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

Nghị định Hợp tác Công – Tư (PPP), Các dự án cơ sở hạ tầng đã thực sự mở cửa?

Với nhu cầu cơ sở hạ tầng ngày càng cao, trong khi ngân sách và nguồn vốn ODA có hạn, việc kêu gọi tư nhân vào các dự án cơ sở hạ tầng (PPP) được hy vọng là giải pháp khả thi nhất. Trong khi PPP đã thành công nhiều ở các nước ASEAN khác, nhất là Malaysia, thì các dự án PPP ở Việt Nam vẫn đang gặp trở ngại. Vì vậy, việc Nghị định 51 ngày 14 tháng 02 năm 2015 quy định về đầu tư theo hình thức đối tác công tư hy vọng sẽ đáp ứng được mong đợi của nhà đầu tư. Nghị Định 15 có những quy định mới đáng chú ý như sau:

  1. Nghị Định 15 quy định về hình thức các hợp đồng dự án, bao gồm Hợp đồng Xây dựng – Chuyển giao (Hợp đồng BT); Hợp đồng Xây dựng – Chuyển giao – Thuê dịch vụ (Hợp đồng BTL) và Hợp đồng Xây dựng – Thuê dịch vụ – Chuyển giao (Hợp đồng BLT). Như vậy nhà đầu tư không nhất thiết phải chuyển giao công trình cho nhà nước, mà có thể chọn nhiều giải pháp khác nhau, tùy yêu cầu của nhà đầu tư và bên cấp vốn cho vay dự án.
  1. Nghị Định 15 quy định rõ hình thức đầu tư và phân loại dự án được áp dụng hình thức PPP. Bên cạnh các dự án về cơ sở hạ tầng vật chất như cầu, đường, các công trình xây dựng… các công trình về thương mại, khoa học, công nghệ, khí tượng thủy văn, khu kinh tế, khu công nghiệp, khu công nghệ cao, khu công nghệ thông tin tập trung; ứng dụng công nghệ thông tin cũng được đưa vào danh mục các dự án được áp dụng hình thức PPP. Quy định này khuyến khích nhà đầu tư trong lĩnh vực nghiên cứu và công nghệ cao. Nghị Định 15 cũng quy định rõ, các dự án theo hình thức PPP sẽ được phân loại theo dự án quan trọng quốc gia, các dự án nhóm A, B và C. Nhờ đó mà các dự án nhỏ sẽ được thông qua nhanh chóng hơn.  Theo đó, Dự án nhóm C không phải thực hiện thủ tục cấp giấy chứng nhận đăng ký đầu tư.
  2. Nghị Định 15 quy định việc sử dụng vốn đầu tư của nhà nước tham gia thực hiện dự án sẽ được phân bổ c sẽ được dùng chủ yếuu để hỗ trợ xây dựng công trình phụ trợ, tổ chức bồi thường, giải phóng mặt bằng và tái định cư. Tuy nhiên nghị định không nói rõ giá trị quyền sử dụng đất có được tính trong tổng phí đàu tư hay không.
  3. Một trong những điều kiện để lựa chọn dự án là dự án phải có tổng vốn đầu tư từ 20 tỷ đồng trở lên (trừ dự án O&M và một số dự án đặc thù). Ngoài ra, dự án có khả năng thu hồi vốn từ hoạt động kinh doanh sẽ được ưu tiên lựa chọn.
  4. Về nội dung đề xuất dự án, bên cạnh các nội dung về thông tin dự án, yếu tố kỹ thuật… nội dung đánh giá dự kiến sơ bộ rủi ro trong quá trình thực hiện dự án và phân chia rủi ro giữa cơ quan nhà nước có thẩm quyền và nhà đầu tư cũng cần được đề cập.
  5. Nghị Định 15 cũng quy định về thời điểm ký kết hợp đồng dự án. Theo đó, nhà đầu tư đàm phán và ký tắt hợp đồng dự án trước, sau đó được cấp giấy chứng nhận đăng ký đầu tư. Bước cuối cùng mới là ký kết hợp đồng dự án. Như vậy, các thiệt hại, thay đổi hay phát sinh trước khi ký kết hợp đồng dự án có phát sinh hậu quả pháp lý hay không? Vấn đề này vẫn chưa được trả lời.
  6. Về nội dung hợp đồng dự án, Nghị Định 15 liệt kê các nội dung cần thiết trong một hợp đồng PPP, các tài liệu đính kèm cần thiết. Ngoài ra, Nghị Định 15 có quy định mở để các Bộ, Ngành và UBND cấp tỉnh được phép đề xuất một hình thức hợp đồng khác với các hình thức đã được quy định tại Nghị Định 15 để trình Chính phủ xem xét, quyết định.
  7. Nghị Định 15 cho phép chuyển nhượng quyền và nghĩa vụ theo hợp đồng dự án, hoặc chuyển nhượng một phần hoặc toàn bộ dự án. Điều này mở cửa cơ hội chứng khoán hóa (securitization) cho dự án, giải tỏa một phần lo lắng cho các nhà tài trợ hay ngân hàng đối với vấn đề tài chính dự án, nhất là khi chủ đầu tư không đủ năng lực để tiếp tục thực hiện dự án.
  8. Về pháp luật áp dụng, Nghị Định 15 quy định rõ cho phép các bên ký kết có thể thỏa thuận việc áp dụng pháp luật nước ngoài để điều chỉnh các hợp đồng dự án mà một bên là nhà đầu tư nước ngoài hoặc Các hợp đồng được Chính phủ bảo lãnh nghĩa vụ thực hiện. Đây là thay đổi lớn và cho phép các nhà tư vấn tài chính quốc tế được tham gia sâu rộng vào dự án.
  9. Nghị Định 15 quy định về nghĩa vụ bảo đảm thực hiện hợp đồng dự án, tuy nhiên Nghị định lại đưa vấn đề này cho luật đấu thầu giải quyết. Vấn đề bảo lãnh của Chính phủ không được quy định rõ, mà được giao lại cho Bộ Tài chính và Bộ Tư pháp nghiên cứu.
