Category Archives: Investment in Vietnam

Navigating Blockchain Law – Presentation at Vietnam Blockchain Week – 8 Mar 2018

7-8 March 2018, Vietnam Blockchain Week organized by Infinity Blockchain Labs — probably the first big, international blockchain event in Vietnam. Reportedly, more than 2,000 registered visitors and 50 speakers.

My speech and slides on “Navigating Blockchain Law” covered multiple jurisdictions and blockchain topics, including cryptocurrencies, exchanges, ICOs, AML/KYC, personal data protection, regulatory sandboxes and innovation space. The message is that  innovators and big investments go to places that have clear and “friendly” regulations for them to thrive.

Unregulated - what does it mean?

Every day is different though, and we constantly receive new statements from regulators and other authorities. Technology moves much faster than the law. The information in my slides is already old by the time they are uploaded. Likewise, the heat map below is very subjective and  represents only a momentary snapshot.

Blockchain Legal Heat Map

For more information, please contact Manfred Otto at or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

ThaiBev’s Record $4.8 billion Vietnam M&A Deal Verifies Foreign Ownership Limit Work-Around

Pros and Cons of the ThaiBev-Sabeco Structure

ThaiBev affiliate’s legal status as a Vietnamese domestic investor enabled it to acquire a majority stake in Sabeco, despite a foreign ownership cap of 49%.

Vietnam’s Ministry of Industry and Trade (MOIT) auctioned off a majority stake in Saigon Beer – Alcohol – Beverage Joint Stock Company (Sabeco) on 18 December 2017. The former State-owned enterprise has a 40% share of the Vietnamese beer market. The Thai Beverage (ThaiBev) affiliate Vietnam Beverage acquired a 53.59% stake for VND 110 trillion (or roughly US$4.85 billion) – a record for Vietnam.

Sabeco's stock chart

No other companies – domestic or foreign – submitted bids despite much interest. One of the reasons could have been the high price. As seems to happen often in anticipation of such sales, within 6 months before the MOIT announced the auction, Sabeco’s share price had risen about 75%. Vietnam Beverage paid VND 320,000 per share – a 2017 P/E ratio of almost 47 times. The price fell quickly after the deal went through, and the shares have been trading within a narrow band around VND 255,000 for the past few weeks.

Besides the price, the other main reason for international investors holding back could have been a combination of Sabeco’s foreign ownership limit and the timing between the official announcement, bid registration, and auction date. Even ThaiBev admitted in its 22 December 2017 Singapore Exchange (SGX) filing that the timeline for the submission of bids was “extremely tight” and that they had to make compromises, including not obtaining official shareholder approval in advance and in terms of financing of the deal. While timing is very important, we will take a closer look at Sabeco’s foreign ownership limit and legal structure of ThaiBev’s investment here. Understanding the structure first can help investors to position themselves for future deals and meet tight deadlines.

The ThaiBev-Sabeco structure

We illustrated the legal structure of ThaiBev’s investment in Sabeco in the following chart based on publicly available information. We have suggested this structure since 2015, when Vietnam’s then-new Investment Law came into force. Our interpretation of Article 23 of the Investment Law is that subsidiaries of companies registered in Vietnam with a foreign ownership of less than 51% can conduct investment activities under the same conditions as domestic investors. The Sabeco deal confirms the validity of this structure in practice, even for bigger deals, and that foreign ownership limitations do not apply to such subsidiaries.

ThaiBev-Sabeco structure chart

Here, Vietnam Beverage is a wholly-owned subsidiary of Vietnam F&B Alliance Investment Joint Stock Company (Vietnam F&B). ThaiBev’s indirectly wholly-owned subsidiary BeerCo Limited, a Hong Kong company, owns 49% in Vietnam F&B. Because BeerCo’s stake in Vietnam F&B is less than 51%, Vietnam F&B’s subsidiary Vietnam Beverage is not subject to investment conditions that apply to foreign investors. Therefore, Vietnam F&B could buy Sabeco shares as a domestic investor.

Sabeco’s foreign ownership limit

ThaiBev announced that it chose the above domestic-company structure to acquire a majority stake in Sabeco, because of Sabeco’s foreign ownership cap. Under Vietnamese securities regulations, foreign investors can only own up to 49% (in aggregate) of a public company where the company has registered so-called “conditional” business lines (unless otherwise provided by international treaties or domestic law).

A conditional business line is an activity that is subject to additional requirements, such as a special business license. Like many Vietnamese domestic companies, Sabeco had a long list of registered business lines, including conditional activities, e.g. – distribution and real estate trading. (By law, a company in Vietnam must register all its business activities.) Without substantially restructuring its business, Sabeco’s sale to foreign buyers was limited. Considering the 49% cap and that foreign investors had already owned 10.4% of Sabeco (including Heineken’s 5%), less than 39% of the total 54% for sale in this round were available to foreign buyers. But as a domestic investor, ThaiBev’s affiliate Vietnam Beverage could buy a majority stake.

To what extent does ThaiBev control Sabeco?

The 4.8 billion-dollar question is ThaiBev’s level of control over Sabeco. Although, Vietnam Beverage has a 54% majority stake in Sabeco, Vietnam Beverage is wholly owned by Vietnam F&B, where ThaiBev’s wholly-owned subsidiary BeerCo owns only a minority stake.

Politics and other levers aside, from a pure legal perspective, the general meeting of shareholders (GMS) can pass ordinary resolutions with approval of attending shareholders representing at least 51% of the votes. Special resolutions require at least 65%. Likewise, decision in the board of management (akin to a board of directors in some other jurisdictions) require a simple majority of all attending board members. Although, Vietnam’s Enterprise Law permits that companies stipulate higher voting thresholds in their charters, Sabeco’s most recent publicly available charter sets out the same default 51% and 65% ratios for the GMS and 51% for its 7-member board. Therefore, Vietnam Beverage can now unilaterally control ordinary resolutions of Sabeco’s GMS (except for related party transactions) and can vote its nominees to the board.

