Author: Dr. Oliver Massmann

Regarding the issuance of the long-awaited Power Development Plan VIII (PDP8), on 25 April 2023, the Ministry of Industry and Trade of Vietnam (MOIT) delivered a Brief Report on the review of the PDP8 with some proposal to the Permanent Government (Report). The notable points of the Report are as follows:

Renewable energy sources
Firstly, the Report presents the maximization of hydropower, the cheapest source of electricity, to a capacity of about 40,000 MW on the basis of environmental protection. On a separate note, according to the Report, the storage power resource will be developed with the goal of having storage hydroelectric power plants with a capacity of roughly 2,400 MW and having storage batteries be distributed with a capacity of 300MW, when the cost is affordable, all by 2030. Forwarding to 2050, the storage power capacity will reach between 30,650 and 51,850 MW.
Solar and wind energy sources, as a global trend, are prioritized to be developed for on-site use, without connecting to the national grid. Also, regarding the solar power development orientations, the aim is to connect the solar power with the storage batteries when the cost is lower. Rooftop solar are also prioritized to be developed for self-consumption with the capacity of around 10,355 MW by 2030, producing roughly 15.5 billion kWh. Since the development of this kind of power source which has (i) no capacity restrictions; (ii) affordable costs; (iii) the instant use for current power system without needing to be upgraded; and (iv) the requirement for the issuance of ground-breaking policies, solar power is given special emphasis in the Report. The Direct Power Purchase Agreement mechanism is also mentioned in the Report as a mean to test out about 1,000 MW of solar power. Regarding the current 27 solar power projects with a combined capacity of 4,136.25 MW that were included in Power Development Plan VII (PDP7) without being assigned to investors, it is advised in the Report that they will not be implemented until 2030.
When it comes to wind energy, the MOIT focuses on substantial development of offshore wind power for export, without connecting to the national grid system, to fully utilize the potential of offshore wind power (approximately 600,000 MW within 200 km from coast) to provide electricity and new forms of energy. According to the Report, the capacity will be between 3,000 and 4,000 MW by 2030.

Thermal power resources
It is the aim of the MOIT to build and develop thermal power facilities to provide an ongoing source of electricity and putting in place a conversion to achieve net zero emissions by 2050. For that reason, only the projects listed in the revised PDP7 that are currently being built will be continued until 2030, with an emphasis on switching to biomass/ammonia fuel for projects that have been in operation for 20 years when the prices are affordable. The operations for projects that have been in operation for more than 40 years will also be terminated. Orientation to 2050, entirely transition to biomass/ammonia for the generation of electricity is expected instead of using coal. As for LNG, the MOIT prioritizes domestic gas usage for power generation and then the import of natural gas/LNG when there is a shortfall, alongside creating LNG power projects with synchronous LNG import infrastructure and switching to fuel use. Hydrogen technology is also on the wish list when it becomes commercialized, and the price is right.

Import/export of electricity
About 5,000 MW of electricity will be imported in 2030, with a goal toward 11,042 MW in 2050. The process of importing power may be scaled up and sped up if the conditions are good and the price is fair.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Recent developments and the importance of the power and energy sectors in Vietnam

Vietnam’s GDP grew by 8.02% in 2022 as opposed to merely 2.58% due to COVID-19 in 2021, which is the fastest yearly growth rate since 1997. Vietnam’s GDP growth for 2021-2030 is forecasted to reach an average of 6.6%/year and an average of 5.7% for 2031-2045. Considering the unpredictability and instability of the global situation, this is a remarkable result and anticipation. And, to cement the steady growth of Vietnam, it is important to speed up the energy transition to match the global trend.

The rapid economic expansion, urbanization, and industrialization of Vietnam are all related to the energy transformation. The strong desire of the leaders of Vietnam has been recognized in terms of the acceleration of the energy transition while also achieving the needs of economic growth and the target of becoming a high-income nation by 2045. In order to increase support for renewable energy, the energy transition is increasingly viewed as a possible engine of employment. Regarding this mater, currently, fossil energy sources remain the primary sources of energy but they are slowly replaced by green energy sources. And, when it comes to green energy, Vietnam is one of the first nations to renew its nationally determined contribution to the UNFCCC in 2020, pledging to cut greenhouse gas emissions. Vietnam requires energy security that is cheap for the general populace and sustainable for its social and economic development, with a goal of going carbon-free by 2050.

Moreover, according to the World Economic Forum’s Energy Transition Index in 2021, Vietnam ranked 65th out of 115 nations in terms of its preparation for the energy transition, with a score of 54, which is at the worldwide average. This demonstrates the chances for Vietnam’s energy transformation that should be taken. Energy security as well as the socioeconomic development objectives of the master plans across industries and sectors will need to be guaranteed by the roadmap for the nation’s transition process towards green and sustainable development. It is believed that more developed countries are of help by providing both financial and technical help.

To accelerate the transition, Vietnam has established the four goals focused on the reduction of coal-fired power and the increment of renewable energy for the energy transition by the year 2030, and the Power and Energy Working Group is prepared to cooperate with the Government to support this effort. Vietnam’s ambitious climate ambitions and a significant increase in renewable energies by 2030 are supported by the signature of the Just Energy Transition Partnership (JETP) between International Partners Group and Vietnam in December 2022, building on the promises made at COP26. This further underlined the consensus among governments, multilaterals, the private sector, banks, and all other significant institutions with an interest in the energy sector that the short-term economic benefits of energy production are far outweighed by its detrimental effects on the environment, and that there are sufficient, more sustainable alternatives to pursue. These JETP targets can be found in the draft Power Development Plan VIII (PDP VIII), a recent draft of which was released in December 2022 and estimates an investment cost of US$142 billion for the years 2021– 2030 (US$126 billion for power generation/sources and US$16 billion for the power transmission grid), the vast majority of which must come from the private sector. With the reform of the Law on Electricity, a framework for enticing greater private investment to aid in the transition will be established.

Until now, the finalization of PDP VIII remains slow-going, especially when it comes to the handling of newly emerging and difficult issues in the energy transition process. According to the leaders of the Ministry of Industry and Trade (MOIT), the MOIT will finalize the PDP VIII to be in line with the socio-economic development of Vietnam and to address the transition of renewable energy properly. Also, it is anticipated that the finalized PDP VIII will not be issued until the MOIT can settle the price dispute with the current investors on the Feed-In Tariffs (FIT) for solar and wind energy.
Renewable under the EVFTA, the EVIPA and the CPTPP

Both the Comprehensive and Progressive Trans Pacific Partnership Agreement (CPTPP) (Chapter 20) and the European Union—Vietnam Free Trade Agreement (EVFTA) (Chapter 13), whereby Vietnam is a member, impose obligations on its members to reduce any environmental harm caused by their business activities. Accordingly, under the CTPPP and the EVFTA, Vietnam must replace its existing coal-fired power stations with cleaner or renewable energy sources because it and the other signatories to the EVFTA and CPTPP are also signatories to the 2015 Paris Climate Agreement. Renewable energy is clearly alluded to as the preferable option in the EVFTA and CPTPP, and all parties undertake to encourage trade in that direction. Furthermore, the European Union—Vietnam Investment Protection Agreement (EVIPA) grants specific safeguards for investors regarding the free transfer of capital based on foreign exchange convertibility as well as dispute resolution governed by international arbitration rules. Vietnam also agrees to promote, develop, and increase the generation of energy from renewable and sustainable sources, including via facilitating trade and investment, under Chapter 7 on Non-tariff barriers to trade and investment in renewable energy generation of the EVFTA. According to Chapter 7, Vietnam committed to a) refrain from adopting measures providing for local content requirements or any other offset affecting the other Party’s products, service suppliers, investors or enterprises; (b) refrain from adopting measures requiring to form a partnership with local companies, unless those partnerships are deemed necessary for technical reasons and that Vietnam can demonstrate those reasons upon request of the other Party; (c) ensure that any measures concerning the authorization, certification and licensing procedures that are applied, in particular, to equipment, plants and associated transmission network infrastructures, are objective, transparent, non-arbitrary and do not discriminate among applicants from the Parties; (d) ensure that administrative fees and charges are transparent and non-discriminating. Moreover, at least 20% of managers, executives, and experts for all service and non-service energy lines must be Vietnamese nationals, unless Vietnamese nationals cannot fill those jobs. However, each enterprise is only permitted to employ a maximum of three non-Vietnamese managers, executives, and specialists.

The bankability of power and energy projects in Vietnam

While the corporate sector generally supports the mentioned initiatives on the increment of renewable energy, more might be done to attract the money required to shift away from coal. In other words, to facilitate the shift to renewable energy, Vietnam will require financially sound and commercially viable energy projects. However, at the same time, Vietnam must also secure a baseload adequate to replace coal in order to sustain grid strength and development. This indicates that in order to transition to renewable energy, hydrogen, wind, and solar with storage, there will need to be a flexible gas/LNG and eventually a large amount of hydrogen as a baseload, scalable behind-the-meter renewables solutions, and significant energy efficiency initiatives. Additionally, it is reasonable to expect Vietnamese government’s consideration of a bankable legal framework, as committed in the EVFTA and the CPTPP, for high-quality energy projects to get finance from the global financial market advance.

Evidence has demonstrated how regulations, such as the subsidized FIT, might boost investment in renewables. However, a number of GWs of these projects that miss the requirements for the Commercial Operation Date are awaiting a price structure that, given the existing legal landscape, makes sense for both investors and purchasers. It still takes time for EVN and investors to reach an agreement on a specific rate for each power plant, even though the MOIT just released the maximum prices for these transitional projects. The sector has been dealing with delays and extension of rooftop solar system and wind and solar power plant development due to the worldwide pandemic and its effects. As a result, investors may have little influence over delays in commercial operations and commissioning. In light of the current situation, a prompt resolution is more important than ever to take care of this problem as we wait for new tariff regulations for renewable energy projects.

It will be necessary to change present laws in order to address the finance issues mentioned by EVN. There is still green financing available that provides private investors with advantageous rates to decrease CO2, but it is crucial to enhance the legislative environment around green financing operations to provide more clarity on the requirements for issuing green finance. In the context where off-grid power projects are expanding, particularly rooftop solar systems with onsite corporate PPAs and private sector self-investment. These should be examined to enable EVN to work out price for accessing the national grid because off-grid models have demonstrated that producers and consumers are capable of creating long-term, sustainable arrangements.

In the context of the JETP which provides important finance to operationalize Vietnam’s net-zero targets, the early approval of the pilot program for the offsite corporate direct PPA (DPPA) would be much welcomed. Such a pilot program is an important mechanism to attract investors and private investments, not only in the energy sector but also in other sectors where companies are looking for clarity in the ability to source affordable green energy when making investment decisions. The clock is ticking for a lot of critical commitments in the space of renewable energy that our members have made. In order to ultimately establish and operate the offsite corporate DPPA pilot program in the first quarter of 2023, we expect to have the government’s cooperation.

Recently, investors have expressed that offshore wind has a high potential in Vietnam and in the future contributing as a baseload for the national grid. Recently, many foreign investors are interested in developing large offshore wind farms in Vietnam. However, to develop a large offshore infrastructure project such as offshore wind farms, Vietnam must address the current legal uncertainties. One of the significant issues to be addressed is the new draft Decree amending Decree No. 11/2021/ND-CP on assignment of certain sea areas to organizations and individuals for exploitation and use marine resources (Decree 11) and the Sea Law. Since the project developer might not be able to mortgage the sea area (as part of the security package) to the project lenders if there is no property right over the designated sea area, the amendment of Decree 11 should resolve this issue. If the conditions are right, Vietnam can draw in billions of dollars in funding for projects and the supply chain, generate thousands of employment, and establish offshore wind as a reliable engine of economic growth. Additionally, there is potential for locally produced iron/saltwater batteries and competitively priced, environmentally safe rare earths for batteries and energy generation, both of which is believed to be advantageous for Vietnam over the long term.

