Category Archives: Vietnam – M&A

Category related to mergers and acquisitions, securities law and other related issues in Vietnam

『ベトナム国有企業M&A~コーポレートガバナンス』2017年11月16日プレゼン資料

2017年11月16日に日本アセアンセンターが開催した「ベトナム政府との対話~国有企業の株式化とM&A~in 東京」と題したセミナーの私のプレゼン資料です。

トピック

「ベトナム国有企業M&A~コーポレートガバナンス」

  1. 機関設計
    株主総会、取締役会、社長など
  2. 少数株主の権利保護
    株式譲渡制限に関する定款・契約条項

ダウンロードリンクは以下です。

171116 Vietnam SOE and M&A-ASEAN Centre-Otto-JP.pdf

ご質問等ございましたら、オットー(MOtto@duanemorris.com)または弊所で通常連絡を取っている担当弁護士までご連絡ください。

Organization Chart of a Vietnamese SOE

〈ご注意〉こちらの記事は皆様に情報をお届けする目的でのみ作成・掲載しておりますので、法的なアドバイスとして提供・構成することを目的としておりません。詳細につきましては、当事務所の注意書きをご一読下さい。

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Slides from my recent presentation in Tokyo on “Vietnam State-Owned Enterprises and M&A – Corporate Governance” organized by ASEAN-JAPAN Centre on 16 November 2017.

171116 Vietnam SOE and M&A-ASEAN Centre-Otto-JP.pdf

For more information , please contact Manfred Otto at MOtto@duanemorris.com 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.

Hope and hesitation at M&A forum

Discussion at this year’s Vietnam M&A Forum, which took place earlier this month in Ho Chi Minh City, revolved around the challenges facing Vietnam’s M&A market and the need for a big push to maintain the momentum of previous years.

 

As of this month, deals have fallen short of the record levels in 2016, and surpassing the US$5.8 billion total looks like a tall order. Although impressive, last year’s figure represented just 5% of Southeast Asia’s total M&A activity, with Singapore alone claiming over 50%. Additionally, 64% of the deals in Vietnam were valued at less than US$20 million. While 77% of the deals were domestic, Thai firms were the biggest foreign buyers in terms of value, enacting aggressive takeovers of major Vietnamese firms in retail and consumer goods. In terms of quantity most deals came from Singapore and Japan.

 

With advantages of proximity in terms of geography, culture, and climate, Thai firms have sought to penetrate the growing Vietnamese market quickly. Alongside other neighbouring nations who have struggled as their home markets mature, they have increasingly sought high-growth or low-production-cost economies for expansion elsewhere.

 

There is a lot to celebrate, but the total value of M&A activity reached just US$1.1 billion in the first quarter of 2017, a drop of 24.4 percent year-on-year. A slowdown in the State’s equitisation process is partially to blame for the drop, and many of the speakers at the M&A Forum expressed the need for a big push in the second half of the year.

 

Trains, planes and automobiles

 

To continue the high rate of economic growth achieved over the past few years, the Ministry of Planning and Investment (MPI) concluded that Vietnam is in dire need of M&A investment in the infrastructure sector. Deals need to come in thick and fast across many branches of the economy, with roads, railways, airports and seaports needing upgrades to meet international standards, in addition to the continued expansion of the country’s real estate and retail conglomerates.

 

As well as the increased divestments of State-owned enterprises, Vietnam’s administrative policy framework will need to be improved to attract and accommodate foreign investors.

 

Banking on big deals

 

Besides recent prime ministerial decisions regarding the SOE equitisation process, the government has made a priority of dealing with non-performing loans. This in particular could mean big news for M&A activity in the banking sector.

 

A resolution was recently adopted by the country’s National Assembly, with the State Bank of Vietnam (SBV) aiming to reduce the ratio of non-performing loans (NPLs) to below 3 percent by 2020. As part of the resolution, credit institutions, foreign entities and bad debt trading institutions will be able to buy and sell bad debts in an open and transparent way.

 

The move has had a positive impact on banking shares, and recent reports suggest that South Korea’s Shinhan Bank is poised to acquire a financial institution in Vietnam, following its takeover of ANZ Vietnam’s retail business. Two Japanese investors are also negotiating the purchase of stakes in two different Vietnamese financial institutions.

 

Moves like these show that foreign firms appreciate the potential of Vietnamese consumer finance, especially with attempts to unburden the system of its bad debt. StoxPlus, a leading financial and business information corporation in Vietnam, valued the market in 2016 at US$26.55 billion, with an annual growth rate of 30-40%.