However, ThaiBev may not fully control Vietnam Beverage, because it only has 49% minority stake in Vietnam F&B. Two Vietnamese individual shareholders own 51%. According to ThaiBev’s 22 December 2017 SGX filing, “One of the Vietnamese investors in Vietnam F&B is a business person [who] is in the same group as the Company’s distributor of alcohol beverages in Vietnam. The other Vietnamese investor is the Company’s local business consultant [who advised] the Company in relation to the [Sabeco acquisition].

This raises a number of questions similar to those that arise in nominee companies in Vietnam: How much control can ThaiBev/BeerCo exert over the two Vietnamese shareholders in Vietnam F&B?

  • Did BeerCo and the Vietnamese shareholders enter into a properly drafted shareholders’ agreement and approve a charter for Vietnam F&B with reserved matters and other guards to give BeerCo more control? (NB: Vietnam’s Enterprise Law permits voting preference shares only with Government approval and only to founding shareholders for maximum three years.)
  • What happens with the dividends from Sabeco/Vietnam Beverage – will the two Vietnamese shareholders get 51%? (Dividend preference shareholders have no voting rights, so that wouldn’t be in BeerCo’s interest.)
  • Can ThaiBev buyout those Vietnamese shareholders? How much will it cost? (The market value of Vietnam F&B should be sky high now.)
  • What if they sell their stakes to a competitor?
  • Will the courts enforce the shareholders’ arrangements when contested (less than 30% of Vietnamese court judgments are enforced in Vietnam; let alone foreign arbitral awards)?

We do not know for sure, as Vietnam F&B’s documents are not public, but those are a few of the potential risks of the ThaiBev-Sabeco structure.

New Investment Law and management committee for SOE equitization

It is important to note that Vietnam is in the process of amending its Investment Law (again, after less than three years in force). The first published draft has revised provisions that affect M&A activities – including the dreaded pre-M&A approval requirement. The ThaiBev structure may or may not work in the future. At the earliest, we expect the new law to come into force in 2019. So, upcoming SOE divestments including Habeco, PV Power, PV Oil as well as the sale of the MOIT’s remaining 35% of Sabeco might still be in time to apply the above structure if they close in 2018.

In addition, the Government plans to establish a new State capital management committee to coordinate divestments of all State-owned assets taking over powers from the various ministries and State Capital Investment Corporation (SCIC).

Pros and cons of the ThaiBev-Sabeco structure

+ Allows foreign investors to participate in investments under the same conditions as domestic investors.

– No full ownership and limited control over those investments.

For more information, please contact Manfred Otto at or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.








  1. コンテナ積降サービス(空港でのサービスを除く)
  2. 海運補助サービスの一環としてのコンテナヤード・サービス
  3. 全ての運送手段の補助サービスの一環としてのコンテナ・サービス
  4. 配達サービス
  5. 貨物運送代理サービス
  6. 税関仲介サービス(通関サービスを含む)
  7. 次の活動を含むその他のサービス:運送証券検査、貨物運送仲介サービス、貨物鑑定、サンプリング採取及び重量判定、貨物の受取、受入サービス、運送証書準備サービス
  8. 貨物の保管、回収、仕分けの管理や貨物の分類、配送を含む卸売及び小売補助サービス
  9. 海運サービスの一環としての貨物運送サービス
  10. 内陸水路運送サービスの一環としての貨物運送サービス
  11. 鉄道運送サービスの一環としての貨物運送サービス
  12. 道路運送サービスの一部としての貨物運送サービス
  13. 空輸サービス
  14. 複合運送サービス
  15. 技術分析、検定サービス
  16. その他の運送サポートサービス
  17. 物流サービス提供者が商法の基本原理に従って顧客との合意に基づく提供するその他のサービス

「配達サービス」及び「その他の運送サービス」に関して、第3条に詳細が定義されていません。政令の作成者はおそらく、ベトナムのWTOサービス・セクター・コミットメント(WTOSSC)で使われている国連の中央生産物分類(CPC)コードと比較できるベトナム標準産業分類システム(VSIC)を参照することを意図していました。例えば、VSIC 5230の「配達サービス」には、「貨物運送サービス」でカバーされていない郵便物および小包の配送が含まれます。 VSIC 5320 は、「速配サービス」を含むWTOSSCの「クーリエサービス」(CPC 7512 courier services)に類似しています。新政令第163号の「配達サービス」及びWTOSSCの「クーリエサービス」は外国人保有比率の制限がありません。これは外資系宅配便業者にとって、良いニュースでしょう。





WTOSSC 政令第163号
CPC サービス分類 FOL FOL
742 倉庫 100%
748 貨物運送代理(貨物輸送サービスを含む) 100%
749 貨物所有者に代わり、船荷証券検査、貨物仲介、貨物検査、サンプリング及び計量、商品の入荷受取サービス、運送書類作成 99% 99%
7211 海運 (国内の顧客輸送) 49%
7212 (a) 海運 (国内の貨物輸送)ベトナム国旗船舶 49% 49%
7212 (b) 海運(国内の貨物輸送)外国船舶 100% 100%
7221 内陸水路運送(顧客運送) 49%
7222 内陸水路運送(貨物運送) 49% 49%
7111 鉄道運送(顧客運送) Unbound
7112 鉄道運送(貨物運送) 49%
7121 + 7122 道路運送(顧客運送) 49%
7123 道路運送(貨物運送) 51% 51%
No CPC 通関 99%
No CPC コンテナヤード 100%
7411 コンテナ積降(空港でのサービスを除く) 50% 50%
621, 61111, 6113, 6121, 622, 631 + 632 流通(輸出入、販売代理店、卸売、小売) 100%


政令第163号で新たに挙げられていることの1つに、ベトナム電子商取引規制の順守要件があります。第 4条2項により、インターネット、モバイル、またはその他の「オープン・ネットワーク」を介して電子的に業務の一部または全部を行う物流事業は、電子商取引(eコマース)の規制に従う必要があります。ベトナムの主要なeコマース規制は、政令第52/2013/ND-CP号です。政令第52号では、eコマース・サービス事業者の商工省への通知または登録が義務付けられています。eコマース事業者は、政令第52条及びその他の法律と規制に従い、個人情報及び消費者の利益を保護しなければなりません。しかし、これらのeコマース要件も、政令第163号の施行前にeコマース活動を行っていた物流サービスにも既に適用されていたと考えられます。



詳細につきましては、オットー マンフレッド 倉雄( 、又はドウェイン・モリス法律事務所で通常連絡を取られている弁護士へご連絡ください。


Vietnam Logistics Law – New Decree 163 – Nothing to See Here?