Another crucial component of the long-term fix is hydrogen. Although it is now too expensive for use in power plants, it is cost-effective for industrial and agricultural application. Development, research, and international funding should eventually lower prices. Vietnam should make sure that initiatives like offshore wind and LNG to power are developed with hydrogen in mind. From the economic perspective of developing the Vietnamese private sector, the Government must ensure that new power projects are helping to drive up Vietnamese private sector capacity. Such large-scale foreign investments have enormous potential for expanding the tax base and supplying the vitality required for economic growth, as well as for preparing entire Vietnamese generations of future Vietnamese businesses with the requisite technical and management leaders.

Summary

With the signings of the EVFTA, the EVIPA and the CPTPP, investors from more developed countries now can bring their technology and know-how, especially those from countries with high level of development in renewable sectors to Vietnam with less market access barriers and being more secured. This can bring a great deal of help for Vietnam to facilitate the transition to renewable energy from 2023 to 2030, given that Vietnam itself adopts the initiatives of the mentioned international instruments into its legal system. Moreover, under the CPTPP and the EVFTA, it is possible for foreign investors to sue Vietnam’s Government for its investment related decisions according to the dispute settlement by arbitration rules. The final arbitral award is binding and enforceable without any question from the local courts regarding its validity. This is an advantage for investors considering the fact that the percentage of annulled foreign arbitral awards in Vietnam remains relatively high for different reasons.

The regulatory environment has traditionally been one of the major hindrances to private investors in infrastructure development. Although there is always a certain amount of uncertainty in any project of this nature, both the public and private sectors would serve their communities greatly by coming to a reasoned solution that suits both. There has been notable progress by Vietnam on this regulatory-front, such as the draft PDP VIII and the revised FIT and DPPA. However, works are expected to be done from 2023 regarding the finalization of the PDP VIII, the settlement of the FIT with the investors and new regulations for Vietnam to achieve its goal in energy and power sector. The CPTPP and EVFTA agreements have been (and will be) a major factor in Vietnam’s infrastructure development goals. Utilizing those agreements and advice and input from the private sector, Vietnam’s power and energy situation will be poised to efficiently and effectively capitalize on its enormous potential—especially with renewables.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any other lawyer listed in our office list if you have any questions on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Frontier market vs. Emerging market – How is it defined?

As a term invented in 1981 by then World Bank economist Antoine van Agtmael, an emerging market is an economy that is thriving, a promising market with risks and rewards in the eyes of foreign investors (1). The term “frontier market” was coined 11 years later by Farida Khambata as a term used for smaller, riskier and less accessible markets than emerging markets (2).

According to the classification of Morgan Stanley Capital International (MSCI), in order to be classified as an emerging market, one country has to satisfy a majority of indexes as “no major issues, improvements possible” out of its eighteen different indexes for five market accessibility criteria (3). However, as of June 2022, despite its effort in concluding different international trade instruments for the past years, Vietnam has not yet been recognized as an emerging market by the MSCI and is still classified as a frontier market. This puts Vietnam at risks in meeting its self-established 2025 deadline to be an emerging market (4).

Where does Vietnam stand now?

Currently, according to the MSCI, Vietnam has only established itself as a country with no issue on a certain areas of market infrastructure and openness to foreign ownership while other indexes has shown that improvements are highly needed for Vietnam to be upgraded to emerging market status, including foreign ownership limit (FOL) level, equal rights to foreign investors, information flow, foreign exchange market liberalization level, investment instruments(5).

It is important to note that, there are four countries in the South East Asia (SEA) region that are established as emerging markets by the MSCI, namely the Philippines, Thailand, Malaysia, and Indonesia since its start date of collecting data back from 1987 (6). Looking at the liberalization level of market access under the WTO, Vietnam is on par with Singapore – the most developed country in SEA region. With the participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and European Union–Vietnam Free Trade Agreement (EVFTA) of Vietnam, Vietnam is way ahead of the four SEA emerging markets in terms of international integration. Vietnam is the second country after Singapore that has concluded an FTA with the European Union. Taking telecommunication services for example, Vietnam is the most open country in terms of market access under the WTO since Vietnam allows the joint venture of up to 70% foreign ownership while the Philippines, Thailand, Malaysia, and Indonesia only allow joint ventures with an FOL of 30 percent. Under the EVFTA and CTPPP, foreign investors are allowed to take control or even wholly own a telecommunication company in Vietnam. Vietnam’s better market access commitments could be found in other service sectors such as construction and education compared to that of the Philippines, Malaysia, and Indonesia.

Although experts might believe that Vietnam is more developed than the four emerging markets in SEA region in a wide array of indexes and that Vietnam is doing the best among the frontier markets, from the MSCI’s point of view, it seems that they pay more attention to banking services and the indexes for treatment for foreign investors as well as investment instruments. Currently, for banking services, Vietnam only allows maximum 30 percent foreign ownership. Moreover, the foreign currency market, information flow of the market, and investment instruments in Vietnam, according to the MSCI, are still under development while they are already established as strong traits of the mentioned four countries. Looking at the investment instruments index, while the MSCI does not make any assessment on Vietnam, all of the four horsemen has been rated highest in the ranking of MSCI in this regard. This reflects the frequently use of non-voting depositary receipt (NVDR) in the Philippines, Thailand, Malaysia, and Indonesia. Meanwhile, it is still a debatable topic in Vietnam on whether NVDR or lower restrictions on conditional business lines is the silver bullet for Vietnam and the definite answer has not yet been concluded (7). With the introduction of the new law on investment, law on securities and law on investment in the recent years without the concept of NVDR, it seems that the State will focus more on easing restrictions on foreign investment in certain specific sectors, and, the best is yet to come.

To put the MSCI aside, reforms in Vietnam are not anticipated to happen anytime soon due to the mass dot lo (“blazing furnace”) campaign of Mr. Nguyen Phu Trong, the General Secretary of the Vietnamese Communist Party (VCP) in his effort to purge the VCP from corruption completely. From 2020 until now, a large number of high-ranking officials and financial giants have been arrested due to bribery, corruption, and fraud charges. It is undeniable that the recent infightings, with the hardest hit being the resignation of the President – Mr. Nguyen Xuan Phuc, have also affected the Government’s decision. The infightings and its aftereffects have significantly hindered relevant authorities from making any major decisions and it appears that the change of law would only commence after all of the in-charge authorities regain their confidence to reach a final resolution.

CTPPP, EVFTA and EVIPA

Despite the lack of investment instruments and the current FOL in Vietnam, it is crystal clear that Vietnam is worth their investment in the eye of foreign investors due to its activeness in the participation in international agreements. The EVFTA, CTPPP, and EVIPA (Investment Protection Agreement with the European Union) were signed by Vietnam in just a period of three years, from 2018 to 2020. The agreements with the world’s largest trading bloc – the EU – have cemented Vietnam’s position as a potential destination for corporate giants from all over the world. While Vietnam is the only SEA country having successfully concluded an FTA with the EU, Malaysia and Vietnam are the two SEA representatives in the CTPPP. Thus, from an international trading and investment perspective, Vietnam is unmatched when it comes to partnership and openness of market access. From a domestic perspective, Vietnam has made its move by ways of replacing the Law on Securities to ease the last FOL in public listed companies at 49 percent and allow the 100 percent FOL for non-critical business sectors.

On another note, the Investor State Dispute Settlement (ISDS) provision under the CTPPP and EVIPA also plays an important role in Vietnam’s investment attractiveness since it provides the investors with high standards of legal certainty and enforceability and protection (8). Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. The final arbitration award is binding and enforceable without the local courts’ review of its validity. The Government of Vietnam has to fully implement this commitment within five years from the entry into force of the EVIPA.

Summary and action plan

During COVID-19, Vietnam’s economy saw a steady and positive growth of GDP – a rare sight for a frontier market during an once-in-a-lifetime pandemic. However, as MSCI’s concerns have not yet been addressed and some of the commitments in the CTPPP, EVFTA, and EVIPA have not yet been localized, legal reforms are required for opener investment instruments and lower FOL for certain high-profile sectors. In other words, regardless of the infighting settlement, the government will have to work harder and do their homework under the current signed agreements to realize the emerging market status and ensure investors that they will be rewarded generously once they decide to come to Vietnam. As the self-established deadline is 2025, urgent actions are required since the procedures for amendments of the laws can take years before it becomes effective. To accelerate the process, competent authorities are recommended to engage and work closely with international commercial experts. It is believed that Vietnam is on the right track but the authorities are not on it right now due to the infightings which are holding back the reforms. It is advisable that, the state officials, with the support of external and international entities, make decision for the long-awaited reforms to amend the law and therefore change the view of international analysts and investors now or it would be too late. Duane Morris Vietnam LLC, led by Dr. Oliver Massmann with almost 25-year working experience in Vietnam, could support the Government in this process.

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Please do not hesitate to contact Dr. Oliver Massmann at omassmann@duanemorris.com if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

1-https://www.economist.com/special-report/2017/10/05/defining-emerging-markets
2-https://www.investopedia.com/terms/f/frontier-market.asp#:~:text=Key%20Takeaways-,A%20frontier%20market%20is%20a%20country%20that%20is%20more%20established,frontier%20markets%20are%20still%20investable.
3-https://www.msci.com/documents/1296102/8ae816b1-fa03-bae3-0bb4-1a3b2bf387bf?t=1656972645260
4-https://www.cnbc.com/2023/01/19/vietnams-market-risks-missing-upgrade-to-emerging-economy-status-2025.html
5-https://www.msci.com/documents/1296102/2cfed30d-daff-2155-91cc-3476882b057c?t=1656973074509
6-Looking at the past market reclassification of the MSCI
7- https://vietnamnet.vn/en/foreign-funds-want-law-changes-to-further-invest-in-vietnam-E211545.html
8-Chapter 9, CTPPP and Chapter 3, EVIPA

1. Why arbitration makes sense

This article shows foreign businesses the necessity of dispute resolution clauses quite plainly and provides assistance in choosing appropriate alternatives to the Vietnamese civil courts.

Disadvantages of Vietnamese courts

Most contracts in North America and Europe specify in detail all of the parties’ obligations and will be closely watched for the effectiveness of its clauses. The contract’s legal enforceability, however, is widely regarded as a given.

On the other hand, contracts between foreign investors and Vietnamese entities or with a reference to Vietnam that establishes Vietnamese jurisdiction should always specify the question “what institution will decide any disputes and in which language and what national law is to be applied?”