 

Japan’s interest is good news for Vietnam’s budding financial sector, which could do with an injection of experience from more established players.

 

So, there is reason to be optimistic. However, participants at the M&A Forum stressed that foreign-ownership limits and the lack of clear regulations in areas attractive to big investors are still obstacles to fulfilling the country’s potential.

 

Dearth of details

 

Foreign investors often bring up the subject of transparency, which remains a big issue. The opaque investment environment can complicate negotiations in Vietnam, and this is particularly true when dealing with equitised state-owned enterprises. Investors are required to make substantial upfront commitments in terms of time and money at the early stages of the bidding process, shouldering significant risks to enter the market.

 

Used to dealing with more sophisticated operations, the financial statements of Vietnamese companies can also fall short of investors’ expectations. There is certainly a need for advisors and consultants, who can help with valuations and due diligence, offsetting some of the risk involved.

 

Until Vietnamese firms grow large enough to regularly participate in substantial cross-border M&A deals, foreign partners will need to make sufficient preparations when it comes to tax and legal requirements. Over time, Vietnamese companies will become more aware of the requirements set forward by investors in M&A transactions, which will generate more deal flow as well as shorten the transaction process.

 

Cause for cautious optimism

 

These complaints aside, the overall impression at the M&A Forum was positive, with some predicting that M&A activities in Vietnam would double or triple over the next five to ten years. With some adjustments it’s certainly possible to surpass 2016’s deal value in the short term, especially if the growth of the consumer retail sector continues to attract the attention of Korean investors. Raising the foreign-ownership limits in Vietnamese banks could also prove to be a tipping point for some big transactions.

 

To maintain momentum over the long term, however, more significant adjustments will be needed. The issues of equitising SOEs, state divestment and the foreign ownership cap will become more urgent as time goes on. The government will need to respond to suggestions and support legal reforms if the country is to attract more M&A capital. Crucially, the efficiency and transparency of the M&A market will need to be improved for foreign investors. Policymakers have promised that further legal reforms are underway and the government is pushing forward with state divestment. Let’s hope they keep to their commitments.

 

For more information about M&A in Vietnam, please contact Giles at GTCooper@duanemorris.com 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.

Risk and reward in Vietnam’s real estate as investors ignore uncertainty over future of land rights

Vietnam has emerged as an attractive destination for foreign investors looking to enter the real estate market. Driven by a fast-growing economy, high rate of urbanisation and expanding middle-class, cities like Hanoi, Da Nang and Ho Chi Minh City have become dynamic and lucrative metropolises. For those willing to shoulder the risks, the market offers substantial rewards and great potential over the coming decades.

 

Much of the development can be attributed to the implementation of the Land Law (No. 45/2013/QH13), Law on Housing (No. 65/2014/QH13) and Law on Real Estate Business (No. 66/2014/QH13), which effectively opened the floodgates to foreign investment in real estate.  In principle, these laws allow foreigners most of the same rights as locals when it comes to purchasing and owning real estate.  Many foreign development companies are jumping at the chance to develop new residential and commercial properties in one of the world’s fastest growing economies.  Question marks remain however over the underlying rights foreign-invested developers enjoy in the land on which these buildings sit and it remains to be seen how this will play out.

 

Lack of Certainty 

 

For many developers the country’s political landscape remains a hurdle. In Vietnam, land is collectively owned by the people, and administered by the State on their behalf. Under this system, property owners are denied full and legal ownership over the land. Their rights to the land are limited to ‘land use rights’ within the scope permitted by law.  A land user is issued a land use right certificate (LURC) that recognises the land user’s rights over the property.  There are different types of land use rights possible and some come very close to being analogous to freehold ownership as many would know it in the West (use right in perpetuity, subject to reversion and compulsory public works acqusitions, right to sell, transfer, mortgage etc).

Continue reading Risk and reward in Vietnam’s real estate as investors ignore uncertainty over future of land rights

Plenty of life in Vietnam’s M&A market despite bumps

Globally, 2017 has been an unpredictable year for the mergers and acquisitions (M&A) market, with the hangover of political and economic instability from 2016 inspiring caution among investors.

 

Foreign investment has been put on the back foot due to rising protectionism and the failure of promising free trade deals like the TPP (Trans-Pacific Partnership). Vietnam in particular has suffered and will need some big breakthroughs to regain lost momentum.