Despite media reports to the contrary, Vietnam’s new logistics regulation does not further open up the market to foreign investment but newly requires compliance with e-commerce regulations.

On 20 February 2018, Government Decree No. 163/2017/ND-CP on logistics services will replace the old Decree 140/2007/ND-CP. Many foreign investors had hoped for further clarification and market access in the logistics sector. The new Decree 163 does not grant new rights to foreign investors, at least on paper, and may even introduce new uncertainties in practice. While the most interesting new provision could turn out to affect the digitalization of logistics processes.

Issued in 2007, just when Vietnam acceded to the WTO, Decree 140 is ancient for Vietnamese law standards. The law has moved on since then, as Vietnam opened most service sectors to foreign investors, including many (but not all) business activities in the logistics sector. A few points on Decree 163 are outlined below.

I. “Logistics” redefined

Foreign investors (and Vietnamese businesses seeking foreign investment) must closely review each business activity they plan to conduct in Vietnam to see if foreign ownership limitations and other conditions apply. The old Decree 140 defined “logistics” with reference to Article 233 of the Commercial Law 2005. Article 3 of the new Decree 163 defines and regulates the following “logistics services”:

Logistics services under Article 3 of Decree 163

  1. Container handling services, except for provision of such services at airports.
  2. Container warehousing services as part of maritime transport support services.
  3. Warehousing services as part of support services for all modes of transport.
  4. Delivery services.
  5. Freight transport agency services.
  6. Customs brokerage services (including customs clearance services).
  7. Other services including the following activities: bill of lading inspection, freight brokerage services, cargo inspection, sampling and weighing services; goods receipt and acceptance services; and transport documentation preparation services.
  8. Wholesaling support services and retailing support services including activities being management of goods in storage, collection, sorting and classification of goods, and goods delivery.
  9. Freight transport services as part of maritime transport services.
  10. Freight transport services as part of inland waterway transport services.
  11. Freight transport services as part of rail transport services.
  12. Freight transport services as part of road transport services.
  13. Air transport services.
  14. Multimodal transport services.
  15. Technical analysis and testing services.
  16. Other transport support services.
  17. Other services provided by logistics service providers and as agreed with their clients in accordance with the basic principles of the Commercial Law.

“Delivery services” and “other transport services” are not further defined in Article 3. The lawmakers probably intended that one refer to the Vietnam Standard Industrial Classification System (VSIC), which is comparable to the United Nation’s Central Product Classification (CPC) codes used in Vietnam’s WTO Service Sector Commitments (WTOSSC) . For example, “delivery services” under VSIC 5230 include delivery of mail and parcels not covered by “freight transportation services.” VSIC 5320 is similar to WTOSSC’s “courier services” (CPC 7512), which includes “express delivery services.” There is no foreign ownership limit in Decree 163 for “delivery services,” nor for “courier services” under the WTOSSC – that’s good news for foreign courier services providers.

II. No changes to foreign ownership limitations (FOL)

WTOSSC and Decree 140 already defined FOL and their respective schedules. Decree 163 does not change anything. Decree 163 addresses FOL of various freight related services but is silent on passenger transportation services.

The below chart summarizes the main foreign ownership caps in the logistics sector. It is a simplified chart, and additional conditions apply to those business lines. Further conditions apply to foreign investors. For example, maritime freight transport companies with up to 49% foreign ownership may register ships in Vietnam and fly the Vietnamese flag, but only up to one third of the crew members may be non-Vietnamese; the captain and the first officer must be Vietnamese citizens. Like other conditions in Decree 163, this is nothing new and was already set forth in the WTOSSC.

Vietnam: Foreign Ownership Limitations (FOL) in the Logistics Sector

WTOSSC Decree 163
CPC Service Description FOL FOL
742 Storage and Warehouse 100%
748 Freight transport agency (incl. freight forwarding services) 100%
749 Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners 99% 99%
7211 Maritime transport (Passengers; less cabotage) 49%
7212 (a) Maritime transport (Freight; less cabotage) – joint-venture fleet flying Vietnamese flag 49% 49%
7212 (b) Maritime transport (Freight; less cabotage) – foreign fleet 100% 100%
7221 Internal waterways transport (Passengers) 49%
7222 Internal waterways transport (Freight) 49% 49%
7111 Rail transport (Passengers) Unbound
7112 Rail transport (Freight) 49%
7121 + 7122 Road transport (Passengers) 49%
7123 Road transport (Freight) 51% 51%
No CPC Custom clearance 99%
No CPC Container station and depot 100%
7411 Container handling (except at airports) 50% 50%
621, 61111, 6113, 6121, 622, 631 + 632 Distribution (import/export, commission agents, wholesale, retail) 100%

III. New e-commerce provision – digitalization of logistics services

One thing that is new in Decree 163 is its express requirement to comply with Vietnam’s e-commerce regulations. Article 4.2 provides that a logistics business conducting part of or its entire business electronically over the Internet, mobile or other “open networks” must comply with e-commerce regulations. Vietnam’s main e-commerce regulation is Decree 52/2013/ND-CP. Decree 52 requires e-commerce service providers to either notify or register with the Ministry of Industry and Trade. E-commerce providers must also protect personal information and consumer interest in accordance with Decree 52 and other laws and regulations. Arguably, though, these e-commerce requirements were already applicable to logistics services that conducted e-commerce activities before Decree 163.

Article 4.2 is very broad and could obviously apply to any business communications over e-mail, messaging apps, web-conferencing, company websites, and social networking sites – just to name few. The question is whether Article 4.2 will also apply to new internal, digital enterprise processes, such as digital supply chain and smart warehousing technologies that utilize “open networks.” Vietnamese law does not define “open networks,” and various literature about the topic is inconclusive as to what it actually means. For instance, one tech article concludes that today “open network” means “user choice” – which is not very helpful from a legal perspective. If IT specialists disagree on the meaning of “open networks,” the various Vietnamese authorities involved in regulating and licensing logistics activities are likely to be confused as well and could interpret Article 4.2 in various, uncertain ways.