  10. Đối với doanh nghiệp dự án, sau khi được cấp giấy chứng nhận đăng ký đầu tư, nhà đầu tư thành lập doanh nghiệp để thực hiện dự án phù hợp với mục tiêu, phạm vi hoạt động đã thỏa thuận tại hợp đồng dự án. Việc thành lập doanh nghiệp dự án được thực hiện theo quy định của pháp luật doanh nghiệp.
  11. Nghị Định 15 quy định rõ nghĩa vụ giám sát thực hiện hợp đồng dự án của nhà đầu tư, doanh nghiệp dự án và cơ quan nhà nước có thẩm quyền. Việc phân định trách nhiệm cụ thể này là cần thiết để đảm bảo dự án được giám sát thực hiện một cách cẩn trọng. Về giá, phí hàng hóa, dịch vụ và các khoản thu, Nghị Định 15 tôn trọng thỏa thuận của các bên trong hợp đồng dự án, tạo điều kiện để nhà đầu tư thu hồi vốn và lợi nhuận. Đây là cơ sở quan trọng để nhà đầu tư đàm phán giá với các bên cung cấp hay bên mua hàng của nhà nước nếu có các ràng buộc bất lợi cho nhà đầu tư.
  12. Nghị định 15 quy định rõ thời hạn để quyết toán công trình dự án. Theo đó, trong thời hạn 06 tháng kể từ ngày hoàn thành công trình dự án, nhà đầu tư thực hiện quyết toán vốn đầu tư xây dựng công trình.
  13. Về việc thế chấp tài sản, quyền kinh doanh công trình dự án, Nghị Định 15 quy định rõ Nhà đầu tư, doanh nghiệp dự án được thế chấp tài sản, quyền sử dụng đất và quyền kinh doanh công trình dự án tại bên cho vay theo quy định của pháp luật về đất đai và pháp luật về dân sự, với điều kiện thời hạn thế chấp không quá thời hạn hợp đồng dự án. Tuy nhiên, thời hạn thế chấp có thể vượt quá thời hạn hợp đồng dự án nếu có thỏa thuận tại hợp đồng dự án. Về hình thức thỏa thuận thế chấp, thỏa thuận thế chấp tài sản, quyền kinh doanh công trình dự án phải được lập thành văn bản ký kết giữa bên cho vay và các bên ký kết hợp đồng dự án. Như vậy quyền lợi của bên cho vay đối với dự án sẽ được bảo đảm phần nào.
  14. Về việc sử dụng ngoại tệ trong dự án, Nghị Định 15 quy định nguyên tắc Bảo đảm cân đối ngoại tệ. Theo đó, nhà đầu tư, doanh nghiệp dự án được mua ngoại tệ tại tổ chức tín dụng được phép hoạt động ngoại hối để đáp ứng nhu cầu giao dịch vãng lai, giao dịch vốn và các giao dịch khác hoặc chuyển vốn, lợi nhuận, các khoản thanh lý đầu tư ra nước ngoài theo quy định của pháp luật về quản lý ngoại hối
  15. Về vấn đề giải quyết tranh chấp, Nghị Định 15 phân loại các tranh chấp thành (i) Tranh chấp giữa cơ quan nhà nước có thẩm quyền và nhà đầu tư hoặc doanh nghiệp dự án và tranh chấp giữa doanh nghiệp dự án với các tổ chức kinh tế tham gia thực hiện dự án; (ii) Tranh chấp giữa cơ quan nhà nước có thẩm quyền với nhà đầu tư nước ngoài hoặc doanh nghiệp dự án do nhà đầu tư nước ngoài thành lập và (iii) Tranh chấp giữa doanh nghiệp dự án với tổ chức, cá nhân nước ngoài hoặc với các tổ chức kinh tế Việt Nam và tranh chấp giữa các nhà đầu tư. Theo đó, cơ quan giải quyết tranh chấp tương ứng cho các trường hợp nêu trên là tổ chức trọng tài hoặc tòa án Việt Nam theo quy định của pháp luật Việt Nam; Trọng tài hoặc Tòa án Việt Nam hoặc hội đồng trọng tài do các bên thỏa thuận thành lập và được giải quyết theo quy định của Luật Đầu tư. Tranh chấp được giải quyết bằng trọng tài theo quy định tại hợp đồng dự án và các hợp đồng liên quan là tranh chấp thương mại. Quyết định của trọng tài nước ngoài được công nhận và thi hành theo quy định của pháp luật về công nhận và thi hành quyết định của trọng tài nước ngoài.
  16. Nghị Định 15 quy định trách nhiệm của các Bộ, Ngành liên quan. Trong đó, Bộ Kế hoạch và Đầu tư, bên cạnh các trách nhiệm khác, có trách nhiệm cấp, điều chỉnh, thu hồi giấy chứng nhận đăng ký đầu tư đối với các dự án thuộc thẩm quyền; thẩm định nguồn vốn đầu tư của Nhà nước tham gia thực hiện dự án theo thẩm quyền; tham gia ý kiến về các vấn đề thuộc chức năng, thẩm quyền theo yêu cầu của Bộ, ngành và Ủy ban nhân dân cấp tỉnh; Bộ Tư pháp, bên cạnh các trách nhiệm khác, có trách nhiệm Cấp ý kiến pháp lý đối với hợp đồng dự án, văn bản bảo lãnh của Chính phủ và các văn bản liên quan đến dự án do cơ quan nhà nước ký kết.
  17. Đối với các đồng dự án được ký tắt trước ngày Nghị định này có hiệu lực thi hành không phải đàm phán lại. Như vậy các dự án BT trước đây tạm ngưng không thực hiện nay có thể được tiến hành lại.

