Buying foreign securities has been for years a vague promise for most Vietnamese residents having an appetite to invest in shares and bonds issued abroad. Although legally permitted since 2006 at the legislative level, such promise remained on paper in practice due to the absence of a detailed regulatory framework. All investments in foreign securities were subject to ad hoc approvals by various governmental authorities, including the Ministry of Planning and Investment and the State Bank of Vietnam (“SBV“). This situation seems set to change when on the last day of 2015 the Government adopted Decree no. 135/2015/ND-CP on Indirect Overseas Investment (“Decree 135“) (the term used in Decree 135 is “overseas indirect investment” (“đầu tu gián tiếp ra nuớc ngoài“); curiously, this term is no longer used in the new Law on Investment no. 67/2014/QH13 dated 26 November 2014) which became effective on 15 February 2016. Certain Vietnamese residents (i.e. economic organisations established and operating in Vietnam (companies, cooperatives, cooperative unions and other entities having an investment/business activity) and individuals) are now permitted to make investments in foreign securities. Here are the three most important things you should know:
Three permitted channels of investment. Decree 135 allows the following channels of investment in foreign securities by Vietnamese residents:
- Own-account trading (“tự doanh ðầu tu“) is available to the following entities: (i) securities and fund management companies; (ii) securities investment funds making investments via fund management companies (securities investment funds) and securities investment companies; (iii) insurance companies; (iv) commercial banks; (v) general purpose finance companies; and (vi) the State Capital and Investment Corporation (a Government agency managing State-owned assets).
- Entrustment trading (“ủy thác đầu tu“) is open to resident economic organisations, other than those already authorised to conduct own-trading, having reported profits for at least five years and having no public finance debts. Entrustment trading in foreign securities must be carried out through resident fund management companies or commercial banks licensed by the Ministry of Finance (“MOF“) or the SBV respectively.
- Bonus share schemes involving foreign securities can be offered to Vietnamese citizens employed by foreign organisations. They are the only resident Vietnamese individuals authorised to own foreign securities. Although, further guidance is expected to be issued by the SBV, this seems to merely formalise a long existing practice.
Eligible foreign securities. Investment is permitted only in respect of foreign securities, valuable papers or foreign securities investment funds and other financial intermediaries named on the list approved by the SBV from time to time. Commercial banks and general finance companies can only invest in foreign bonds and money market instruments named in a separate list approved by the SBV. The SBV has yet to issue either of these lists.
Regulatory conditions and restrictions. Investment in foreign securities is subject to three types of regulatory limits set on an annual basis: (i) global country limit approved by the Prime Minister; (ii) own-account trading limit issued by the SBV to each own-account investor; and (iii) entrustment reception limit issued by the SBV to foreign securities investment trustees. Very importantly, investors can only use their “own” available foreign currency to make investments and the use of borrowed funds is expressly prohibited. In addition, own-account traders must comply with prudential limits imposed by either the MOF or the SBV, as applicable.
Decree 135 is an important step towards opening the tap on outbound securities investments from Vietnam. However, the SBV and the MOF still need to issue a number of implementing texts, particularly the lists of eligible foreign securities and the various licensing and limit registration procedures mentioned above. Vietnamese resident investors should hope that these will be issued before the next 31 December.