Bottom line: The new Decree 163 does not expand market access rights of foreign investors in Vietnam’s logistics sector, but it introduces an explicit requirement to comply with e-commerce regulations.

For more information , please contact Manfred Otto at or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

Outcomes of APEC – the TPP is dead, long live the CPTPP

As the dust settles and Vietnam returns to some semblance of normality following this year’s APEC summit, regional business leaders and investors are left to consider the consequences of the forum.


This year marks the second time that Vietnam has hosted the APEC summit, and the event was largely considered a success for the country. Vietnam was placed in a difficult position, between the competing interests of the United States and China, requiring a deftness in diplomacy.


Most media outlets were more concerned with President Trump and what would be his first appearance at a multilateral forum in the Asia-Pacific region. Widely-expected faux pas did not materialise, but neither did much news on the US’ position towards the region. Trump’s keynote speech was short on surprises, following familiar themes of protectionism, isolationism and criticism of predatory economic policies. Essentially, the speech underlined what we already know – that under the Trump administration the US would be taking a step back from the Asia-Pacific region and trade will need to be conducted on a bilateral basis.


In a marked contrast to the American tirade, China’s President Xi Jinping presented himself as a champion of economic openness and globalisation. Xi espoused a vision in support of a multilateral trade regime, and received hearty applause in return from the amassed delegates.


Putting his words into practice, Trump’s subsequent stop in Hanoi saw the signing of US$12 billion in commercial deals, including in the natural gas, transport and aviation sectors. In particular, national carrier Vietnam Airlines signed a deal worth US$1.5 billion for engines and support services from US firm Pratt & Whitney.


Despite the very different stalls set up by the attendant superpowers, Vietnam managed to balance itself somewhere in between. In a joint statement, Vietnamese President Tran Dai Quang and Trump reaffirmed the importance of the countries’ Comprehensive Partnership, and agreed to promote bilateral trade and investment.


Vietnam also stood in support of Xi’s signature policy, the Belt and Road Initiative. Specifically, both sides agreed to enhance economic and trade cooperation, with a particular focus on infrastructure.


Regional and international media praised Vietnam’s hosting of the summit and the final Economic Leaders’ Week, highlighting the country’s commitment to economic integration, sustainable growth and support for micro, small and medium enterprises (MSMEs). In the eyes of many, Vietnam has cemented its position at the centre of APEC’s economic structure. The country took advantage of the opportunity to enhance its prestige in the international arena and show others the strides it has made in development since it last hosted APEC.


Resurrecting the TPP


Trump’s election last year seemed to herald the demise of the Trans-Pacific Partnership (TPP), at least in its current form. Without US support, the trade agreement was surely destined to be forgotten or watered down to the point where it becomes worthless.


The US withdrawal failed to dampen enthusiasm for the trade pact, however, with Japan and Australia strongly advocating the continuation of talks, and protecting the gains made in the original TPP negotiations.


Following discussions in Danang, the 11 countries still backing the TPP agreed to its resurrection, and renaming, as the Comprehensive Progressive Agreement for the TPP (CPTPP). The move represents a clear rebuke to Trump’s ‘America First’ focus on bilateral deal-making. Despite a last-minute wobble from Canadian Prime Minister Justin Trudeau, the members agreed on keeping core elements of the original deal that would advance open markets, combat protectionism, and strengthen regional economic integration.


Vietnamese leaders were certainly sorry to see the US turn its back on the TPP; knowing that access to American markets would have brought significant economic benefits. Although a deal is better than no deal, the CPTPP is expected to have a more modest impact on the nation’s economic future.


The National Center for Information and Forecasting predicts that under the CPTPP, Vietnam’s GDP could increase by 1.32 percent, compared to a potential 6.7 percent with the TPP. Similarly, the export growth rate is estimated at 4 percent, instead of the 15 percent previously. If the CPTPP is ratified, Vietnam would also be able to expand its export markets, with opportunities to reach Canada, Mexico and Peru.


Nevertheless, there is still room for the CPTPP to be derailed – the pact requires domestic ratification by each member economy. While Japan has already done so, other members, particularly Canada, could require longer to officially validate the pact.


There are, however, reasons to be optimistic. Many were certain the US withdrawal would be the death knell for trade pacts like the TPP, only to see America’s Asia-Pacific allies regroup and move forward on their own. There is clear commitment to regional economic integration, with or without America’s blessing.


A multilateral trade deal would provide much-needed clarity for businesses, especially smaller ones, in entering new markets. Universal standards would make life a lot easier for the region’s many MSMEs looking to expand their operations across borders. Those working in the digital sector would benefit from a framework on data security, privacy, intellectual property and e-commerce.


Even after Trump withdrew the US from the TPP, the original template survived almost wholly intact. The bar remains high, and the remaining members now have the opportunity to hash out a progressive framework for continued economic growth.


Although Donald Trump received the most attention in Danang, the main achievement of APEC may be the reanimation of a deal he sought to kill. This time the harsh rhetoric may have had an unintended consequence – pushing the region even further towards economic integration and free trade.


For more information about doing business in Vietnam, please contact Giles at or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Vietnam steps up sale of SOEs

Hopes abound that a new Decree will drag the near-moribund process of privatising large State-owned enterprises (SOEs) into a new and more efficient phase.


Over the past 30 years, the restructuring of SOEs has been a key component of Vietnam’s economic reforms under Doi Moi (renovation). The process has been undertaken by successive governments and is a central pillar to creating the business-friendly climate desired by the current leadership.


Nevertheless, it remains largely a work in progress. According to a report by the Central Institute for Economic Management (CIEM), since 1992, Vietnam has ‘equitised’ over 4,500 enterprises (‘privatized’ being considered an unsuitable term for Vietnam and not always accurate anyway given the propensity for the State to maintain controlling stakes).  The fact is that many of these took place in a short period of time and were smaller production units of large conglomerate-type corporations.  The CIEM report concluded that progress is below expectations. SOEs have struggled to attract strategic investors and sale of shares has not reduced the level of State budget in SOEs’ charter capital, as was hoped.