In this circumstance, without a dispute resolution clause, Vietnamese courts will have jurisdiction over a possible dispute. However, interested parties must consider the particularities of Vietnamese courts in comparison to Western rule-of-law courts. According to Transparency International, the risk of corrupted decisions remains, and almost one-fifth of surveyed Vietnamese people (aged 18 – 65) believe that judges are involved in corruption (Global Corruption Barometer 2017). Many businesses therefore avoid Vietnamese courts, as the existence of bribes deters them (USAID’s Vietnam Provincial Competitiveness Index 2021). Besides the unfortunately persistent risk of corruption, the Vietnamese judiciary, despite improvement efforts, continues to struggle with additional problems: Many Vietnamese judges lack adequate legal training and are appointed through personal contacts with party leaders or based on their political views, as a 2012 study by the United States Dept. of State revealed. Extremely low judicial salaries and short office terms of five years that must be renewed through a new appointment amplify the judiciary’s dependence on the Communist Party’s sympathy and on bribes. Furthermore, there is the systemic problem that rule-of-law and a single-party-system are mutually exclusive, due to the practical lack of separation of powers (Andersson 2012). The term rule-of-law in its Vietnamese translation means rules of the state, therefore rules of the Communist Party running the single-party state. Considering these factors, putting potential disputes into the hands of the Vietnamese judiciary is not advisable, because the possibility of corrupted decisions and political pressure or incompetent judges must still be taken into account. It is also important to note that, similar to other countries with an independent court system and a strong emphasis on the rule-of-law, companies may prefer to see delicate affairs arbitrated, rather than see their commercial disputes become a matter of public record.

Advantages of arbitration

The right arbitration center provides independent decisions and professional competence. It is usually possible to select a pool of arbitrators trusted by both parties in the clause, which might lead to a wider acceptance of a possible arbitrational decision. It is important to consider arbitrator candidates based on their expertise in the relevant business field. Most arbitration centers provide renowned experts for certain fields of work.

2. Which arbitration court is right?

Selecting an appropriate arbitration venue is a key component in designing any dispute resolution clause A company may decide upon a Vietnamese arbitrational court, for instance the Vietnamese International Arbitration Centre (VIAC), or an offshore arbitrational court, such as the Singapore International Arbitration Centre (SIAC). To decide which venue is the best fit, the following factors must be carefully considered:

Project size

For major projects with an investment sum of more than roughly US$ 5 million, choosing an international arbitration court is generally recommended. At this level, the problem of cost pressure (see infra) is likely to be neglected. An international tribunal’s decision is also more likely to be accepted by the parties, as a lack of competence on the arbitrator’s part and any (remote) possibility of political pressure on the arbitrators is therefore eliminated.

Location of seizable assets – enforcement risks of foreign arbitrational awards

Another major factor is the location of the contractual partner’s assets that may be seized when enforcing a possible arbitrational award. If the assets are mainly located in Vietnam, a foreign arbitrational court’s decision must be enforced there – a tougher task than enforcing a domestic award. Indeed, Vietnam became a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (NYC) in 1995, and therefore foreign arbitrational awards of the 149 member states can generally be enforced. However, there is a risk of a substantial delay in completing enforcement, as an application to the Ministry of Justice and further explanations and a court
date leading to an appealable decision are necessary for enforcement. Furthermore, the competent Vietnamese enforcement court may reject the arbitrational award. According to Article V of the NYC, this is possible in the case of an arbitrational award’s violation of domestic laws or public orders. The Vietnamese Civil Code refers to this as the “principles of Vietnamese laws”, and the Vietnamese judiciary has made broad use of it (Tam Shu Ching et al. 2012). With more than 50% of domestic verdicts being set aside, it shows that the courts in Vietnam have somehow not been friendly with and not positively supported the arbitration tribunal. In one case, for example, rejecting the arbitrational award of a foreign company was based on a missing construction permit (Tyco Services Singapore Pte Ltd v Leighton Contractors Vietnam).

Pressure of cost

One should take into consideration that the costs of on- and offshore arbitration differ widely. For a value in dispute of approximately US$4 million, for instance, the cost of arbitration at the VIAC is roughly $62,000 if one arbitrator is assigned to the case, as opposed to about U$117,000 at the SIAC. Not only are the costs for an offshore arbitration substantially higher, but that option can create additional costs for parties, such as travel expenses for parties, witnesses and lawyers. Furthermore, the hourly rates of local lawyers at the international arbitration court are usually higher than the rates of Vietnamese lawyers, (Shouzhi et al. 2009). The same applies to expert’s opinions and other experts. The risk of expensive litigation can put less liquid companies under pressure to accept even unfavorable settlements. Therefore, the cheaper onshore arbitration can often be more beneficial to companies with fewer financial resources.

Complexity and specialty of the subject matter of the contract and potential issue
Vietnamese arbitration courts, such as VIAC, have a high legal competence. But domestic arbitrational courts cannot yet provide internationally recognized experts on the same level as foreign tribunals. The main reason for this is the comparatively low fee of an arbitrator in Vietnam. Decisions regarding business transactions of high complexity or contracts focusing on highly specialized fields are more likely to be mutually accepted if the parties choose a more expensive foreign arbitrator with special expertise.

(Hidden) state-owned enterprises

When state-owned enterprises are involved, an offshore arbitration clause should be used. This ensures that the arbitrator handling the case is free of any authoritarian exertion of influence by the state-owned party. In theory, the follow-up problem of the enforcement of judgment in Vietnam remains, but the current development shows that the positive award strengthens a company’s negotiating position with the business partner. The same applies to hidden state-owned enterprises – companies that are de facto influenced by the government, for instance those that share ownership through state-owned enterprises’ subsidiaries. The contractual partner’s status as “state-owned” should always be considered very carefully.

Special case: Intellectual property

In special cases, where intellectual property is concerned, the contracts must ensure that no official interim measures are cut off by the arbitration clause. Arbitration courts are also able to issue interim measures. But as the case arises, an opening clause should be considered where Vietnamese courts or authorities such as the Market Management Bureau normally provide more effective interim relief.

Choice of jurisdiction

Choice of jurisdiction

3. How it is done

Vietnamese law allows dispute resolution clauses in commercial contracts explicitly through the Law 54/2010/QH12 on Commercial Arbitration, (“LCA”). An effective dispute resolution clause withdraws Vietnamese courts’ jurisdiction of the particular case and establishes the appointed arbitral tribunal’s jurisdiction. The LCA follows the UNCITRAL model law as an international standard for procedural rules, and the lawmakers’ intention is indeed arbitration-friendly. Once the decision is made regarding whether and where an arbitration tribunal should be used for disputes arising from the contract, the following points should be cleared:

• Applicable law: The applicable law can be chosen freely in cases with a foreign element according to Article 14 Nr. 2 LCA. The chosen applicable law should also influence the selection of arbitrators, as they should have a legal background in the particular national law.
• Court’s language: This can be freely selected according to Article 10 Nr. 2 LCA.
• Number of arbitrators: Several arbitrators might give a more balanced-out decision as a collegial formation. Arbitration costs will however rise accordingly.
• Appointing a particular arbitrator: This is important in cases that require experts:
The dispute resolution clause becomes effective if the requirements of Articles 16, 18 and 19 LCA are met, e.g. through a written agreement.

Making use of the dispute settlement mechanism under the EU – Vietnam Investment Protection Agreement (“EVIPA”) and the Comprehensive and Progressive Trans-Pacific Partnership (“CPTPP”)
For any investment-related dispute (i.e. expropriation without compensation, investment discrimination), an investor of a party is allowed to bring such dispute against the Government of the other party to the Investment Court for settlement. In case either of the disputing parties disagrees with the decision of the Tribunal, it can appeal it to the Appeal Tribunal. While this is different from the common arbitration proceeding, it is quite similar to the 2-level dispute settlement mechanism in the WTO (Panel and Appellate Body). We believe that this mechanism could save time and cost for the whole proceedings. The final arbitration award is binding and enforceable without the local courts’ review of its validity. The Government of Vietnam has to fully implement this commitment within five years from the entry into force of the EVIPA. For your information, as of February 2023, there have been 11 out of 27 EU members having ratified the EVIPA. It means we need to wait until the remaining 16 EU members have ratified the agreement for it to take effect and trigger the deadline for direct enforcement of arbitral award by the Government of Vietnam.

While the CPTPP allows the same mechanism for an investor of a party to challenge the Government of the other party, it does not include the 5-year transitional period as in the EVIPA. In other words, the enforcement of arbitral award under the CPTPP would follow the NYC rules. However, we believe that the Government of Vietnam will soon revise the current local arbitration regulations to ensure its commitment under the EVIPA. Investors under the CPTPP could then take advantage of such improvement.
We believe that the investor-to-state dispute settlement (“ISDS”) under both the EVIPA and the CPTPP brings the highest level of enforceability and bankability when they are well designed in commercial contracts in Vietnam.

Conclusion

The question of whether or not to have a dispute resolution clause in contracts in Vietnam can be answered with a clear yes. However, deciding on the right place for dispute resolution can involve much complexity, as a number of factors must be thoroughly taken into account.

In addition, investors do not need to wait until the entry into force of the EVIPA or the amendment of local arbitration laws to benefit from the ISDS mechanism. We can assist you to include the ISDS clause in your commercial contracts now so that your contracts have the highest level of enforceability and bankability. Please contact us for more details on how we can include it per the contact details right below.

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Dr. Oliver Massmann is a partner in the Hanoi office of U.S.-based international law firm Duane Morris LLP. He practices in the area of corporate international taxation and on power/water projects, matters related to oil and gas companies and telecoms, privatization and equitization, mergers and acquisitions, and general commercial matters for multinational clients in relation to investment and doing business in Vietnam. Dr. Massmann is registered Arbitrator of the Vietnam International Arbitration Centre.

Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC. He can be reached at omassmann@duanemorris.com.

1. While Vietnam’s anti-corruption push has been ongoing for several years, 2022 marked an acceleration in the process with several high-profile take downs. How is this being seen by your clients, and is it having any impact on the speed at which business is being conducted in Vietnam?

Answer: On the one hand, this is considered as a good sign for foreign investment in Vietnam. Top authorities would still welcome big projects to maintain the country as a destination for investments. Corruption in licensing process, which is quite frequent in Vietnam, varying from small to big ‘gifts’, will possibly be less as authorities are fear of being investigated and caught up. On the other hand, this could also slow down business approvals and project implementation progress. Officials fearing potential charges on wrongdoings or alleged corruption are more likely to delay approving projects that might put them at risks.

2. We’ve heard some rumblings about slowdowns in license acquisitions and in public financing for approved infrastructure projects because officials have become a bit scared of being caught up. Have you experienced anything like this? How does that level of scrutiny compare to previous years?

Answer: As mentioned in our answer above, there are actually certain delays in approving infrastructure projects. We have been given several reasons for this delay but only the authorities know exactly the underlying obstacles. This happens more to big projects rather than small sized ones.

3. I’d be curious in any specific examples if its possible to avoid naming names — just to give our readers a sense of what’s happening on the ground.

Answer: Ho Chi Minh metro project should have been operated about 10 years ago but there is still a lot to be done. Government-officials have less interest in implementing capital-investment projects because they fear exposure to investigations.

4. How big an issue is this kind of scrutiny/slowdown likely to be, especially if Vietnam continues its anti-graft campaign at the same tempo in 2023? And ultimately, how does that jive against the country’s other major priority — to encourage foreign investment?

Answer: In the short term, the anti-graft campaign will not jeopardise Vietnam’s growth. Mr. Trong wants Vietnam to become a middle-income country by 2030. Friendly and attractive business environment is still among top priorities as the country economy needs foreign investment. Party cleanup is political and might be at the expense of those who are foreign investment friendly. However, in the long run, clean companies will benefit more from this anti-corruption campaign while state related companies/ projects might face more slowdown. Honest officials should be able to approve projects without being fear of being arrested.