Những thay đổi tại Nghị định PPP đem lại nhiều dấu hiệu tích cực cho nhà đầu tư lẫn ngân hàng tài trợ. Có một số vấn đề như bảo lãnh chính phủ, hay cam kết quy định về giá, hay hỗ trợ dòng tiền (take or pay) sẽ còn một số điểm phải làm rõ.  Song việc một loạt các dự án PPP đang tiếp tục khởi động, đặc biệt trong lĩnh vực giao thông vận tải, cũng như việc Vietjetair đặt vấn đề mua lại nhà ga T1 Nội Bài cho thấy đây sẽ là động lực để thúc đẩy phát triển và quản lý tốt các dự án cơ sở hạ tầng.

Thực hiện bởi Vietnam Law Insight (LNT & Partners)

Ghi chú: Bài viết này chỉ nhằm mục dích cung cấp thông tin. Nội dung nó không mang tính tư vấn pháp lý cho bất kì trường hợp cụ thể nào. Để biết thêm thông tin chi tiết, vui lòng truy cập website: Http://LNTpartners.com hoặc liên hệ tác giả: Tiến sĩ Luật Lê Nết, DT : +84909759 699 Email: Net.le@LNTpartners.com

M&A Vietnam Overview 2013

Overview

M&A transactions in Vietnam have seen steady growth from 2003, fostering the country as a potential hub for economic activity which has seen strong development in recent years, particularly after Vietnam officially became a member of the World Trade Organization (WTO). Featuring crowded markets, stable economic growth and rising income per capita, Vietnam is still considered as an attractive destination for investors.