There are multiple reasons for the disappointing progress including restrictions on foreign ownership, and the State’s desire to maintain ultimate management control.  Opaque valuations and concerns over transparency also deter strategic and other investors from getting involved in the process and ultimately slow it down.


To continue growing, Vietnam is under increasing pressure to reform the equitisation process for its SOEs, with new efforts being made to accelerate the government’s divestment. Under plans announced earlier this year, the government will equitise a further 137 SOEs in the 2016-2020 period.  Many of those slated are large and some can be considered the cream of the crop.


This renewed motivation is driven in large part by the government’s need to mobilise financial resources to deal with a rising fiscal deficit and public debt. The country’s obligations under a number of free trade agreements also provide impetus to break up the big entities.


Determining demand


Recently, a significant change was announced in a bid to speed up equitisation of SOEs: the law will change to allow book building as a means of determining interest and price for IPOs of SOEs.


Up until now, the equitisation of Vietnam’s SOEs has been handled through public auction, direct negotiation and underwriting. Most have adopted the public auction method, but this has proved unattractive to investors, with even big assets like Vinamilk failing to generate the expected interest.


Under new Decree 126/2017/ND-CP, the Prime Minister has instructed the Ministry of Finance to prepare detailed guidelines on implementation of book building to facilitate efficient IPOs as part of the equitisation process.


This method of price discovery, used widely internationally and now approved for the first time in Vietnam in connection with equitisation purposes, is expected to make the process more efficient and attractive to strategic investors.  Decree 126 also eases restrictions on the profitability of strategic partners (from three to two years), cuts the lock-in period (from five to three years) and provides more detailed guidance on valuations of SOEs generally (notably removing reference to DCF valuation and providing more clarity around valuation of land use rights and goodwill).


It is hoped that this move, to take effect from 1 January 2018, will enhance transparency in SOE equitisation and hasten the hitherto slow listing on the country’s stock exchanges. The Decree will have a particular impact on the next wave of SOE IPOs, slated for 2018-19.


Energy giants next?


An area in dire need of extensive equitisation is the energy sector. In order to ease electricity shortages, attract more investment and boost economic growth the country will need to tackle inefficient State-owned power actors.


The issue of power shortages could come to a head in the next four years, with forecasts predicting that annual growth in electricity consumption will start to match, and possibly outpace, the installed capacity growth. If consumption continues to expand at a similar rate to the last decade (an average of 12 percent a year) the country could soon be facing a power crisis.


This gloomy scenario is looking increasingly likely, considering that foreign direct investment (FDI) into the manufacturing sector, which accounts for 50 percent of total electricity consumption, has doubled over the past four years to reach US$63.1 billion. Luckily for businesses, the government is keen on keeping this development trend going, and having the electricity to power it.


Recent reports in the media state that the government has lined up a series of sizable IPOs of major power corporations, including PV Power, EVN Generation Corporation Number 3 (Genco 3) and Binh Son Refining and Petrochemical Company Limited (BSR). If the above projections on power demand growth are anything to go by, Vietnam’s power sector holds significant potential, and may prove an irresistible offer to foreign firms. This offer, however, is contingent on the government breaking up the energy giants and levelling the playing field for investors. Official approval of the book building method for pricing IPOs is a start.


PV Power, the country’s second-largest electricity producer, plans to auction a 20 percent stake through its IPO scheduled for the end of this year, and 28.8 percent of shares will be sold to strategic investors. Meanwhile, the equitisation of Genco 3 is awaiting the government’s go-ahead.


The changes above demonstrate a willingness to step up the equitisation of SOEs, with looming budget considerations providing a timely incentive. Beginning next year, the slow process may finally gather some much needed pace and see involvement of foreign players previously put off by the state of play.


For more information about Vietnam’s equitisation and IPO processes, please contact Giles at or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Vietnam’s waste-to-energy projects should be low hanging fruit

While alchemists of years past failed to turn lead into gold, technology today can turn waste into energy, and more efficiently than ever before, proving there is not only money to be made from rubbish, but also neat solutions to perennial problems.

Vietnam has long struggled with issues of waste management, with a recent study estimating that Ho Chi Minh City alone discharges 8,300 tonnes of waste each day. At the same time, power shortages and outages remain a part of daily life in parts of the city.

The country’s most popular method of solid waste treatment is still burial, with up to 76 per cent of trash ending up in landfills. Dump sites are prevalent thanks to their relatively low cost, little initial investment and ability to handle most types of solid refuse. However, the increasing amount of waste, lax management and disregard for technical protocols are rapidly making this method unsustainable. A number of environmental incidents have also raised the alarm over the pollution and contamination caused by this method of waste management.

Rapid urbanisation is partly behind the vertiginous increase in waste ­– rising urban populations are creating serious waste management problems for cities all over the world. In Vietnam in particular, with economic growth, urban residents are enjoying rising wages and living standards, in turn producing more waste.

Rising populations are also putting the strain on the country’s power-generation capabilities – a problem that will require significant investment over the coming years.

 Waste not, want not

A number of companies are working in Vietnam’s clean energy space, and while headlines are usually dominated by wind and solar power projects, the waste-to-energy sector has been enjoying some development too. The idea of converting Vietnam’s growing waste problem into a solution for its shortage of power could kill two birds with one stone.

The capital city of Hanoi inaugurated its first industrial waste-to-energy facility in April this year, supplying electricity to the national grid. With a waste treatment capacity of 75 tonnes per day and a power generation capability of 1.93MW, the facility is a pioneering project in Vietnam’s industrial waste treatment industry.

Almost all of the factory’s equipment was supplied by the Hitachi Zosen Company of Japan. With total investment capital of US$29 million, including more than US$22.5 million of non-refundable aid from Japan’s New Energy and Industrial Technology Development Organisation (NEDO) and the remainder extracted from the city’s budget.