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

The State Bank of Vietnam (Ngan hang Nha nuoc Viet Nam, SBV) is the central bank of Vietnam. It is a ministry-level body under the administration of the government. The SBV governor is a member of the cabinet. The prime minister and the parliament of Vietnam (National Assembly) act jointly to nominate the governor of the SBV. The SBV’s principal roles are to:
• Support monetary stability and implement monetary policies.
• Support institutions’ stability and supervise financial institutions.
• Support banking facilities and recommend economic policies to the government.
• Support banking facilities for financial institutions.
• Manage the country’s foreign exchange reserves.
• Manage foreign exchange and gold trading activities.
• Manage the borrowing and repayment of foreign loans, the provision of loans to foreign parties and recovery of foreign debts.
• Print and issue bank notes.
• Supervise all commercial banks’ activities in Vietnam.
• Lend State money to commercial banks.
• Join the Ministry of Finance in issuing government bonds and government-guaranteed bonds.
• Act as an agent for the State Treasury in organizing bids and in issuing, depositing and making payment for treasury bonds and bills.
• Be in charge of other roles in monetary management and foreign exchange rates.

In 1990 the bank system was reorganized. This process led to a separation of the SBV from other commercial banks and was the start of the establishment of the private banking sector. A small number of major state-owned commercial banks still dominate Vietnam’s banking sector.
However, today a process of privatization is underway and the goal is to reduce the state’s share of ownership step-by-step to at least 51% during 2021-2025 under Decision No. 986/QĐ-TTg dated August 8, 2018 of the Prime Minister approving the plan for development of Vietnamese banks up to 2025, vision to 2030.
As of December 01, 2022, the State’s ownership ratios in 4 largest state-owned commercial banks are as follows: (i) 80.9% in BIDV, (ii) 74.8% in Vietcombank, (iii) 64.46% in Vietinbank, and (iv) 100% in Agribank.
Foreign ownership restrictions for Vietnamese credit institutions
On January 3, 2014, the government-adopted Decree 01/2014/ND-CP on purchase by foreign investors of shareholding in Vietnamese credit institutions. Decree 01 became effective on February 20, 2014 and replaced Decree 69/2007/ND-CP on purchase by foreign investors of shareholding in Vietnamese commercial banks.
In Decree 01, Vietnamese credit institutions, which may offer shares, include:
• shareholding credit institutions (i.e., a credit institution established and organized in the form of a shareholding company and include shareholding commercial banks, shareholding finance companies and shareholding finance leasing companies); and
• credit institution currently converting its legal form from a credit institution operating in the form of a limited liability company to become a credit institution operating in the form of a shareholding company.

Foreign investor includes foreign organizations (institutions) and foreign individuals. Foreign organizations include:
• Organizations established and operating under the laws of a foreign country and any branch of such institutions overseas or in Vietnam; and
• an organization, closed-ended fund, members’ fund or securities investment company established and operating in Vietnam with foreign capital contribution ratio above 49%. Foreign individual means any person who does not hold Vietnamese nationality.

Decree 01 defines that shareholding ownership (shareholding) includes direct and indirect ownership. However, Decree 01 does not explain clearly the scope of direct and indirect ownership.
In a case of purchase of shareholding by a foreign investor in a Vietnamese credit institution resulting in such foreign investor’s ownership of shares below 5% charter capital of the Vietnamese credit institution, a prior approval of the SBV is not required. In other cases, any acquisition by foreign investors of shareholdings in a Vietnamese credit institution requires the prior approval of the SBV.
The shareholding ratio of any one foreign individual must not exceed 5% of the charter capital of one Vietnamese credit institution. The shareholding ratio of any one foreign organization must not exceed 15% of the charter capital of one Vietnamese credit institution.
Any foreign investor that is an organization owning 10% or more of the charter capital of any one Vietnamese credit institution is not permitted to assign the shareholding it owns to any other organization or individual within a minimum three year period as from the date of ownership of 10% or more of the charter capital in such credit institution.
The shareholding ratio of any one strategic foreign investor must not exceed 20% of the charter capital of one Vietnamese credit institution. The investor may not transfer its shares in the Vietnamese credit institution within five years after becoming the foreign strategic investor in the Vietnamese credit institution.
A strategic investor is defined as a foreign organization with financial capacity and whose authorized person provides a written undertaking to have a close connection regarding long-term interests with the Vietnamese credit institution and to assist the latter to transfer to modern technology, to develop banking products and services, and to raise its financial, managerial and operational capacity.
The shareholding ratio of any one foreign investor and its affiliates must not exceed 20 percent of the charter capital of one Vietnamese credit institution. The total shareholding ownership of all foreign investors must not exceed 30% of the charter capital of any one Vietnamese commercial bank.
The total shareholding ownership of all foreign investors in any one Vietnamese non-banking credit institution shall be implemented in accordance with the law applicable to public companies and listed. When there are none specific regulations on the rate of foreign ownership, the maximum rate of foreign ownership will be 49% of charter capital of such institution.
In a special case in order to implement restructuring of a credit institution which is weak and/or facing difficulties, in order to ensure safety of the credit institution system, the Prime Minister may, on a case-by-case basis, make a decision on the total shareholding ratio of any one foreign organization or any one foreign strategic investor, and the total level of shareholding of foreign investors in any weak shareholding credit institution which is restructured, in excess of the limits described above.
Under the Government’s instruction in 2018, the MoF is required to draft a Government’s decree to allow foreign ownership ratio in commercial banks in Vietnam up to 50%. However, this decree would only be finalized and adopted in the fourth quarter of 2019. However, at the time of writing, the Government has not published any decrees allowing for the 50% rate that is foreign investors consider very attractive. Nevertheless, a point worth noting is that Vietnam committed in EU-Vietnam Free Trade Agreement and the EU-Vietnam Investment Protection Agreement to: (i) increase the share ownership ratio of European investors to 49% in two Vietnamese banks (except the aforementioned 4 largest State-owned banks) in the next 5 years; and (ii) after 5 years, there will be no limitation on foreign ownership ratio in Vietnamese commercial banks for European financial institutions. The Agreements were signed in June 2019 and the EU-Vietnam Free Trade Agreement came into force on August 1, 2020. The EU-Vietnam Investment Protection Agreement is pending ratification by EU Member States.
Foreign exchange regulations
The Ordinance on Foreign Exchange, which was enacted by the Standing Committee of the National Assembly in December 2005 and became effective in June 2006, and amended on March 18, 2013, regulates currency exchange activities in Vietnam. The government has promulgated Decree No. 70/2014/ND-CP to provide guidelines for both the Ordinance on Foreign Exchange and its amendments on March 18, 2013.
Decree 70 became effective on September 5, 2014 and replaced Decree No. 160/2006/ND-CP dated December 28, 2006 to provide detailed implementation of the ordinance.
Decree 70 governs the foreign exchange activities of residents and non-residents in current transactions, capital transactions, foreign loan borrowing, use of foreign currency and provision of foreign exchange services, the foreign currency market and rates of exchange, and the management of import and export of gold in Vietnam.
With regards to foreign loan borrowing, the government has also promulgated Decree No. 219/2013/ND-CP dated December 26, 2013 on the management and repayment of offshore loans that are not guaranteed by the government. Decree 219 became effective on February 15, 2014 and replaced Decree 134/2005/ND-CP on the same subject.
Decree 219 governs all businesses that are incorporated under the Enterprises Law, credit institution and foreign bank branches under the Law on Credit Institution, and cooperatives and unions of cooperatives established and operating under the Law on Cooperatives.
Offshore loans under Decree 219 include loans from non-residents under loan agreements, deferred payment commodities sale and purchase agreements, entrusted loan agreements and debt instruments issuance agreements that are not guaranteed by the government. In general, foreign borrowing must comply with the regulations of, and is subject to, registration with the SBV.
However, Decree 219 does not state clearly that requirements and types of loans should be registered, or any licensing/registration procedures. These issues have been addressed by the SBV’s guidelines i.e., Circular 12/2022/TT-NHNN dated September 30, 2022 providing certain guidelines on foreign exchange control in relation to foreign borrowing activities. Circular 12 came into effect on November 15, 2022 and replaced Circular 03/2016/TT-NHNN and its amending circulars. Circular 12 has helped to improve the legal framework for management of the borrowing and repayment of enterprises in general and enterprises not guaranteed by the government. Some highlights of the Circular 12 are:
Loans made in the form of deferred payment for import of goods no longer requires registration with the SBV. However, the opening and use of bank accounts and remittance activities must comply with the requirements of Circular 12.
Loans subject to registration with the State Bank include: (i) mid-term and long-term foreign loans, (ii) short-term foreign loans having a principal payment period extended for which the total term is more than one year; and (iii) short-term foreign loans which are not renewed but loans’ outstanding principal amounts have not been fully repaid prior to or within 30 workings days after one year from the date of first loan withdrawal.

Circular 12 has also extended the timeline to register the offshore loans and amendments to the registered offshore loans, from 30 days (as previously stipulated in Circular 03/2016/TT-NHNN) to 30 working days from the signing date of the loan agreement or amendment agreement, giving more time for the borrower to prepare to lodge the application dossiers to the SBV for the registration of offshore loans or the registration of any amendments to the registered offshore loans.

A borrower that is not a foreign invested enterprise must open a bank account for the purposes of the foreign loan at the authorized banks in Vietnam. For foreign invested enterprises, they may choose to use a direct investment capital account (DICA) for the purpose of receipts and expenditures, with respect to the medium or long-term offshore loan(s). A DICA can be utilized by the borrower for the same purpose, regarding the short-term loan(s) in addition to its current offshore loan account(s).
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If the schedule of loan disbursement, repayment or interest payment changes by less than 10 days from the schedule already registered with the SBV, the borrower must only notify the changes on the Website for management of foreign loans and repayments that are not guaranteed by the Government (www.sbv.gov.vn or www.qlnh-sbv.cic.org.vn), and does not need to register the changes with the SBV. However, if the schedule changes by more than 10 days, then reregistration with the SBV is required.
Circular 12 also allows notification to SBV (instead of change registration) with regards to certain corporate changes of information that has been registered with SBV such as change (increase or decrease) in the amount of capital withdrawal, repayment of principal, interest, and fees within 100 currency units of the foreign loan currency compared with the corresponding content as previously certified by the SBV, change of address of the borrower within the province/city where it has head quarter, or change of trade names of the relevant banks who provide account services, etc.
The government issued Decree No.88/2019/ND-CP on November 14, 2019 on sanctions of administrative violations in the field of monetary and banking operations. Decree 88 became effective on December 31, 2019 and replaced (i) Decree No.96/2014/ND-CP dated December 12,2014, (ii) Decree No. 95/2011/ND- CP dated December 20, 2011, and (iii) Decree No. 202/2004/ND-CP dated December 10, 2004 on sanctions of administrative violations in the field of monetary and banking operations.
This decree was said to loosen forex and gold trading and relevant activities in Vietnam. According to this decree, monetary penalties in relation to gold and forex trading, price listing/payment/advertising in forex/gold, etc. were significantly reduced i.e., from VND 600 million (approximately $26,000) to VND 250 million (approximately $11,000). For instance, the possible penalty for violations re: trading on gold bars without license is only warning for the first-time getting caught or a possible penalty for violations re: forex activities conducted by credit organizations without licenses may be up to VND 250 million (approximately $11,000) which is about 3 times less than the amount stated in Decree 96. On another note, forex/gold relevant to trading violations may be confiscated and certificate of registration for forex agent and business operation license of gold of relevant parties may be also suspended or revoked.
Developments in securities regulation
In early 2007 the first Securities Law of Vietnam (No. 70/2006/QH11, 2007) came into effect, which consisted of 11 chapters and 136 articles (as amended on November 24, 2010). The Securities Law primarily covers domestic issues of Vietnam dong- denominated securities and is, therefore, limited to public issues of securities and does not apply to the private placement of unlisted securities. The term “securities” covers a wide range of valuable instruments, including:
• Stocks.
• Bonds.
• Warrants.
• Certificates.
• Put and call options.
• Futures contracts, irrespective of their form.
• Investment capital contribution contracts.