Despite setbacks of the global financial crisis from 2007 to 2009, corporate investment into and within Vietnam has rebounded, with the value of M&A transactions growing from 15-30% annually until now. In 2009, Vietnam had a total of 295 M&A deals with a total value of approximately US$1.14bn. By 2010, the number of deals had decreased slightly to 245 but with their total value escalating to US$1.75bn. In 2011, the number of M&A deals in Vietnam reached 266 with a total value of US$6.25bn, up 3.5 times from the previous year, and in only the first quarter of 2012, the value of M&A deals has risen to over US$1.5m with 60 deals.

The recent trend of M&A shows an increase in value with a decrease in the number of transactions. This may be partly explained by the fact that high interest rates (25% per annum at the moment) amid economic and financial crises have led to many distressed assets in the country. Meanwhile most domestic companies rely on loans as mobile capital and in certain cases to create fixed assets. This offers an opportunity for investors, including multinational companies (MNCs) and private equities, to penetrate into Vietnam through M&A.

The three most active sectors are consumer goods, financials and real estate. Among those, the consumer goods sector ranked first in total deal size at US$1.035bn (accounting for 39% of the total value), with financials accounting for US$453m (17%) and real estate for US$251m (9%). It is predictable that inbound M&A is more popular than outbound M&A. However, on an interesting note, the highest deal amount came from corporations from China and the US, but inbound cash flows came from Japan.

Earlier this year, Japanese confectionery firm, Ezaki Glico Co., bought 14 million shares (equivalent to a 10% stake) of Kinh Do Corporation as its first step in launching Glico products into Vietnam’s market. Japan’s Mizuho Corporate Bank Ltd. expects to complete the disbursement of over US$567m to acquire a 15% stake in Vietcombank, the second-ranked commercial bank in capitalisation in Vietnam. The stake acquisitions of investors from Japan have been seen in many fields, from finance, real estate, media and consumer goods, including acquisitions of 25% of Nutifood, 48% of Saigon Paper, 57% of Interfood Shareholding Company and 95% of Diana to name a few.

Despite strong growth, numerous key observations of Vietnam’s M&A landscape have been made:

First, Vietnam is still in the process of maturing its commercial centre with a majority of enterprises still considered small or medium-sized enterprises. Therefore, the value of individual M&A transactions generally only falls within the US$5-20m bracket. One of the most challenging factors for foreign investors is the transparency of Vietnamese enterprises. The spirit and commitment in complying and ensuring transparency after “closing the transaction” is an obstacle which must be overcome in order to attract and retain investment flows. Due to the transparency issue, investment funds currently only invest in leading companies. This creates a paradox whereby competition among investors in the same segment, and the cost of capital for investors, are increased. This creates issues for smaller businesses and inhibits their growth potential as they cannot yet gain access to investment capital.

Second, foreign M&A transactions in 2011 accounted for 66% of the total value of M&A transactions in Vietnam (reaching a value of US$2.6bn). By the end of the second quarter of 2012, Japan was the largest foreign investor in Vietnam, having engaged in approximately 4,000 investment projects. Despite this, however, offshore investments from other developed nations have not yet taken off as foreign investments are still being strongly carried out by neighbouring economies, including Laos, Cambodia and most recently Myanmar. According to a survey made in late 2011, weak macroeconomics is considered as the most significant factor of investment obstacles, with corruption and government red tape following in second and third places. Investors’ confidence towards the Vietnamese economy has fallen due to macroeconomic issues such as high inflation and the GDP growth rate.

Third, Vietnam’s M&A landscape has been faced with legal and administrative barriers, including a lack of transparency owing to insufficient disclosure of information of target companies from the public authorities. Furthermore, a lack of clarity on applicable investment laws has unnecessarily prolonged transactions, as well as seen a need for seeking third-party assistance to reconcile differences caused by this lack of clarity.

Finally, despite the fact that Vietnam’s accession to the WTO Commitments has resulted in a significant increase in flow of FDI into the domestic markets, it has seen numerous restrictions imposed on foreign investors – particularly those stipulating an upper limit as to the amount of capital permitted for investment in various sectors such as banking, retail and distribution.