With advanced technology from Japan, the factory demonstrates the potential in this area of clean energy and its attraction to foreign investors. If all goes well, the company has plans for another plant in the capital city and more across the country.

Australia’s Trisun Energy is another firm showing interest in this field, having set a major investment target of building up to 20 power-generating waste treatment plants in Vietnam over the next 5 to 10 years. The company, founded in 2011, is currently completing a comprehensive study of a waste-to-power plant in Ho Chi Minh City. According to Trisun, the plant will be capable of burning up to 3,000 tonnes of garbage per day, or more than 40 per cent of the city’s waste.

In addition to Japan and Australia, some leading Finnish companies are at the forefront of addressing the issues of waste and energy.

A delegation of 16 Finnish exhibitors set out some of their plans at the Vietwater 2017 expo, which recently concluded in Ho Chi Minh City. These include solutions for contaminated landfill sites and waste-to-energy projects; the development of biogas technology; and the generation of electricity from biomass and waste.

Doranova is one such firm. Since early January 2017, Doranova has been constructing a landfill gas plant in Binh Duong, north of Ho Chi Minh City. The plant will extract harmful methane emissions from a nearby landfill, generating electricity while reducing environmental pollution. According to the company, the plant will provide additional power generation options from waste materials for residents and businesses in the city.

 Not a wasted opportunity

These projects in Vietnam’s biggest cities represent small steps towards solving the country’s waste epidemic. They also help to diversify the national energy mix, which is crucial in ensuring the supply of energy meets the expected rise in consumption.

The increased focus on the clean-technology sector and particularly energy efficiency, renewable energy technologies and waste management provides business opportunities for international players who have the knowledge, expertise and technology needed in this field. The question is whether Vietnam will take full advantage of the opportunity.

Though a promising start has been made, the widespread implementation of waste-to-energy facilities will require a more concerted effort from authorities. The country’s Ministry of Natural Resources and Environment (MoNRE) has set ambitious targets for the collection, reduction, reuse and recycling of waste nationwide. By 2020, 90% of urban domestic solid waste is to be collected and treated, with 85% recycled and reused.

Indeed, Hitachi Zosen Company (behind Hanoi’s waste-to-energy plant) has expressed concerns over the incentives and investment conditions provided by the Vietnamese government. The company, as well as a number of Japanese investors, are keen on rolling out the waste-to-energy model across the country. However, a lack of favourable investment conditions for foreign investors is holding back the industry. At present, investors are waiting for Vietnam to enact new public-private partnership regulations, before deciding on next-step investments.

The waste-to-energy sector in Vietnam holds a lot of potential, and technological advances mean that win-win solutions to both an abundance of waste and shortage of power are more affordable than ever. Combined with efforts in other areas of renewable energy, and the entry of international players, significant progress can be made in green power generation. As ever, the amount of progress depends on the attractive policies set out by the government. Investors are ready, and Vietnam would be wise not to let the opportunity go to waste.

For more information about Vietnam’s energy sector, please contact Giles at or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Spotlight on APEC and Vietnam

While Vietnam’s central city of Danang is abuzz with preparations for the upcoming APEC Economic Leaders’ Week, and the much-anticipated visit by US President Donald Trump, businesses and investors are waiting for clearer signals on the US approach to the country and the region.


Unlike the visit of former president Barack Obama in 2016 and his administration’s ‘Pivot to Asia’ policy, Donald Trump has been less forthcoming about his stance on Southeast Asia. The moves that have been made – scrapping the Trans-Pacific Partnership (TPP) for example, heavily suggest the US is pivoting away again, and have seriously dented Vietnam’s free trade aspirations.


Some remain upbeat, saying that President Trump’s attendance at the APEC Economic Leaders’ Meeting in Danang this November is a positive sign, underscoring the US’s commitment to the partnership between the two nations and the region as a whole.


Trump’s speech at the summit will likely be the first articulation of his administration’s strategy towards the Asia-Pacific region. The White House has indicated a United States’ “vision for a free and open Indo-Pacific region.” The details of this vision will no doubt have a big impact on the way international businesses view the region in the years to come.


Planned meetings between Trump and Vietnamese leaders in Hanoi are hoped to continue the thawing of relations that was accelerated under the Obama administration. During Obama’s visit in 2016, the arms sanctions that had been in place for over five decades were lifted, effectively transforming Vietnam into one of the United States’ leading comprehensive strategic partners in the region. Companies from the two countries inked new commercial deals involving planes, engines and wind energy, worth more than US$16 billion. Now, Vietnam is a major trading partner and free-trade advocate.


Politically, it is hoped that some more flesh will be put on the bones of the US foreign policy towards Southeast Asia, particularly on subjects like the South China Sea.


Focus on free trade


Setting aside predictions on US behaviour, the summit in Danang will gather economic leaders of 21 APEC members to discuss issues of shared concern, including the future of trade in the region – an issue of heightened importance considering the demise of the TPP. APEC is a key trading bloc, comprising 39% of the world’s population, 59% of its GDP and 48% of its trade. It is also a proponent of free trade, and since its inception in 1989 average tariff rates among members have fallen by nearly two-thirds – from 13.3 per cent in 1989 to 5.1 per cent in 2015, while intra-regional trade has risen more than seven-fold. Vietnam’s average most-favoured-nations (MFN) tariffs declined from 18.5 per cent in 2007 to 9.5 per cent in 2015.


All APEC member economies have set trade and investment liberalisation as a priority, through reduced trade barriers and the promotion of the free flow of goods, services and capital among APEC economies.


The region as a whole has enjoyed strong economic growth, and Vietnam is considered an attractive investment location, with opportunities bolstered by an emerging middle class, a young population, a skilled labour force, competitive labour costs, strong GDP growth and a stable political climate.


Indeed, the trade liberalisation process encouraged by APEC is having a positive effect on FDI inflows into Vietnam. Japan in particular is showing a healthy interest, currently positioned as Vietnam’s second-biggest foreign investor, with 3,523 valid investment projects, registered at US$46.15 billion. Even without the TPP, Vietnam’s involvement in a number of other free trade agreements helps improve the country’s attractiveness to foreign investment.