Specifically, the Securities Law governs:
• Public offerings of securities.
• Listings.
• Dealing.
• Trading.
• Investment in securities.
• Securities services.

The establishment and regulation of securities companies and investment funds
The Securities Law 2019’s area of application considers the systems for trading of listed securities and the systems for trading of unlisted securities, organized and run by Vietnam Stock Exchange (VSE) and its subsidiaries. The local regulator, the State Securities Commission, controls and supervises these systems; however, they are independent legal entities. The SSC is a State body that the Ministry of Finance oversees.
The government and the MoF have issued several decrees, decisions and circulars to implement the Securities Law. Under the Securities Law, publicly offered securities in Vietnam have to be denominated in VND. A joint-stock company must satisfy the following requirements to offer its shares publicly for the first time, among others:
a) The contributed charter capital is at least 30 billion VND on the offering date according to the accounting books;
b) The company has profit over the last 2 years and has no accumulated loss on the offering date;
c) There is a plan for issuance and use of capital generated by the offering ratified by the General Meeting of Shareholders;
d) At least 15% of its voting shares have been sold to at least 100 non-major shareholders. If the issuer’s charter capital is 1.000 billion VND or above, the ratio shall be 10%.
e) Before the offering date, the major shareholders have made a commitment to hold at least 20% of the issuer’s charter capital for at least 1 year from the end of the offering.
On January 10, 2012, the MoF issued Decision No. 62/QD-BTC re: approval of project plan for restructuring of securities companies. This decision was known as a key in the master plan to renovate the stock market/sector, insurance market and securities companies which have been submitted to the Party Politburo by the MoF. According to this decision, securities companies shall be evaluated based on available capital/risk/accumulated losses index and categorized into three groups (normal, control and special control).
The decision does not provide any clear restructuring plan but promulgates certain controlling methods and penalties applicable to securities companies not satisfying the required available capital/risk index such as disclosure/report requirements, supervising or license withdrawal.. On February 28, 2019, the Prime Minister issued Decision No.242/QD-TTg, approving the plan for restructuring.
Decree No. 155/2020/ND-CP was issued on December 31, 2020 to provide guidelines for Securities Law 2019 and the Law amending certain articles of the Securities Laws on offers for sale of securities, listing, trading, business and investment in securities, and services in relation to securities and securities market. This decree abolished Decree No. 58/2012/ND-CP dated July 20, 2012 and Decree No. 60/2015/ND-CP dated June 26, 2015.
Decree 155 does not limit foreign ownership applicable to public companies engaging in business lines that do not have foreign-ownership threshold in Vietnam, and allow foreign companies to invest in government’s and companies’ bonds in Vietnam.
Public offerings
To open the procedure for public offering it is necessary to file an application in the form of a registration statement, which includes:
• The prospectus.
• The audited financial statements for the preceding two fiscal years.
• The issuer’s constitutional documents and relevant corporate resolutions.

The main contents of a prospectus are prescribed in Circular No. 120/2020/TT-BTC dated December 31, 2020 of the MoF providing guidance on listing of securities on stock exchanges. Foreign investors should be aware of the lack of fixed standards for financial statements and accounting in Vietnam, which can result in inconsistencies in financial reporting and quality levels.
Private placements
A private placement is defined in the Securities Law 2019 as an arrangement for offering securities to less than one hundred investors, not including professional securities investors or for offering to professional investors only.
Securities Law 2019 provides conditions for a private placement made by public companies as follows:
a) There is a decision of the General Meeting of Shareholders to ratify the plan for issuance and the plan for use of capital generated by the private placement with specific criteria and quantity of investors;
b) The private placement is only available to strategic investors and professional investors;
c) The transfer of privately placed shares, convertible bonds and warrant-linked bonds is limited to 03 years for strategic investors and 01 year for professional investors from the ending date of the private placement, except for transfer between professional investors, transfer under an effective court judgment or decision, arbitral decision, and transfer due to inheritance as prescribed by law;
d) There is an interval of at least 6 months between two private placements of shares, convertible bonds, warrant-linked bonds;
e) The ratio of holding of shares, conversion of bonds into shares and execution of warrants by foreign investors is conformable with law.
If an application file is incomplete and invalid, the competent State authority shall, within five days from the date of receipt of the application file for registration of a private placement of shares, provide its opinion in writing requesting the issuing organization to amend the file. The date of receipt of the valid and complete file shall be the date on which the issuing organization completes amendment and addition to the file.
Within 15 days from the date of receipt of the valid and compete file for registration, the State authority provides notification to the registering organization and publish on its website the private placement of shares of the registering organization. The issuing organization shall, within 10 days from the selling tranche completion date, submit a report on the results of the private placement to the competent State authority on the standard form annexed to Decree 155/2020/ND-CP.
Conditions for listing on Vietnam Stock Exchange (which has two subsidiaries being Hanoi Stock Exchange and Ho Chi Minh Stock Exchange)
A company may have its shares listed if:
a) It is a joint stock company whose contributed charter capital at the time of listing application is at least 30 billion VND according to the latest audited financial statement and its net worth is at least 30 billion VND according to weighted mean of buying price of shares in the latest public offering as prescribed by this Decree, or the average reference price of shares traded on UPCOM over the last 30 sessions before the application is submitted or the weighted mean of buying price in the first offering of the equitized enterprise.
b) The GMS has approved the listed; shares have been traded on UPCOM for at least 2 years unless the applicant has made public securities offering or equitized;
c) ROE of the year preceding the application year shall be at least 5% and the business performance of 2 years preceding the application year is profitable; there are no debts that have been overdue for more than 1 year up to the application date; there is not accumulated loss according to the latest audited annual financial statement or examined mid-year financial statement in case the application is submitted after ending date of the period covered by the mid-year financial statement;
d) Unless the enterprise is equitized, the applying organization shall have at least 15% of voting shares being held by at least 100 shareholders other than major shareholders; in case the organization’s charter capital is at 1000 billion VND or over, the ratio shall be 10%;
e) Shareholders that are individuals, organizations represented by President of the Board of Directors, members of the Board of Directors, Chief Controller, Controllers, General Director/Director, Deputy Director/Deputy General Director, chief accountant, Financial Director and people holding equivalent managerial positions shall have commitment to keep holding 100% of the shares they are holding for 06 months from the first trading date of on the Stock Exchange and 50% of these shares for the next 06 months, not including the state-owned shares owned by these individuals;
f) The company and its legal representative have not face penalties for 02 years before the application date for the violations specified in Article 12 of the Law on Securities;
g) There is a securities company that provides listing advisory services, unless the applying organization is a securities company.
Registration at Vietnam Stock Exchange (VNX)
Companies wishing to register to list securities must lodge an application file for registration for listing with the VNX. An application file for registration to list shares shall comprise the following key documents, among other things:
• General meeting of shareholders’ approval;
• Register of shareholders, as entered one month prior to the date of lodging the application;
• Prospectus;
• Undertaking of certain shareholders such as members of the board of management or board of controllers, the director (general director), deputy director (deputy general director) and the chief accountant of the company, etc. to hold 100 percent of the shares they own for six months from the date of listing and 50 percent of this number of shares for the following six months;
• Certificate from the Securities Depository Centre confirming registration by the institution and deposit of the shares at such Centre; and
• Written consent from the State Bank in the case of a shareholding credit institution.

The VNX/HOSE/HNX shall approve or refuse to approve an application for registration for listing within 30 days from the date of receipt of a complete and valid application file, and in a case of refusal shall specify its reasons in writing.
Decree No. 155/2020/ND-CP dated December 31, 2020 on foreign ownership in stock market
In April 2009, the Prime Minister issued Decision 55/2009/QD-TTg governing the purchase and sale of “securities in Vietnam’s stock market”. It stipulates the difference between local investors and foreign investors, in accordance with foreign-invested local investment funds. It also states the 49 percent rule. This means that local investment funds and local securities investment companies are considered foreign investors if foreigners hold more than 49% of the interest of a corporation.
The above limitation of 49% was removed on September 1, 2015 under Decree No. 60/2015/ND-CP, i.e., generally there is no limitation on foreign ownership ratio except for “conditional” sectors. In particular, the limitation would be subject to the WTO commitments or other specific domestic law (e.g., the 30% cap in the banking sector). Under Decree 155, the above limitation is elaborated as follows:
Maximum foreign ownership ratio in a public company:
a) If the business lines of the public company are regulated by a treaty to which Vietnam is a signatory, the treaty shall apply;
b) If the business lines of the public company is regulated by regulations of law which specify foreign ownership ratio, these regulations shall apply;
c) If the business lines of the public company are on the list of restricted market access, regulations on foreign ownership ratio of each category shall apply. If foreign ownership ratio limits are not specified in such regulations, the maximum foreign ownership ratio in the company shall be 50% of charter capital;
d) If the public company does not fall into any of the cases specified in Points a, b, c, there is no maximum limit for foreign ownership ratio;
e) In case the public company has multiple business lines that are subject to different foreign ownership ratio limits, the foreign ownership ratio must not exceed the lowest limit among them;
f) In case the public company imposes a foreign ownership ratio limit that is lower than that specified in Points a, b, c, d and e, it must be approved by the GMS and specified in its charter.
Foreign investors may invest without limits into debt instruments of the Government, government-backed bonds, municipal bonds, corporate bonds, fund certificates, shares of investment companies, derivative securities, DRs and secured warrants, unless otherwise prescribed by relevant laws.
Circular 51/2021/BTC dated June 30, 2021
At the end of 2008, two years after the first Securities Law, the SSC and the MoF enacted Decision 121/2008/QD-BTC to make the market more interesting for foreign investment as well as to penalize those who disobey the Securities Law. Decision 121 governed the activities of foreign investors in the Vietnamese securities market.
On December 6, 2012, the MoF adopted Circular 213/2012/TT-BTC governing foreign investors’ activities in Vietnamese securities market. Circular 213 became effective on February 15, 2013 and replaced Decision 121.
On August 18, 2015, the MoF issued Circular 123/2015/TT-BTC governing foreign investment activities in Vietnamese securities market (became effective on October 1, 2015), to guide Decree 60 and replace Circular 213. On 16 August 2021, Circular 123 was replaced by Circular 51 of 2021.
Circular 51 provides detailed documents and procedure for foreign investors to operate in the Vietnam’s stock exchanges. The circular streamlines the procedures for market participation of foreign investors in the Vietnam’s stock market by reducing the amount of necessary documentation and simplify the procedure. For example, the circular removes the need to translate documents into Vietnamese by allowing them to be submitted in English.
The circular sets out that foreign investors are required to apply for the Securities Trading Code (STC) before trading shares, bonds or other types of securities under the securities market regulations.
Notification procedure on foreign ownership limits (FOL)
Circular 155 requires that public companies are responsible for determining the applicable FOL. Following the determination of the FOL which is applicable to them, companies must file a notification dossier with the State Securities Commission (SSC). This dossier includes: (i) extracted information on business lines as uploaded on the National Business Registration Portal and the electronic address linking to such information; and (ii) Minutes of Meeting and the Resolution of the Board of Management approving the unrestricted FOL (if the company does not wish to maintain an FOL) or Minutes of Meeting and the Resolution of the General Shareholders’ Meeting approving and the charter providing for the specific FOL (if the company wishes to maintain FOL). The SSC will have 7 working days to acknowledge in writing the notification on FOL.
This country profile was kindly provided by Dr. Oliver Massmann, General Director of Duane Morris Vietnam LLC

1. Wie beurteilen Sie die allgemeine wirtschaftliche Entwicklung Vietnams? Gibt es neben der Produktion noch andere Branchen, in die es sich zu investieren lohnt oder die ein größeres Potenzial haben?