Significant Deals And Highlights

In 2011, Vietnam was graced with significant M&A transactions in a broad spectrum of sectors – particularly in banking and consumer products. Given the magnitude of the transactions, Vietnam is observably seeing a positive trend towards foreign investment into the country. Some significant transactions include:

(i) Mizuho Corporate Bank Ltd’s acquisition of a 15% stake in Vietcombank, a transaction valued at approximately US$567m

On 30 September 2011, Vietcombank and Mizuho Corporate Bank Ltd (Mizuho), one of the leading financial groups in Japan, entered into a strategic partnership agreement under which Mizuho purchased 347.6 million ordinary shares at a value of VND34,000 per share, accounting for 15% of the charter capital of Vietcombank. This transaction marked the first success during the pilot process of equitisation of large state-owned banks. The cooperation with Mizuho puts Vietcombank on a new positive light. Particularly, Vietcombank’s financial capacity was enhanced and the surplus acquired from this transaction was VND 8.343bn. In addition, this opened a great opportunity for Vietcombank to exchange its experience in corporate management, risk management and service development with Mizuho. An interesting feature of this deal is that most analysts believed that Mizuho had accepted to purchase the shares of Vietcombank at a higher price in comparison with current market prices, despite the fact that Vietcombank’s share would have been sold at a higher price before the financial turmoil starting from late 2010. One of the key factors for Mizuho’s consideration in this deal is that the customer network of Vietcombank is diversified to more than 6 million individual customers and more than 74,000 corporate customers.

The M&A transaction between Mizuho and Vietcombank is expected to benefit both parties. It aided Mizuho in expanding its retail banking portfolio through Vietcombank’s system. Meanwhile Vietcombank can maintain its leading position in the Vietnamese banking market and expand its operations over the international market, as well as achieving the position of being one of the 70 largest financial groups in Asia (except for Japan) by the year of 2020.

(ii) C.P Pokphan’s acquisition of 70.82% of the stake in C.P Vietnam, a transaction valued at approximately US$609m
This was an off-shore deal whereby C.P. Pokphan (CPP) indirectly owned and controlled C.P Vietnam by acquiring Modern State, a subsidiary of Charoen Pokphan Group (CP Group) having a head office in Thailand, which was holding a 70.82% stake in C.P Vietnam valued at VND12,000bn (equivalent to US$609m). The remaining shares (accounting for 29.18%) were still owned by CP Group. CP Vietnam is regarded as a leading company specialising in the manufacture of cattle food and sea food in Vietnam, as well being recognised as one of the fastest developing enterprises in the South-East Asian agricultural market. For the time being, CP Vietnam accounts for 20% of the market share in respect of breeding food in Vietnam, 77% of the market share in industrial pigbreeding and 30% of the market share in chicken breeding in Vietnam. As such, this M&A deal was seen as a transaction to polish the reputation and image of CPP for the purpose of publicly listing on the Hong Kong Stock Exchange.

However, CPP’s aim in this strategic acquisition was to take the leading position in the Vietnamese market for cattle breeding food and agriculture, as well as supporting the chain of 78 processing factories of CPP in China in the supply of raw material for manufacturing breeding food and other agricultural products. This acquisition raised fears that Vietnamese enterprises are becoming targets for foreign groups in this sector, particularly in the South-East Asian region, to acquire. Due to their great financial capacity, it is inevitable that foreign investors would dominate and control the market in cattle breeding and food supply following the end-to-end process. However, the fast acceleration of CPP seemed to fall beyond the contemplation of domestic companies. According to the Vietnam Association of Seafood Exporters and Producers (VASEP), the domination of these groups forces 30% of Vietnamese enterprises operating in this sector into bankruptcy. From an economic perspective, this is a positive signal which is expected to stimulate Vietnamese enterprises in enhancing their business scale, competition capability, technological level and so forth in order to survive and develop in this sector. Nevertheless, in practice it is impossible for a majority of domestic companies to pursue the end-to-end model such as that of CPP. As a result, their lower position in competition is evident.

(iii) Kohlberg Kravis Roberts & Co. LP’s acquisition of 10% of the stake in Masan Consumer Vietnam, a transaction valued at approximately US$ 159m

This features an increase in PE investments involving reputable organisations such as Diageo Plc (acquiring a 23.6% stake in Hanoi Liquor Joint Stock Company (Halico) for US$51.6m from VinaCapital portfolio), Mount Kellett Capital Management investing US$100 in Masan Resource, and SEB Group acquiring a 65% stake in Vietnam Fans Joint Stock Company. This deal is by far the biggest private investment in Vietnam.

Through this deal KKR proposed that Massan acquire other enterprises in the industry, especially companies with strong business operations and a low PE ratio. The PE funds are disbursed during the period (cycle) of economic difficulties and enhance the liquidation and divestment in the market, exciting activities. Because of this aspect, the period of prolonged economic hardship in Vietnam today is a good time for funds to seek investment opportunities in the country. Many large PE deals have announced success in recent years to highlight the interest of international investors in the Vietnamese market.

