Stock Market in Vietnam – Better Corporate Governance but more Flexibility – Mission Impossible for Real Privatization ?

Recently the State Securities Commission (“SSC”) has been advanced in supporting investors. Nevertheless there are still certain factors that go beyond the SSC’s control, leading to a step backwards of the stock market in Vietnam. Compared with other ASEAN countries, the stock market capitalization in Vietnam is quite small in terms of its ratio to the GDP (only 25% while in Singapore and Thailand, this number is 112% and 135% respectively).
With that current status, the stock market is almost unable to support the “privatization process” of US$25 billion worth state-owned enterprises in the next three years. If the Government only offers to sell 15% of the shares, the market will then already need US$3.75 billion. Thus, it is necessary to open up the stock market to foreign investors rather than depending only on capital locally mobilized. Certain suggestions are discussed below.
Privatization and listing of privatized state-owned enterprises (“SOEs”)
The Government is recommended to take the following actions:
• Making a list of enterprises to be privatized available to the public, including information on names of SOEs, privatization timeline and price offer to the public, etc.;
• Selling a significant number of shares to foreign investors, minimum 25-30% of the total shares but the more the better;
• Establishing rules on corporate governance and apply them to privatized SOEs; and
• Creating domestic pension funds.
More flexible rules on foreign ownership limits on public listed companies
Previously, for foreign ownership ratio in public listed companies, the same rules applied for all sectors and subsectors. Now, Decree No. 60/2014/ND-CP provides different foreign ownership ratio for each sector and subsector, in particular:
• Requirements on foreign ownership limits in international treaties to which Vietnam is a party will prevail;
• In case public listed companies do business in sectors, where foreign ownership is limited they are stipulated by the investment law and its related requirements;
• In case public listed companies do business in conditional sectors or subsectors applicable for foreign investors but there is not yet a specific requirement on foreign ownership limit, such limit would be 49%;
• In case public listed companies do business in different sectors or subsectors with different requirements on foreign ownership limits, the applicable foreign ownership limit will not exceed the lowest foreign ownership limit required for sectors or subsectors that the company does business in, except otherwise stipulated by the international treaties;
• There would be no limit on foreign ownership ratio for other public listed companies, except otherwise stipulated by the company’s charter.
Decree No. 60/2014/ND-CP is expected to have a positive impact on the development of the securities market by attracting more foreign investment in the market and expedite the current privatization process.
Creation of pension funds
The Government’s efforts to establish the pension funds by considering the approval of the Draft Decree is highly appreciated. With the pension funds establishment, less pressure will be placed on the current Social Security Fund and the funds will also provide an advanced security platform to ensure benefits for the employees. Members of the pension funds will get more benefits as there is no limitation on contribution to those funds.
Coordination between stock exchanges and the Vietnam Securities Depository to announce the first trading date for bonus shares
The investors are currently having difficulties in obtaining information on the first trading date for the bonus shares they receive. They have to rely on the translation or the information provided by custodian banks, which are not members of the stock exchanges. These custodian banks have to access the stock exchanges’ websites daily to timely unblock the new stocks of their clients, getting the investors prepared for the trading of their bonus stocks as soon as possible in the morning of the first trading date. It is then recommended that there be a coordination mechanism between the stock exchanges and the Vietnam Securities Depository to ensure that all investors have equal access to information on the payment date of the bonus shares/ stock dividend.
Rules on corporate governance
There is an increasing number of foreign investors participating in the Vietnam’s stock market. Thus, the SSC is encouraging public companies to publish their information in English on their websites. However, basic documents of the companies which investors usually use to track and supervise the activities of companies, such as the minutes of the General Meeting of Shareholder, are not required to be published in English. It is therefore recommended to apply this requirement to companies with charter capital of VND 100 billion for sound corporate governance purposes.
In addition, it is recommended that meeting materials, meeting agenda be sent to shareholders together with the meeting invitations for annual or extraordinary shareholder meetings at least 15 working days before the official meeting commencement date as required by Circular No. 52/2012/TT-BTC on information disclosure in securities market. Strict compliance with this requirement is necessary for investors, especially for foreign investors to get themselves ready for the meeting (for example, arranging translation of documents, authorization of their proxy, etc.).


Please do not hesitate to contact Mr. Oliver Massmann under if you have any questions on the above.



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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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