Die wirtschaftliche Leistung Vietnams ist beeindruckend. Im Jahr 2020, während große Weltwirtschaften unter der Covid-19-Pandemie litten, hatte Vietnam das höchste Wirtschaftswachstum in Südostasien, mehr als China, Singapur und Japan.
Im Jahr 2021, als die Covid-19 Pandemie fast ein ganzes Jahr lang zu landesweiten Einschränkungen und Ausgangssperren führte, verzeichnete das Land immer noch ein positives Wirtschaftswachstum von 2,68 %.
Branchen mit großem Potenzial: Wasser- und Abfallwirtschaft, Entwicklung nachhaltiger Energien (Biomasse, LNG, Offshore-Windkraft…), Verarbeitung von Agrarprodukten, Ausstattung für das Gesundheitswesen.

2. Wie hat Vietnam von der CPTPP und anderer wichtige Handelsabkommen profitiert? Welchen Unterschied wird das RCEP machen?

Die CPTPP und das EVFTA haben den Handel zwischen Vietnam und den Unterzeichnerländern billiger und effizienter gemacht, dank der reduzierten Zolltarife und vereinfachter Verwaltungsverfahren. Während der gravierendsten Zeit der Covid-19-Pandemie blieben Vietnams Exporte dank dieser Freihandelsabkommen hervorragend. Vietnam rechnet mit ähnlichen Vorteilen durch das RCEP. Darüber hinaus bringt das RCEP einen großen politischen Nutzen durch die Stärkung der Beziehungen zwischen Vietnam und anderen Ländern in der Region, was zu einer stabileren und vernetzten politischen Landschaft in der Region führen kann.

3. Als Vietnam im dritten Quartal des vergangenen Jahres in den Lockdown ging, kehrten einige Produktionen nach China zurück. War dies nur vorübergehend und ist die Verlagerung der Produktion aus China ein unumkehrbarer Trend?

Meiner Meinung nach ist die Verlagerung nur vorübergehend. In einer Lieferkette ist es für Unternehmen in der Regel kosteneffizienter, die Produktion zu verlagern, solange diese noch läuft, anstatt die Produktion aus irgendeinem Grund einzustellen. Daher ist es keine Überraschung, dass Unternehmen, als im letzten Jahr die Produktion in Vietnam aus Covid19-Schutzmaßnahmen eingestellt wurde, nach anderen Lösungen suchen mussten.

Ich denke, sobald sich China von der derzeitigen Covid-Situation erholt und eine für ausländische Investoren günstigere Politik betreibt, könnte sich der Trend umkehren.

4. Halten Sie die Struktur des Handels zwischen China und Vietnam für eher komplementär oder eher konkurrierend? Wie sehen Sie ihre Position in der globalen Lieferkette?

Ich denke, dass die Struktur des Handels zwischen China und Vietnam eher komplementär als konkurrierend ist. Beide Länder exportieren Produkte, die sie benötigen, aneinander. Als China letztes Jahr wegen Covid-19 seine Grenzen geschlossen hat, hat die globale Lieferkette stark gelitten. Ich denke, das reicht aus, um die Bedeutung Chinas in der globalen Lieferkette zu beschreiben. Wenn der Umzug von Unternehmen, die ihre Produktion von China nach Vietnam verlagern, weitergeht, wird Vietnam sehr bald ein wichtiger Akteur in der globalen Lieferkette sein.

5. Haben Sie in letzter Zeit einen starken Anstieg ausländischer Investitionen erlebt? Woher kommen sie hauptsächlich und in welche Branchen investieren sie?

Im Jahr 2021 erreichten die Zuflüsse von ausländischen Direktinvestitionen (FDI) nach Vietnam, trotz der komplizierten Entwicklung der Covid-19-Epidemie, 31,15 Milliarden USD, was einem Anstieg von 9,2 % gegenüber 2020 entspricht. Das Gesamtkapital ausländischer Investitionen, das in Vietnam bis zum 20. März 2022 registriert war, betrug 8,91 Milliarden US-Dollar.
Unter den 35 Ländern und Gebieten mit neu lizenzierten Investitionsprojekten in Vietnam in den ersten drei Monaten des Jahres 2022 ist Dänemark der größte Investor mit 1,32 Milliarden USD, was 41,1% des Gesamtkapitals der neuen Registrierungen ausmacht; gefolgt von Singapur mit 626,6 Mio. USD, was 19,5% ausmacht; China mit 379,5 Mio. USD, was 11,8% ausmacht; Taiwan mit 219,9 Mio. USD, was 6,8% ausmacht; HongKong
Sonderverwaltungsregion (China) 191,7 Mio. USD, was 6% ausmacht.
Branchen: Verarbeitungs- und Fertigungsindustrie, Immobilien

6. Ist Vietnam bereit, die nächste Weltfabrik zu werden?

Ja. Vietnam verfügt jetzt über die personellen Kapazitäten, die Technologie, die staatliche Unterstützung und die ausländischen Investitionen, um die nächste Weltfabrik zu werden. Vietnam hat sich in den letzten 5 Jahren wirtschaftlich und politisch so schnell entwickelt, dass wir in den nächsten 5 Jahren vielleicht etwas erleben werden, was wir heute noch gar nicht absehen können.

Bitte zögern Sie nicht, sich mit Dr. Oliver Massmann unter omassmann@duanemorris.com zu kontaktieren, wenn Sie Fragen haben oder mehr Details zu den oben genannten Punkten erfahren möchten. Dr. Oliver Massmann ist der Generaldirektor von Duane Morris Vietnam LLC.

A Q&A guide to public mergers and acquisitions law in Vietnam.

