hours of the event will be charged as will no-shows and invoiced.

About the Speakers

Mr Quach Ngoc Tuan

Mr Quach Ngoc Tuan is the Deputy Director of the Legal Department of the Ministry of Planning and Investment (MPI).  He was the key person in the drafting committee of the Law on Investment, as well as the Decree implementing the new Law on Investment. Before joining MPI, Mr Tuan worked at the People’s Court of Ninh Binh Province.

Dr Le Net

Dr Net 1

Le Net is a partner at LNT & Partners, in charge of infrastructure, international arbitration and financial services. He has more 18 years of experience, and was a leading counsel in ICC arbitrations and awarded Lawyer of the Year in 2012 by the Ministry of Justice’s Law Journal.  Net was behind many complex cross-border infrastructure, M&A, banking and finance transactions.  Net is also an arbitrator of Vietnam International Arbitration Centre, and a member of Vietnam Bar Federation’s National Council.

Net co-founded LNT & Partners, one of the major leading Vietnam law firms, being the only Vietnam law firm ranked in FT 25 Innovative Lawyers 2015 by Financial Times, and Vietnam Deal Firm of the Year in 2014 by ALB Thomson Reuters.

Final LNT breakfast seminar

New Law on Investment Effective on 1st July

The new Law on Investment (LOI) has become effective as of 1st July. The final draft Governmental Decree implementing the LOI, as well as the draft Circular implementing the Decree is now being prepared by the Ministry of Planning and Investment (MPI) for issuance.

CV 4326 BKHDT-DTNN huong dan tam thoi 30-6-2015

Meanwhile the MPI has issued Official Letter 4326 /BKHĐT-ĐTNN (OL 4326) for ad hoc guidance to implement the new LOI, as well as the forms to be used from 1 July 2015 to obtain the Investment Registration Certificate (IRC) and its amendments; they key points are:

  1. Online application for IRC: investors can file IRC application online at the National Investment Portal [NIP], and submit a paper dossier within 15 days from the online filing. In the event that the dossier is accepted, the investors will be given a temporary account to check the application status. Any incorrect or incomplete application must be notified within 3 days from receipt by the licensing authority.
  2. Project Code: the project code is a 10 digit code to be issued to the applied project (Project) during its operation.
  3. Forms issued: among the forms submitted, please noted that CPC Code and VSIC Code (for business line) is still required when submitting to obtain the IRC. Separate forms are also available for amendments to the project.
  4. M&A approval: the form for M&A approval is on form I.6 attached to OL 4326. This form is simplified, and the explanation to satisfy conditions for M&A is rather brief and must strictly follow the WTO Commitment. It is unclear how other restrictions under local laws could be satisfied or would need to be satisfied (e.g. ENT for distribution companies).
  5. Forms of decisions and IRCs: OL 4326 also provides new forms of IRCs, Principle Approvals and other decisions for authorities to use.

While it is a progressive move forward, there are issues still to be clarified (as noted in our previous alert on OL 4211). Any questions are encouraged to be addressed to the Foreign Investment Agency (FIA) for guidance.

By Vietnam Law Insight (LNT & Partners)

For more information about this article, please contact the author: Dr. Le Net, LNT & Partners, at the email: Net.le@LNTpartners.com

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com