Conversion of 100% State-owned Enterprise into Joint Stock Company

Decree No.116/2015/ND-CP providing amendments, supplements to Decree No. 159/2011/ND-CP on conversion of 100% State-owned Enterprise into Joint Stock Company

On 11 November 2015, the Government issued Decree No.116/2015/ND-CP (Decree 116) providing amendments, supplements to Decree No. 159/2011/ND-CP on conversion of 100% State-owned Enterprise into Joint Stock Company (Decree 59) with the highlighted points as follows.

 Regarding the investment capital of the enterprise undergoing equitization in other economic organizations, it is noticeable that in case there is a difference between the value recorded in the accounting books and the actual value of the re-assessment, i.e. the former is lower than the latter, the value of the re-assessment shall be the final statistic.

With regard to the determination of the initial share structure, the Decree 116 does not provide any restriction in the number of shares to be sold to strategic shareholders and other investors, which is in contrast with the Decree 59 where the number of shares to be sold was stipulated to be not less than 25% of charter capital for strategic shareholders not less than 50% for other investors.

With respect to large scale enterprises in which State owned capital is above 500 billion Dong operating in sensitive sectors and industries (such as insurance, banking, post and telecommunications, aviation, coal mining, petroleum and other rare mineral mining) and parent companies belonging to State Economic Groups and Corporations, the ratio of shares auctioned to investors shall be considered and specifically decided by the Prime Minister or by an agency authorized by the Prime Minister.

Decree 116 also provides that in case equitization of State Economic Group, State Corporation or enterprise operating in aforementioned sensitive sectors is subject to the approval authority of the Prime Minister, the Ministers, Head of Ministerial equivalent or Government agency or Chairman of the provincial people’s committee shall select the Stock Exchange or hire an intermediary financial institution to hold the auction.

Decree 116 takes effect from 11 November 2015 and revokes Article 1.2 of Decree No. 189/2013/ND-CP dated 20 November 2013.

By Vietnam Law Insight

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 at info@LNTpartners.com or our website http://www.LNTpartners.com.

Satisfy Demand for Securities Investment by Foreign Investors

Content of the new Law

On 26 June 2015 the Government issued Decree No. 60/2015/ND-CP (“Decree 60”) amending and supplementing certain provisions of Decree No. 58/2012/ND-CP, on the detailing and guiding the implementation of selected provisions of this, and the Law on Securities, which is considered as good news to foreign investors, since the long-awaited provisions will allow for majority ownership and control of public companies by foreign investors.

In this Decree, the foreign ownership ratio is extended to the Vietnamese securities market. Currently, a foreign investor may purchase up to 49% of total shares of a public joint stock company (JSC) or a listed company.  Beginning on the 1st of September 2015, this general restriction will be removed and instead, the new restriction will be subject to the WTO commitments or other specific domestic laws (e.g., the 30% cap in the banking sector). If there is a specific restriction under domestic law that has yet to be specified, then the rule of thumb is 49%.

When there is no restriction under domestic law (e.g., for production companies, or distribution companies), then there is no limit for the foreign shareholding ratio. This rule also applies to equitized SOEs, with the aim of attracting more foreign investment in the privatization program.

As for securities companies (or investment banks), those who are eligible to establish 100% foreign owned securities companies are allowed to buy up to 100% equity of local securities companies. Those who are not eligible can acquire up to 51% total shares.

Decree 60 also lifts all restrictions to foreign investors to purchase bonds. With respect to share certificates or derivative products of stocks of JSCs, the restriction will be relaxed as mentioned above. For this purpose, open funds or securities funds that have foreign shareholding more than 51% equity will be deemed as foreign investors. Decree 60 also addresses many other functions of foreign investment in public companies, along with other key aspects related to securities investment for foreigners.

Implications for Foreign Investors

The Decree is expected to act as a catalyst for more foreign investment in the private and State-owned sectors in Vietnam. It is intended to add vitality to the Vietnam securities markets and an extra boost to the equitization of State enterprises, as part of a plan to upgrade Vietnam from “frontier” market classification to “emerging” market classification at MSCI. It is reported that the shares with strongest liquidity on the Vietnamese stock exchanges are shares of issuers for which the 49% foreign equity quota has been used up. As such, the Decree is expected to act as an impetus to further foreign investment in Vietnam’s capital markets, both in equity and in debt markets

The Decree takes effect on September 1, 2015, and replaces Prime Minister Decision No. 55/2009/QD-TTg (15 April 2009) on the ratio of foreign investor’s participating on the Viet Nam securities market.

By Vietnam Law Insight (LNT & Partners)

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