The country-specific Q&A looks at current market activity; the regulation of recommended and hostile bids; pre-bid formalities, including due diligence, stake building and agreements; procedures for announcing and making an offer (including documentation and mandatory offers); consideration; post-bid considerations (including squeeze-out and de-listing procedures); defending hostile bids; tax issues; other regulatory requirements and restrictions; and any proposals for reform.
M&A Activity
1. What is the current status of the M&A market in your jurisdiction?
Vietnam has remained an attractive destination for foreign investors. In the first 11 months of 2022, the total amount of foreign direct investment (FDI) was USD25.1 billion, 95% of 2021’s figure. Investment in the form of capital contribution and share purchase valued at USD9.54 billion, while capital adjustment was USD9.54 billion, and new capital registration was USD11.52 billion. Foreign investment concentrated in business in the following sectors:
• Consumption (USD 1.2 billion).
• Real estate (USD 1.5 billion).
• Energy (USD 600 million).
Most investors come from:
• Singapore (~USD 1.2 billion).
• United States (~USD 570 million).
• Korea (~USD 370 million).
Up to October 2022, there were 40 large transactions, of which there are 20 large transactions in real estate sector, 10 in retail sector and 7 in food sector.
2. What have been the largest or most noteworthy sector-specific public M&A transactions in the past 12 months?
Real Estate
The most notable deals in the real estate sector were:
• CapitaLand Development has successfully transferred Grade A office building Capital Place for USD550 million
• Keppel Land has signed an agreement to buy 49% shares in 3 land plots in Hoai Duc, Hanoi of Phu Long Real Estate Joint Stock Company with a total value of about USD 119 million.
• US investment fund Warburg Pincus has poured USD 250 million into Novaland
• VinaCapital and Dragon Capital has invested USD 103 million in Hung Thinh Land
• Boustead Singapore has acquired 6 logistics projects under the investment portfolio of Khai Toan Joint Stock Company in industrial parks in Dong Nai and Bac Ninh, with a value of USD 84.2 million.
Retail
• Masan spent 110 million USD (equivalent to 2,500 billion VND) to buy 31% more shares and become the parent company of Phuc Long milk tea chain. After the transaction, Masan Group owns a total of 51% shares of Phuc Long.
• Singapore United Overseas Bank (UOB) acquired Citigroup’s retail business in four Southeast Asian countries, Indonesia, Malaysia, Thailand and Vietnam for about S$4.915 billion.
• The Gioi Di Dong has a joint venture with PT Erafone Aratha Retailindo, a subsidiary of Erajaya Corporation to establish PT Era Blue Elektronic.
Food
• Temasek, SeaTown Private Capital Master Fund (Singapore) and Periwinkle Pte Ltd acquired a 35.95% stake in Golden Gate from Prosperity Food Concepts Pte. Ltd (Singapore) and other individual shareholders
• M&A transaction between Nova Consumer and Sunrise Foods Co., Ltd., through which Nova Consumer owns Anco Family Food company Other
3. How were the largest or most noteworthy public M&A transactions financed?
They were financed by leveraged buyouts (LBO), share issuances, and acquisition of the target company’s assets.
Obtaining Control
4. What are the main means of obtaining control of a public company?
In Vietnam, the term public company refers to a joint-stock company whose shares meet one of the following criteria:
• They have been put up for a public offer.
• They are listed on the stock exchange or a securities trading centre.
• They are owned by at least 100 investors (excluding major shareholders) with at least 10% of voting shares and the company’s paid-up charter capital is VND30 billion or more.
A joint-stock company is a company whose paid-up charter capital is divided into equal parts called shares. Only joint-stock companies can be listed on the stock exchange.
Shares or charter capital can be bought by purchasing shares:
• From the existing shareholders of the company.
• From the stock exchange.
• Through a public share purchase offer.
Securities of public companies must be registered and deposited at the Vietnam Securities Depository Centre before being traded.
The most common means of obtaining control over a public company are as follows.
Acquisitions of Shares/Charter Capital
Depending on the numbers of shares purchased, an investor can become a controlling shareholder. A shareholder that directly or indirectly owns 5% or more of the voting shares of an issuing organisation is a major shareholder (Law on Securities). The State Securities Commission (SSC) must approve any transaction that results in more than 10% ownership of the paid-up charter capital of a securities company.
There are restrictions on the purchase of shares/charter capital of local companies by foreign investors in certain sensitive sectors. There are no legal restrictions on business spin-off transactions where a foreign investor is a party.
Mergers
The 2020 Law on Enterprises sets out the procedures for company mergers by a transfer of all lawful assets, rights, obligations, and interests to the new merged company, and for the simultaneous termination of the merging companies.
To merge, the related companies prepare the merger contract and draft the new merged company’s charter. The members, company owners, and shareholders of both companies approve the merger contract and the charter. The new business must be registered in accordance with the provisions of the Enterprise Law. After registration, the merged company is a legal entity, responsible for unpaid debts, labor contracts, and any property obligations. The merger contract must be sent to all creditors for their approval and employees must be notified within 15 days from the date of their approval.
Any enterprise intending to participate in M&A activities, except credit institutions, insurance companies, or securities companies, must notify the National Committee on Competition if one of the following applies:
• It, or a group of companies of which it is an affiliate, has total assets available in the Vietnamese market of VND3,000 billion or more in the fiscal year preceding the planned year of M&A activity.
• It, or a group of companies of which it is an affiliate, has total sales or purchases in the Vietnamese market of VND3,000 billion or more in the fiscal year preceding the planned year of M&A activity.
• The value of the M&A transaction will exceed VND1,000 billion.
• The joint market share of the companies intending to participate in the M&A activity is 20% or more in the fiscal year preceding the planned year of M&A activity.
The merger of companies that results in or that may result in significant restriction of competition in the Vietnamese market is prohibited. The National Committee on Competition determines a merger’s effect on competition.
There are no legal restrictions on mergers involving foreign investors.
Asset Acquisitions
There are no legal restrictions on foreign investors acquiring assets.
Hostile Bids
5. Are hostile bids allowed? If so, are they common?
Hostile bids are neither defined nor regulated under Vietnamese law. There is also no express prohibition on this type of transaction. Recommended bids often outnumber hostile bids due to limited publicly available information about the target and a general reluctance to disclose information.
However, the number of hostile bids in Vietnam has been increasing in the last ten years, for example:
• Singapore-based Platinum Victory Ptl Ltd became Refrigeration Electrical Engineering Corp (REE)’s largest shareholder, accumulating a 10.2% interest in the company.
• Chile’s CFR International Spa acquired a 46% stake in healthcare equipment company Domesco Medical Import-Export Co (DMC), making it the first foreign deal in the pharmaceutical sector.
During 2010 and 2011, there were two takeover deals in Vietnam:
• The acquisition of Ha Tay Pharmacy in 2010.
• The acquisition of Descon, a construction company, in 2011. Binh Thien An Company acquired a 35% shareholding in Descon, officially took over Descon and made significant changes to its management body.
The Government’s Decree No. 155/2020/ND-CP lifted the foreign equity cap regarding public companies, with some exceptions (a 49% cap was previously in force). Specifically, the rules on foreign ownership in a listed company can be generally classified into the five following groups:
• If Vietnamese law, including international treaties, provides for a specific ownership cap, the maximum foreign ownership (MFO) must not exceed such a cap (group 1).
• If Vietnamese law treats a business activity as conditional on foreign investment (pursuant to the list of conditional sectors under the Investment Law) but does not yet provide any ownership limit, MFO must not exceed 50% (group 2).
• In cases that do not fall within group 1 and group 2, MFO can be up to 100% (group 3).
• In case a public company operates in multiple industries and trades with different regulations on the foreign ownership rate, the foreign ownership rate must not exceed the lowest level in the industries and trades with determined foreign ownership rates (group 4).
• Where a public company decides on the maximum foreign ownership ratio lower than the rate specified above, the specific rate must be approved by the General Meeting of Shareholders and included in the company’s charter.
This lift of the foreign equity cap can introduce more hostile bids in Vietnam.
Regulation and Regulatory Bodies
6. How are public takeovers and mergers regulated, and by whom?
The relevant rules are contained in several laws and regulations governing general corporate and investment issues. These laws and regulations include:
• Investment Law No. 61/2020/QH14 and Enterprise Law No. 59/2020/QH14 issued by the National Assembly on 17 June 2020, with amendments, and their guiding documents, Decree No. 01/2021/ND-CP and Decree No. 31/2021/ND-CP. These laws set out the general legal framework, conditional sectors, and investment procedures. The authorities responsible for enforcing these laws are the:
• Prime Minister;
• local People’s Committee;
• Ministry of Planning and Investment;
• Ministry of Industry and Trade;
• Ministry of Health; and
• Other ministries depending on the business activities of the target companies.
• Law on Securities No. 54/2019/QH14 issued by the National Assembly on 26 November 2019, and its implementing documents, in particular Decree No. 155/2020/ND-CP issued by the government on 31 December 2020. This law regulates the acquisition of shares in a public company in Vietnam, including public tender offers. The authorities responsible for enforcing this law include the:
• SSC;
• Vietnam Securities Depository Centre; and
• Ministry of Planning and Investment.
• Competition Law No. 23/2018/QH14 issued by the National Assembly on 12 June 2018, which is enforced by the Vietnam Competition Authority (VCA). Under this law, any M&A transaction that causes or may be likely to cause substantial anti-competitive effects in the Vietnamese market is prohibited.
• Foreign exchange regulations. An investment capital account in Vietnamese dong is a condition, among others, for capital contribution/share purchase or subscription. These regulations are enforced by banks and the State Bank of Vietnam.
• Vietnam’s WTO Schedule of Specific Commitments on Services. This sets outs the ratio of shares that can be owned by foreign investors in various specific sectors.
• Other specific regulations for the acquisition of shares in Vietnamese companies operating in certain sectors, for example banking and finance or insurance. These sectors are highly regulated by the relevant authorities.
Pre-Bid
Due Diligence
7. What due diligence enquiries does a bidder generally make before making a recommended bid and a hostile bid? What information is in the public domain?
Recommended Bid
Before officially contacting the potential target, the bidder conducts a preliminary assessment based on publicly available information. The bidder then contacts the target and expresses its intention of buying shares/subscribing for its shares. The parties sign a confidentiality agreement before the due diligence process, which also sets out their confidentiality obligations during the transaction. Courts’ enforcement of confidentiality agreements remains untested. The confidentiality agreement typically contains terms regarding the:
• Permitted use of information, where the parties agree that shared confidential information is for the sole purpose of evaluating the transaction.
• Legal obligations to disclose material to the government only where necessary.
• Governing law.
• Remedies in case of default.
• Non-binding nature of the contractual relationship during the preliminary assessment phase.
A bidder’s legal due diligence usually covers the following:
• Corporate details of the target and its subsidiaries, affiliates, and other companies that form part of the target.
• Contingent liabilities (from past or pending litigation).
• Employment matters (including employment contracts, key employees, and compliance reports).
• The target’s contractual agreements.
• Statutory approvals and permits for the target’s business activities.
• Insurance, tax, intellectual property, debts, and land-related issues.
• Antitrust, corruption, and other regulatory issues.
Hostile Bid
There is no legal distinction between recommended bids and hostile bids (see Question 5).
Public Domain
Information on local companies available in the public domain includes:
• Financial statements, including information on the company’s assets, debts, owner’s capital, financial status, and business results.
• Listed companies’ prospectuses including their corporate details, their commitments, bidders’ basic rights, information on share issuance, and their business prospects.
• Enterprise registration certificates including information on companies’ names, addresses, legal representatives, members, and charter capital.
• Other information from online sources or newspapers.
Secrecy
8. Are there any rules on maintaining secrecy until the bid is made?
There is no legal requirement that a bidder keep information about the bid secret until the bid is made. However, leaking information before the bid is finalised can lead to:
• An increase of the target’s share price.
• Difficulties in negotiating the terms of the transaction.
• Competition in the market.
In addition, leaking information can be considered a contractual violation if the parties to the transaction have committed to secrecy in writing.
Agreements with Shareholders
9. Is it common to obtain a memorandum of understanding or undertaking from key shareholders to sell their shares? If so, are there any disclosure requirements or other restrictions on the nature or terms of the agreement?
A preliminary agreement, for example a memorandum of understanding or letter of intent, is a starting document used to limit the expectations of both parties and outline the intended M&A structure. These agreements are quite common in Vietnam. Contractual negotiations can be long or short, tense or smooth, depending on the details of the agreement. There is no requirement to disclose the agreement. And there are no restrictions on the nature and terms of these agreements.
Under the Law on Enterprise 2020, founding shareholders can only transfer their shares to the company’s other founding shareholders within three years from the issuance of the Enterprise Registration Certificate. After that, the shares can be transferred freely. The approval of the general meeting of shareholders is always required if:
• The company increases its capital by issuing new shares.
• The founding shareholders propose to transfer their shares within the above three-year period.
If the sale and purchase is a direct agreement between the company and the seller in relation to an issuance of shares, the selling price must be lower than the market price at the time of selling, or in the absence of a market price, the book value of the shares at the time the plan to sell the shares is approved. In addition, the sale price for foreign and domestic buyers must be the same.
Stakebuilding
10. If the bidder decides to build a stake in the target (either through a direct shareholding or by using derivatives) before announcing the bid, what disclosure requirements, restrictions or timetables apply?
Shares can be bought before the bid announcement provided that the number of shares sold does not exceed the thresholds requiring a tender offer. A tender offer is required in the following cases:
• Purchase of a company’s circulating shares that result in a purchaser, with no shareholding or less than a 25% shareholding, acquiring a 25% shareholding or more.
• Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% or more shareholding, acquiring a further 10% or more of circulating shares of the company.
• Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% shareholding or more, acquiring a further 5% up to 10% of currently circulating shares of the company within less than one year from the date of completion of a previous offer.
There is no guidance on building a stake by using derivatives. In addition, the bidder cannot purchase shares or share purchase rights outside the offer process during the tender offer period.
The bidder must publicly announce the tender offer in three consecutive editions of one electronic newspaper or one written newspaper, and (for a listed company only) on the relevant stock exchange within seven days from the receipt of the SSC’s opinion regarding the registration of the tender offer. The tender offer can only be implemented after the SSC has provided its opinion, and following the public announcement by the bidder.
Agreements in Recommended Bids