If Vietnam continues adopting APEC-promoted institutional reforms, and thus reduces the fees and risks associated with doing business in the country, this attractiveness can only improve. Currently, more needs to be done to create a business-friendly investment environment and reassure businesses that trade and investment disputes can be resolved with little fuss. Reassuring investors is a key priority for Vietnam to maintain its growth trajectory. The successful involvement of the country in forums like APEC helps to present an image of economic stability and strong leadership underscores its commitment to issues raised at the summit.


All eyes on Danang


Through hosting the 2017 summit, Vietnam has the opportunity to showcase itself as a business tourism and conference destination. Discussions in Danang will seek to establish new drivers for economic growth and cement the role of APEC in tackling common challenges in the region. Vietnam’s position of leadership will enhance its stature on the world stage and initiatives raised could attract global interest.


Large-scale FDI projects from APEC members have already made significant contributions to Vietnam’s socio-economic development. Giants like Samsung, Intel and Honda have established a presence in the country and could consider increasing their investments. Smaller players may also see similar potential.


For local businesses, the APEC meeting presents a golden opportunity to promote trade and investment with foreign partners. Representatives from thousands of international enterprises are expected to descend on the beachside resort, allowing for prime networking and the establishment of partnerships. Vietnam’s investment climate has improved markedly since it last hosted the summit in 2006, so observers can expect even more deals to come out of Danang.


For more information about Vietnam and APEC, please contact Giles at or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Public debt puts the squeeze on government guarantees, stifling project finance projects in Vietnam

Vietnam’s economic success story is evident in the rapid development of its big cities. However, while the country’s growth has outpaced its neighbours, so has its debt; a factor that threatens to de-rail growth.  Not least of all because of the impact on the government’s ability to give guarantees to underpin privately-financed infrastructure.


Over recent decades, the government has spent significantly. Priority has been given to roads, export zones and other critical infrastructure. This is evident across the country, where highways, tunnels, factories, airports and metro systems are being expanded, or built from scratch, at an incredible pace.


The biggest macroeconomic challenge facing Vietnam today is sustaining that growth. The government needs to be more rigorous about how it spends money, leveraging it better to attract and benefit from private funds rather than prop up State-owned entities.  The looming spectre of public debt will need to be tackled before the country finds itself in a precarious position.


Vietnam’s total public debt as of mid-July 2017 reportedly stood at US$94.6 billion, or about US$1,038 per capita. In fuelling the country’s celebrated growth, public debt has increased consistently, from 36% of GDP in 2001 to about 62.4% in 2016. According to an IMF forecast, it will hit 63.3% and 64.3% in 2017 and 2018, respectively, while the self-imposed public debt ceiling is set by the government at 65% of GDP for 2020.


Vietnam’s public debt compares unfavourably with the rest of the region, with Thailand coming in at 41 percent of GDP and Malaysia at 56 percent, according to the World Bank.


The annual growth of public debt during 2011-15 was 18.4 per cent, triple the annual GDP growth rate, which averaged about 5.9 per cent over the period.


A squeeze on guarantees


In an effort to tackle the ballooning public debt, the Ministry of Finance (MoF) announced changes to regulations on Government guarantees earlier this year. The adjustment is one of the regulations stated in the Government’s Decree 04/2017/ND-CP (Decree 04), superseding Decree 15/2011/ND-CP (Decree 15), issued on February 16, 2011.


Taking effect from March 1, the maximum level of Government guarantees for a programme or project was reduced from the previous level of 80 percent. Decree 04 replaces this with a three-tiered cap on the amount of guaranteed debt as a percentage of the investment capital depending on the size or importance of the project, each lower than the cap established in Decree 15.  In all cases this is far lower than the golden days of Vietnam’s early privately financed infrastructure projects like the Phu My 3 and Phu My 2.2 power projects which both enjoyed near total guarantees.


The current highest level of guarantee, set at 70 percent, applies to projects that must be implemented on an urgent basis, and have been approved by the National Assembly or the Prime Minister. Secondly, for projects whose total investment is at least VND2.3 trillion (US$102 million) and have been approved by the Prime Minister, the maximum proportion guaranteed by the Government is 60 percent. A cap of 50 percent will be applied to other projects.


In continuing to restructure of the country’s public debt with more stringent monitoring of projects, the decree aims at tightening the provision of Government guarantees and enhancing the management of public debt.


However, at a time when Vietnam needs to develop much infrastructure, notably in the energy sector, and requires substantial foreign investment to do so, Decree 04 makes it more difficult for private investors to obtain MoF Guarantees for projects.


Ticking debt time bomb


Taking the energy sector as an example, questions remain over EVN’s economic health. Tariffs on electricity have long been maintained at below cost levels. The policy of low subsidised tariffs to maintain the competitiveness of domestic industry and keep consumers happy is putting pressure on the government and EVN’s balance sheet.


The average retail electricity tariff stood at just above US$0.08/KWh as of 2016, the lowest in Southeast Asia, and only just above EVN’s average generation cost of US$0.075/KWh (excluding transmission and distribution costs). This has depressed sector cash flow and contributed to EVN’s rising debt.


This has raised concerns among private sector investors over EVN’s ability to pay for electricity generated as the single buyer, while the current low retail tariffs mean that investors are not confident of negotiating adequate prices for generation projects.


With the situation likely to continue, EVN’s financial position will surely deteriorate, leaving it with unsustainable debt and unable to finance capital expenditure. This would force private sector investors to seek increased government guarantees. Unfortunately, as mentioned above, the government is looking to rein in such largesse. As Vietnam’s economy grows, the previously abundant soft loans and ODA are beginning to dry up, meaning that the sources of support for private finance are becoming harder to find.


In order to reduce risk, the developers of major infrastructure projects may need to seek out private insurance groups or institutions like the World Bank’s Multilateral Investment Guarantee Agency (MIGA). However, these options obviously don’t come without their own costs. Investors, and ultimately end consumers, will have to take the hit.


Much of Vietnam’s current fiscal position can be blamed on poor management. The state-owned giants that have lost their repayment ability on Government-guaranteed loans are passing on the burden to the Government.