(iv) Gtel Mobile’s takeover of VimpelCom in the Beeline mobile network joint-venture, a transaction valued at approximately US$45m

This deal reflects a different trend of M&A in comparison with the previous, in which VimpelCom, the second largest mobile group in Russia, decided to sell all of its 49% stake in the joint venture to local partner, GTel Mobile, in order to cut losses in early 2012. According to published information, VimpelCom will be paid in cash the value of US$45m to completely pull out from the joint venture. GTel Mobile will stop using the Beeline brand after six months from the date of the transfer. It is notable that GTel had only spent $45m to acquire full control of Beeline, where building the first mobile network in Vietnam was estimated to cost at least US$1bn. Hence, VimpelCom’s was perceived strongly as a move in cutting losses. Up to this point, VimpelCom had not announced how much loss it had suffered in Beeline Vietnam. However, one can estimate the magnitude of the losses in considering the US$463m that VimpelCom had invested in Beeline Vietnam.

This was a turnabout from VimpelCom’s announcement in April 2011 that it would invest US$500m into the Beeline in 2013, thereby bringing the total network investment to US$1bn, if it achieved its business objectives and obtained relevant approvals from the competent authorities. Therefore, the withdrawal of VimpelCom demonstrated that it was unable to create opportunity in the investment and was forced to sell its shares. There are various reasons to explain the failure of Beeline, such as its low average revenue per user (ARPU), saturation level and the diffi culty in expanding its coverage. However, many believe that one of the main reasons is that the appearance of Beeline with the impression of the BigZero package, which indeed had brought excitement and further innovation into the market, had caused serious concerns for major State-owned mobile networks (holding 95% of the market), such as MobiFone, VinaPhone and Viettel. These network operators had publicly asked the Ministry of Information and Communication

(MIC) to secure the mobile network from cut-throat competition resulting from aggressive marketing activities. In fact, Beeline was also unable to apply 3G technology due to technical barriers created by MIC and was forced to use the 1800 MHz band, which was more costly and less efficient than the 800-900 MHz band deployed by other operators.
The possibility of excessive state intervention to protect State ownership may be considered as a factor that foreign investors must consider in selecting the investment sector in Vietnam.

Vietnam’s Legal System For M&A Transactions

The economy of Vietnam embraced the influx of M&A activities within the country, following the State’s promotion in encouraging investment in 2000. From this year until 2006, these investment activities were primary governed by the Law on Enterprises, Law on Investment, Law on Securities, Law on Competition, and other specific legal instruments. For both domestic and foreign M&A transactions, M&A transactions must be conducted in accordance with the following legal instruments:

(i) Mechanism of transactions, amendments to licences/certificates and management of target enterprises after transactions are stipulated in the Law on Enterprises and relevant regulations, including Decree 102 and Decree 43 issued in 2010.

(ii) In some cases, subject to the scale of the target company after a transaction, investment registration is required by the Law on Investment and relevant regulations, including Decree 108.

(iii) If parties to an M&A transaction have a combined market share as defined in the Law on Competition of between 30% to 50% of the relevant market, they are required to notify the Vietnam Competition Administration Department (“VCAD”) for its approval before conducting this transaction. If the combined market share after an M&A transaction exceeds 50% of the relevant market, it will be prohibited. The parties must submit an application for individual exemption if it satisfies conditions stipulated under the Law on Competition.

(iv) M&A relating to shares/securities of public companies, listed companies, investment funds and securities companies must comply with some specifi c requirements of the Law on Securities and relevant regulations.

(v) M&A in specifi c sectors such as banking, fi nance and insurance must be conducted in accordance with specifi c laws and regulations. In addition to satisfying conditions for new members/ shareholders after a transaction, approvals of the transaction by the authority in charge are almost always required.

Despite the State’s promotion of these activities and attempts to reform placed on the agenda, the legislature has still been faced with diffi culties, in that certain inconsistencies in the law still inhibit the development of M&A transactions in the country. According to a survey conducted in 2011, the legal system in Vietnam was cited by 82% of respondents as one of the factors constraining their investments. Together with corruption, Government red tape, and infrastructural issues, the legal system has been cited as one of the top four concerns since the first survey. It seems that there has been no improvement in the view of investors, as the number of investors considering them as hindrances for their investments has consistently increased. Certain notes on restrictions against foreign investors are highlighted as follows:

(i) Restrictions on business lines and shareholding proportion of a target company after a transaction mentioned in WTO Commitments on services of Vietnam need to be studied. For instance, a company with more than 49% ownership by foreign investors will be considered as foreign-owned company and will face this restriction.