11. If the board of the target company recommends a bid, is it common to have a formal agreement between the bidder and target? If so, what are the main issues that are likely to be covered in the agreement? To what extent can a target board agree not to solicit or recommend other offers?
The shareholders’ general meeting must agree to a tender offer if the acquisition consists of an existing shareholder transferring their shares and results in 25% ownership or more of the voting shares in a public company (see Question 10). This approval is also required when a joint-stock company’s founding shareholder transfers their shares within three years from the issuance of the Enterprise Registration Certificate. The approval normally includes the:
• Number of shares offered.
• Price of the offer.
• Conditions of the offer.
If it is a recommended bid, there tends to be an agreement between the bidder and target company that covers similar content to that which requires the shareholders’ approval.
There is no statutory requirement that prohibits a target board from soliciting or recommending other offers before completion of a transaction. However, in practice, the parties can and often agree on these restrictions.
Break Fees
12. Is it common on a recommended bid for the target, or the bidder, to agree to pay a break fee if the bid is not successful?
There are no legal provisions on break fees. In practice, both parties can agree on break fees, which do not normally exceed 8% of the transaction value. When the transaction is between affiliated entities, transfer pricing issues can be triggered. If the transaction involves a foreign party, that party’s payment of fees will also raise foreign exchange issues.
The bid solicitor is responsible for returning or releasing the bid security to an unselected bidder within the time limit specified in the bidding documents but not exceeding 20 days from the date the successful party is approved (Article 11(7), Law on Bidding 2013).
Bidders’ security is non-refundable in the following cases:
• They withdraw their bid after the bid closing time while their bidding documents and proposals are still valid.
• They break the law leading to the cancellation of their bid.
• They fail to take measures to secure contract performance.
• They fail to proceed or refuse to execute the contract within 20 to 30 days from the date they receive notice of their winning bid from the bid solicitor (unless there is a force majeure event).
Committed Funding
13. Is committed funding required before announcing an offer?
If an offer that contains cash elements, the bidder must include in its offer announcement a financial statement that there are satisfactory financial resources available to carry out the cash element in full.
Announcing and Making the Offer
Making the Bid Public
14. How (and when) is a bid made public? Is the timetable altered if there is a competing bid?
The offer timetable is as follows:
• The bidder prepares registration documents for its public bid to purchase shares.
• The bidder sends the bid registration documents to the SSC for approval and, at the same time, sends the registration documents to the target.
• The SSC reviews the tender documents within seven days.
• The bidder must publicly announce the tender offer within 7 days from receipt of SSC’s opinion regarding the registration of the tender offer
• The target’s board must send its opinions on the offer to the SSC and its shareholders within 14 days of receipt of the tender documents.
• The bid is announced in the mass media (although this is not a legal requirement).
• The length of the offer period is between 30 and 60 days.
• The bidder reports the results of the tender to the SSC within ten days of completion.
Companies operating in specific sectors (for example banking or insurance) can be subject to a different timetable.
Offer Conditions
15. What conditions are usually attached to a takeover offer? Can an offer be made subject to the satisfaction of pre-conditions (and, if so, are there any restrictions on the content of these pre-conditions)?
A takeover offer usually contains the following conditions:
• The terms and conditions of the offer apply equally to all of the target’s shareholders.
• The relevant parties are allowed full access to the tender information.
• The shareholders have full rights to sell their shares.
• Applicable laws are fully respected.
An offer can also be subject to conditions precedent. Conditions precedent are set out in the share sale and purchase agreement or the capital contribution transfer agreement. There is no specific restriction on conditions precedent other than the requirement that they cannot be contrary to law and conflict with social ethics (although the legal definition of social ethics is unclear). The most common conditions precedent are:
• Amendments to the target’s charter/relevant licence.
• Obtaining the necessary approvals to conduct the transaction.
• Changes to the target’s management body.
Payment of the contract price will only be made after the conditions precedent are met.
There is no regulatory requirement that a certain percentage of the target’s shares must be offered/bid.
Bid Documents
16. What documents do the target’s shareholders receive on a recommended and hostile bid?
The bidder must send public offer documents to the target and the SSC, which include:
• An application for registration of the public purchase offer.
• Name and address of the bidder (organisation or individual).
• Types and number of shares subject to the bid.
• The bid duration, price, and conditions.
• Latest audited financial statements if the bidder is a legal entity, or a bank statement confirming financial liability where the bidder is an individual.
• A written agreement with the target’s major shareholders whose shares are subject to the offer.
Employee Consultation
17. Are there any requirements for a target’s board to inform or consult its employees about the offer?
There is no requirement to consult employees about the offer. However, if employees are to be a laid off, the employer must:
• Prepare a labour usage plan.
• Consult with the employee representative.
• Notify the competent labour authority on the implementation of the labour usage plan.
The employees are not informed about the content of any of the above and do not receive any other type of notice.
Mandatory Offers
18. Is there a requirement to make a mandatory offer?
A tender offer is required in the following cases:
• Purchase of a company’s circulating shares that result in a purchaser, with no shareholding or less than a 25% shareholding, acquiring a 25% shareholding or more.
• Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% or more shareholding, acquiring a further 10% or more of circulating shares of the company.
• Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% shareholding or more, acquiring a further 5% up to 10% of currently circulating shares of the company within less than one year from the date of completion of a previous offer.
Consideration
19. What form of consideration is commonly offered on a public takeover?
Shares can be purchased by offering cash, gold, land use rights, intellectual property rights, technology, technical know-how, or other assets. In practice, acquisitions are most commonly made for cash consideration.
Post-Bid
Compulsory Purchase of Minority Shareholdings
20. Can a bidder compulsorily purchase the shares of remaining minority shareholders?
If the bidder acquires 80% or more of the shares of a public company, it must buy the remaining shares of the same type of other shareholders (if they so request) at the bid price within 30 days. However, there are no squeeze-out rights that can force the remaining shareholders to sell their shares.
Restrictions on New Offers
21. If a bidder fails to obtain control of the target, are there any restrictions on it launching a new offer or buying shares in the target?
The bidder is not prohibited from making a new offer or buying shares in the target if its initial offer fails.
De-Listing
22. What action is required to de-list a company?
If a company seeks voluntarily de-listing, it must submit an application for de-listing that includes the following documents:
• A request for de-listing.
• For a joint-stock company:
• the shareholders’ general meeting’s approval of de-listing of the stock;
• the board of directors’ approval of de-listing of bonds; and
• the shareholders’ general meeting’s approval of de-listing of convertible bonds.
• The members’ council’s (for a multi-member limited liability company) or the company’s owner’s (for a single-member limited liability company) approval of de-listing of bonds.
• For a securities investment fund, the investors’ congress’ approval of de-listing of the fund’s certificate.
• For a public securities investment company, the shareholders’ general meeting’s approval of stock de-listing.
A listed company can only de-list its securities if de-listing is approved by a decision of the general meeting of shareholders passed by more than 50% of the voting shareholders who are not major shareholders.
If a company voluntarily de-lists from the Hanoi Stock Exchange or Ho Chi Minh Stock Exchange, the application for de-listing must also include a plan to deal with the interests of shareholders and investors. The relevant Stock Exchange must consider the request for de-listing within 7 days from the receipt of a valid application.
Target’s Response
23. What actions can a target’s board take to defend a hostile bid (pre- and post-bid)?
There are no legal provisions regulating hostile bids (see Question 5).
Tax
24. Are any transfer duties payable on the sale of shares in a company that is incorporated and/or listed in the jurisdiction? Can payment of transfer duties be avoided?
Depending on whether the seller is an individual or a corporate entity, the following taxes will apply:
• Capital Gains Tax. Capital gains tax is a form of income tax that is payable on any premium on the original investor’s actual contribution to capital or its costs to purchase this capital. Foreign companies and local corporate entities are subject to a corporate income tax of 20%. However, if the assets transferred are securities, a foreign corporate seller is subject to corporate income tax of 0.1% on the gross transfer price.
• Personal Income Tax. If the seller is an individual resident, personal income tax will be imposed at the rate of 20% of the gains made, and 0.1% on the sales price if the transferred assets are securities. An individual tax resident is defined as a person who:
• stays in Vietnam for 183 days or longer within a calendar year;
• stays in Vietnam for a period of 12 consecutive months from their arrival in Vietnam;
• has a registered permanent residence in Vietnam; or
• rents a house in Vietnam under a lease contract of a term of at least 90 days in a tax year.
If the seller is an individual non-resident, they are subject to personal income tax at 0.1% on the gross transfer price, regardless of whether there is any capital gain.
Payment of the above transfer taxes is mandatory in Vietnam.
Other Regulatory Restrictions
25. Are any other regulatory approvals required, such as in relation to merger control, foreign ownership or specific industries? If so, what is the effect of obtaining these approvals on the public offer timetable?
Regulated Industries
Certain sectors, for example banking and finance or insurance are highly regulated by the relevant authorities.
Foreign Ownership
For foreign ownership restrictions in listed companies, see Question 6.
Foreign ownership restrictions in specific industries/sectors under Vietnam’s Schedule of Specific Commitments in the WTO are as follows:
• Advertising: 99% or more foreign ownership is allowed provided that the foreign investor is in a joint venture with a domestic entity.
• Services incidental to agriculture, hunting, and forestry: foreign investors must have a joint venture or a business co-operation contract with a local entity. Foreign capital contributions cannot exceed 51% of the legal capital of the joint venture.
• Audio-visual services: foreign investors must have a business co-operation contract or joint venture with Vietnamese partners that are authorised to provide these services in Vietnam. Foreign capital contributions cannot exceed 51% of the legal capital of the joint venture.
• Telecommunications:
• Facilities-based (that is, development of infrastructure plus services): the state must be the majority shareholder (51%); foreign ownership cannot exceed 49%; and
• Non-facilities-based services: foreign ownership cannot exceed 65%.
There is no requirement to apply for approval of foreign ownership if it is within the regulatory limits. However, in exceptional cases, foreign investors that wish to go beyond ownership restrictions must seek the written approval of the Prime Minister. Except where Vietnam has made WTO commitments in certain sectors, market access is subject to the discretion of the relevant authorities.
In addition, foreign ownership of shares requires the approval of the:
• Ministry of Industry and Trade, for distribution services.
• State Bank of Vietnam, for M&A transactions involving credit institutions.
• Ministry of Finance, for any transfer of shares involving 10% or more of the charter capital of an insurance company or insurance brokerage company.
Vietnam’s commitments in other international treaties may offer better market access conditions for foreign investors. Please feel free to contact us for further advice.
Cleared Subject to Remedies, Conditions, or Restrictions
The investor will need to register the capital contribution and purchase of shares if either:
• The target is operating in one of the conditional sectors in the Investment Law 2020.
• The capital contribution and purchase of shares results in foreign investors owning 51% or more of the target’s charter capital (in particular, from below 51% to more than 51% and from 51% to above 51%).
The local Department of Planning and Investment where the target is located must issue its final approval within 15 days from the receipt of a valid registration application. However, in practice, this procedure can take several months due to the workload of certain central authorities and the lack of clear guidance documents. Therefore, the registration requirement can cause substantial delays to the whole M&A process.
In other cases, the target company only needs to register a change of membership/shareholders at the Business Registration Division.
26. Are there any restrictions on repatriation of profits or exchange control rules for foreign companies?
If the target company in Vietnam already has an investment registration certificate, it must open a direct investment capital account at a licensed bank in Vietnam. Payment for a share purchase by a foreign investor must be conducted through this account. The account can be denominated in Vietnamese dong or a foreign currency. In addition, if the foreign investor is an offshore investor, it will also need to open a capital account at a commercial bank operating in Vietnam to carry out the payment on the seller’s account and receive profits.
If the target company in Vietnam does not have an investment registration certificate, the foreign investor will need to open an indirect investment capital account for payment to the seller and remittance of profits.
Future Developments
27. What do you think will be the main factors affecting the public M&A market over the next 12 months, and how do you expect the market to develop?
The main drivers of Vietnam’s M&A market are:
• The country’s deeper and wider integration into the world’s economy is offering new opportunities for M&A activities.
• Another factor includes the high pressure faced by the government to privatise state-owned enterprises to meet requirements under signed trade pacts, especially the EU – Vietnam Free Trade Agreement, which came into force on 1 August 2020.
Encouraging signs for foreign investment include:
• Reformed policies to allow wider access to foreign investors.
• ASEAN Economic Community single market and production base.
• The conclusion of free trade agreements (FTAs), including the EU – Vietnam FTA and The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
• Vietnam’s super rich population is growing faster than anywhere else and is on track to continue leading the growth in the next decade.
• Equitization of state-owned enterprises will speed up.
• Investment Law, Enterprise Law, Resolution No. 42 on handling bad debts and other laws and policies have created a transparent legal environment for investment and trade in general, and the M&A market in particular. However, the following factors also affect M&A transactions:
 Divergent interpretations and implementations by local licensing authorities of international treaties such as Vietnam’s WTO Commitments.
 Different licensing procedures applied to different types of transactions (for example, for foreign invested companies and domestic companies, public companies and private companies, and for buying state-owned shares or private shares).
Although legal and governance barriers, along with macro instability and the lack of market transparency are still the greatest concerns for investors, M&A deals in Vietnam are still expected to be one of the key, effective channels for market entry.
Reform
28. Are there any proposals for the reform of takeover regulation in your jurisdiction?
The Investment Law 2020 and its guiding decree introduced clearer M&A regulations and acts as an incentive for the growth of the M&A market. This contributes to the end of years of uncertainty and frustration faced by foreign investors seeking entry into the Vietnam market, or expansion through M&A transactions.
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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.