The sluggish privatisation of State-owned enterprises means that inefficiency will continue. The sooner this process is completed, the better for the economy as a whole. Measures like reducing government guarantees may be prudent, but if Vietnam wants to maintain its economic momentum serious action is needed to first untangle the mess of intra-State bad debt.


For more information about project finance matters please contact Giles at or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Vietnam plays a calculated game of risk with new solar PPA

Vietnam appears to be betting on gung ho enthusiasm to kick start solar power development rather than taking bold steps to deliver a stable backbone to the industry.  It’s a gamble that may pay off in the short term but might also saddle the country with poorly-conceived and under-performing projects in the long term.


To much fanfare, Vietnam’s Ministry of Industry and Trade (MoIT) released Circular 16 in including final template power purchase agreements (PPA) for the solar energy sector. The circular and PPA templates follow a draft issued back in April this year, and are stated to be mandatory templates for utility-scale and rooftop solar projects.


The original draft PPA for utility scale grid projects was met with criticism, and declared non-bankable by most experts and commentators (despite hewing closely to the previously-issued standard PPA for wind projects). Unfortunately, little has changed with the final version of the PPA.  Would-be investors raised serious concerns over the amount and type of risk the PPA sought to shift to investors, and the message delivered was that unless the government was willing to address some of the most glaring problems, few reputable foreign solar players and, just as importantly, few reputable financiers would be likely to sign up.


Having largely ignored recommendations provided, the final text does little to inspire confidence. The final PPA does not improve upon the main critical issues highlighted in April.  Issues include a lack of measures to compensate producers for interruption in the ability to receive power, force majeure conditions, contract suspension, and settlement of disputes.


Tariff trouble


With the FiT rate of US$0.0935/kWh for grid-connected solar power projects confirmed, Circular 16 goes on to outline that the FiT is available for 20 years to projects, or parts of projects, that reach commercial operation before 30 June 2019.


As with the draft from April, the final PPA does not include any indexation of the FiT to the Consumer Price Index (CPI) to address inflation risks. In response to concerns over fluctuating exchange rates, the circular does state that “the FiT for the following year shall be adjusted according to the central exchange rates of the Vietnamese dong against the US dollar announced by the State Bank of Vietnam on the last working day of the preceding year.”  Annual adjustment is better than none but it wouldn’t have been difficult to spread adjustments throughout the year.


As a way to offset the relatively low tariff, and inflation risks, investors may be able to benefit from tax exemptions on raw materials and supplies imported for their projects, corporate income tax relief, and an exemption from land rental fees within the first three years of commencing commercial operation.


A risk too far?


Under Decision 11 (which also set the FiT) and the final version of the PPA appended to Circular 16, Electricity of Vietnam (EVN) is responsible for purchasing the entire power output from grid-connected projects at the stated FiT.


However, the PPA relieves EVN from payment obligations in cases where it is unable to take power due to a breakdown of the transmission or distribution grid. With many solar projects currently focused on few central locations, the capacity of existing facilities to absorb power must be a cause of some concern given the PPA’s transfer of such risk to power producers.


Worryingly, the PPA lacks any mechanism to compensate power producers should interruptions happen outside of their control. Not only does the PPA not provide for extension of time in case of force majeure, but if force majeure were to prevent a power producer from meeting its obligations for a year then EVN could unilaterally terminate the PPA with no compensation payable.  In such circumstances, the power producer is left alone in the dark.


Such arrangements might be acceptable to projects that manage to negotiate clear ‘take or pay’ terms and/or government guarantees, but it is highly questionable whether and to what extent either of these will be possible in the current climate.  As a direct consequence, it is equally questionable to what extent private finance will be prepared to bear the risk, a fact that will prompt capital to seek more favourable conditions in other markets.


Playing by house rules


If the above portends of problems in the relationship with EVN, investors may be further discouraged by the lack of specifics in terms of dispute resolution. The PPA is governed by Vietnamese law and does not itself expressly include the right to agree on international arbitration to resolve disputes, a condition that would typically be considered an important requirement.


As it stands, disputes can be submitted to the Electricity Renewable Energy Department (formerly the General Directorate of Energy) for mediation. If that doesn’t work, there is the option of escalating the issue to the Electricity Regulatory Authority of Vietnam (ERAV) or pursuing litigation in Vietnam’s courts.


The PPA does allow for “another dispute resolution body to be agreed by the parties”, which potentially opens the door for sellers to negotiate with EVN on dispute resolution, including offshore or even domestic arbitration.  But it is not clear if EVN will agree to directly amend PPAs to allow for express prior agreement on offshore arbitration or simply open the door for such a discussion at the time of a dispute.  Clearly in the latter case the deck is firmly stacked in EVN’s favour.


One step forward… wait and see


The MoIT is well aware of the deficiencies in the PPA and knows that, in its current form, it will not attract the kind of investment Vietnam needs if it is to meet both its energy demands and renewable targets. They know that investors were hoping for some of the shortfalls to have been addressed, and as such the agreement remains – for all intents and purposes – largely unbankable.


On the other hand however, the MoIT is also acutely aware of the significant interest in Vietnam’s solar sector. The vast potential of solar power is there for the taking, with abundant land available for the development of solar farms for first movers. With this in mind, the PPA can be considered an attempt to test the waters – asking how much risk investors are willing to bear in return for a piece of the action.


The MoIT is confident that smaller, nimble players will be attracted to Vietnam and make investments, regardless of the bankability of the PPA on paper. The question truly posed by Circular 16 is: exactly how much risk are investors willing to accept?  What better way to test it than in open market conditions?  If risk allocation adjustment need to be made in future, the Prime Minister, MoIT and EVN can make them relatively easily.


Ultimately, although the PPA is “final” on paper, the real trick is for investors to work hard and smart to agree adjustments on a project-to-project basis that re-align specific risks in acceptable ways.  Each project is a sum of many different elements and successful investors in the early days at least will be the ones that focus their energies on key issues for their projects where they can make meaningful progress.  Opportunity vs. risk: Vietnam is playing a calculated game at the dawn of the solar energy sector.  Where the chips fall remains to be seen.


For more information about Vietnam’s energy sector, please contact Giles at or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.