(ii) Under Decision 55/2009, only 49% of shares/securities are available for foreign investors relating to M&A of public companies, listed companies, investment funds and securities companies. There is a draft of new regulations to remove the cap on foreign holding ratio but however, to date, the draft has not been fi nalised.

(iii) In the case foreign investors acquire shares of domestic companies, such company may be required to conduct investment registration procedure. Foreign investors are required to make payment for the transaction by a VND account opened in Vietnam. In addition to these above restrictions, the legal framework for M&A in Vietnam still maintains the following shortcomings that may inhibit M&A transactions:

(i) The basis for calculating the “market share” in relation to an “economic concentration” is not addressed clearly by the Law on Competition and regulations so therefore, implementing this requirement on M&A has not been efficiently conducted by VCAD.

(ii) In 2007 when Vietnam acceded to the WTO, capital ratio requirements of foreign investors in domestic companies were specifi cally addressed in the roadmaps for a majority of key services. However, a few services have not been mentioned in these commitments and these services are approved on a case-by-case basis only. In addition, for the time being, the 30% restriction on commercial banks, as well as a 49% restriction mentioned in Decision 55/2009, are causing difficulty and are materially affecting foreign M&A transactions.

(iii) The laws have not clarified requirements on procedures of investment registration after transactions related to foreign investment. As a result, a number of difficult guidelines on this matter have been issued by the authorities in charge.

(iv) In relation to the private placement of non-public companies, a number of transactions which involve private placement have been delayed for two years owing to a lack of guidelines for implementing Decree 01/2010. As from September 2012, Decree 01/2010 was replaced by Decree 58/2012. While we are awaiting new detailed regulations to implement this Decree, it is expected that transactions involving private placement will in practice be allowed to proceed.

(v) The quality of the current Vietnam Accounting System (the “VAS”) has been lower than the International Financial Reporting Standards (the “FRS”), despite some parts of FRS being incorporated into the VAS. We note that in 2020, the VAS will fully comply with the FRS. Financial due diligence and transactions are being affected by this shortcoming. Furthermore, GLI – Mergers & Acquisitions Second Edition 101 http://www.globallegalinsights.com
LCT Lawyers Vietnam regulations on capital gains tax also need to be clearer in which the implementation of double tax agreements must be conducted strictly by a tax agent. The roadmap of 2012-2015 forecasts an intention of the country to sustain further development of M&A activities, and the following highlights are worth noting:

First, as abovementioned, legal reforms to the M&A landscape are on the agenda, which will aim to resolve current obstacles facing this area, as well as offer greater support to parties engaging in these transactions. Amendments to the Law on Investment, Law on Enterprises, Law on Real Estate, and Law on Securities will come soon. These amendments will be used as a stepping stone towards drafting detailed regulations. Of particular interest to foreign investors would be those amendments made to the Law on Land and Law on Securities, which endeavour to broaden the restrictions against foreigners.

Second, discussions are underway on supporting a decrease in taxes, in which the rate of corporate income tax may be lowered to 20% from 25%, and exemptions made for capital gains tax from securities transactions. Other benefits are expected to be made in an effort to encourage investment activity. Also, it is anticipated that improvements will be made to policies on managing inflation and currency.

Third, it is understood that Vietnam is on its way to establishing new appropriate policies on decreasing and avoiding red tape. A national database on enterprises and investments is expected to be implemented in the near future, which will bring forth much-needed transparency into the country. Furthermore, new regulations on the information management against strictly-managed, publicly-listed companies will assist in this respect. Although the country is still far from establishing directions similar to those of Asian global financial centres such as Hong Kong or Singapore, investors will be pleased to know that positive reforms are underway to reflect Vietnam’s shifting economy. Industry Sector Focus As Vietnam is an emerging market with a population of almost 90 million, M&A transactions have seen particular focus on consumer products, banking and real estate. Historically, these sectors have accounted for over 70% of the total value of M&A transactions in the country. However, with 70% of the population engaged in the agricultural industry, we anticipate a key focus in this area over the
upcoming years.

M&A deals in agricultural and consumer sector

M&A activities in the South-East Asian region currently focus on sectors of distribution, wholesale, retail of agricultural products, food and seafood (hereinafter referred to as consumer sector). These sectors are granted numerous incentives from the Government. M&A transactions engaged in the consumer sector are also based on a trend in developing the region, with the demand of consumption increasing day-byday in Vietnam. In particular, as demand in the consumption of luxury goods is rapidly growing, it has encouraged European and American investors to penetrate into this sector to satisfy enormous demands. M&A activities in the consumer sector are expected to remain positive in the year ahead due to a number of reasons.

First, the consumer market in Vietnam has been developing in recent years thanks to the country’s young population, with high demands of consumption and growing incomes.

Secondly, domestic enterprises engaging in manufacture of consumer products have encountered many difficulties in capital owing to high interest rates.

Finally, due to a lack of capital and experience, these local enterprises approach foreign investors for further investment strategies. Particularly, foreign investors such as those from Japan, owing to damage from natural disasters occasionally occurring in the country and the development of the country’s economy having reached its limit, also wish to invest overseas in order to maintain their capital and broaden their markets. Therefore, most investment in local enterprises operating in the consumer sector provides a positive outcome.

M&A in the real estate sector

M&A activities in the real estate sector in 2012 has grown in popularity, particularly in the first six months of the year. There are more vendors than purchasers in M&A activities as real estate developers and stakeholders are encountering financial difficulties such as funding difficulties and low liquidity.

Many domestic investors run out of capital to maintain their construction projects while stocks are kept at high levels. They are forced to transfer their real estate and fulfill their financial obligations to repay money to the bank.

Activities in M&A transactions in the real estate sector are very popular – particularly by way of selling enterprises with real estate projects. This trend is due to the prolonged and diffi cult procedures in transferring real estate projects in real estate-related M&A transactions. Therefore, acquiring 100% ownership seems to be the most favourable solution of investors, rather than solely purchasing the projects. This method can be easily progressed by purchasing the capital contribution and shares in the company which own existing real estate projects. This sector has also experienced an increase in the participation of local enterprises in M&A activities. However, one major obstacle for domestic developers is the scarcity of investment capital. It is uncertain when the real estate market will recover but however, we are certain that real estate market will be restructured after the economic crisis period from M&A transactions. Investors with strong financial health will purchase real estate and continue to develop it.

Banking

The banking sector is the leading sector in M&A activities, with many high-value transactions in 2008 to 2010. The success rate of transactions is about 30%. Under the impact of the global financial crisis between 2008 and 2009, the number of successful transactions in the past two years was very modest. However, in 2010, when the crisis hit hardest, this number increased rapidly. Particularly, nine M&A transactions representing 20% of the state-owned banks and commercial banks have been recorded. In 2012, the tendency of M&A in the banking sector is the same as in 2011. The majority of acquisitions have been conducted by foreign banks or credit institutions. The sudden variation in M&A transactions in the banking sector may be explained by three main reasons.

First, Vietnamese banks seek to find strategic partners by way of issuing shares to foreign banks or credit institutions operating regionally and globally.

Second, there is now a requirement to increase the legal capital in commercial banks up to VND3,000bn (equivalent to US$142.9m) at the request of the State Bank of Vietnam. Moreover, the rate of capital contribution of foreign banks in local commercial banks is not allowed to exceed 15% (this rate can be adjusted in certain cases subject to the State Bank’s approval).

Third, M&A is one of the State’s solutions in implementing the restructuring plan of the Government and the State Bank. Therefore, M&A in this sector is expected to further increase in the near future. Ownership of shares by foreign banks or credit institutions will become more popular in the near future as many local banks have not found strategic investors and many foreign banks have not yet acquired shares in local partners. In addition, the implementation of restructuring policies of the State Bank will lead to the appearance of new, larger local banks by the way of merger. While foreign banks and credit institutions have expedited their investment in local banks, in 2010, no Vietnamese bank will acquire shares in a foreign bank. With high credit growth, up to 28% in 2010,
local banks tend to concentrate on the domestic market and develop their own abilities. Therefore M&A over foreign banks or credit institutions conducted by Vietnamese banks will remain scarce.

The Year Ahead

The current positive trend reflects a positive outlook for Vietnam’s M&A landscape, which is expected to continue in 2012 and 2013. While strong interests from Japan are expected to be maintained, we are also seeing a gradual increase of interest from China and other non-neighbouring Asian countries. We are currently also seeing trend towards a corporate restructuring of small commercial banks, as the reforms aim to decrease the State’s retention of market capital in State-owned companies.

By 2014, we anticipate that almost all foreign capital restrictions imposed under the current WTO Commitments will be lifted, thereby further opening the market to foreign investors. While the growth of M&A transactions is expected to be maintained in the upcoming years, we therefore expect a strong dominance in foreign investment.

Consumer, banking, and real estate sectors will remain the key focus of the transactions, but those of State-owned companies and those in the agricultural sector are expected to enter in to the sphere.

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