 

Although the TPP would have brought some big benefits to Vietnam, it is expected that other trade deals on the horizon will make up most of the shortfall. The nation has joined six regional FTAs as an ASEAN member, including the ASEAN Free Trade Area (AFTA) and the five FTAs between ASEAN and China, Japan, South Korea, India, Australia and New Zealand, as well as four bilateral FTAs with Chile, Japan, South Korea and the Eurasia Economic Union (EAEU). Negotiations over an FTA with the European Union (EU) have also been concluded.

 Sluggish start

 

Whereas 2016 was an exciting year for M&A in Vietnam, 2017 has gotten off to a slower start. According to a report released in advance of the M&A Forum (August 10, HCMC), deals in Vietnam hit an all-time record of US$5.8 billion in 2016, a growth of 11.92 percent compared to 2015. However, the market has slumped since the latter half of last year with fewer headline signings. The total value of M&A activity reached just US$1.1 billion in the first quarter, a drop of 24.4 percent year-on-year.

Continue reading Plenty of life in Vietnam’s M&A market despite bumps

Vietnam’s State-Owned Enterprises Equitisation and M&A – 6 July 2017 Presentation Slides

Slides from our recent presentation in Singapore on “SOE Equitisation and M&A – Recent Trends and Corporate Governance”.

Vietnam SOE Equitization and M&A-6 July 2017-Otto-ENG

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

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先日シンガポールで開催した「ベトナム国有企業の株式化とM&A~最近の動向とコーポレートガバナンス」についての日本語版プレゼン資料です。

Vietnam SOE Equitization and M&A-6 July 2017-Otto-JP

ご質問等ございましたら、オットー(MOtto@duanemorris.com)または弊所で通常連絡を取っている担当弁護士までご連絡ください。

 

明確化されたベトナムの物流会社に対する外国投資及びM&A

ベトナムでの外資系物流会社の設立と外国人によるベトナム人パートナーからの持分取得は、より明確なルールで進めることが可能となりました。ロジスティクス分門は、国際条約とベトナム国内法の施行の間に矛盾が生じて、多くの方々を悩ませていました。一方、ベトナム商工省(MOIT)は最近、より明確な施行規則(通達第 9911/BCT-KH号)、そしてホーチミン人民委員会やベトナム・ビジネス・フォーラム(VBF)に対する返答を含む、複数の公式文書を発行しています。同時に、日系物流会社はベトナムで100%外資で子会社を設立しました。

国際条約は国内法に優先する。MOITからのコメントもその基本原則を繰り返しています。従って、殆どの場合にはまず、ベトナムのWTOサービス・セクター・コミットメント(WTOSSC)を参考します。それにより、倉庫及びフォワーダーのような事業活動は100%外資での市場参入が可能ですが、コンテナ積降などの分野ではベトナム人の資本参加が必要です。

ベトナム流通分野の外資規制(WTOSSC)
CPC サービス分類 外国人保有比率
の上限
742 倉庫 100%
748 貨物運送代理 100%
749の一部 運送証券検査、貨物運送仲介、貨物鑑定、サンプル採取、重量判定、貨物の受取、受入、運送証明準備 99%
7211 海運(国内運送を除く顧客運送) 49%
7212 海運(国内運送を除く貨物運送) 51%
7221 内陸水路運送(顧客運送) 49%
7222 内陸水路運送(貨物運送) 49%
7111 鉄道運送(顧客運送) 未公約
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%
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%
7512 配達(速配サービス) 100%
621, 61111, 6113, 6121, 622, 631 + 632 流通(輸出入、販売代理店、卸売、小売) 100%

M&Aにおける外国人買い手としては、購入価格やその他の条件に加え、絶対に不可欠なものと任意な事業内容をリストアップし、対象企業への出資比率の最良のケース及び許容範囲を考慮し区別しておくことをお勧めします。

ヤマト運輸及び佐川急便は、ベトナムで独資での子会社を設立しました。これは100%外資で可能な事業内容を戦略的に選別した上で可能となっています。

詳細につきましては、ジャイルズ・クーパー(gtcooper@duanemorris.com)、オットー マンフレッド 倉雄(motto@duanemorris.com) 、又はドウェイン・モリス法律事務所で通常連絡を取っている弁護士へご連絡ください。

More Clarity on Foreign Investment and M&A in Logistics Companies in Vietnam

Foreign investors can now proceed with more certainty when setting up logistic companies or acquiring stakes from Vietnamese partners. Logistics is an area where discrepancies between international treaties and domestic law implementation have caused many headaches. However, Vietnam’s Ministry of Industry and Trade (MOIT) has recently provided more clarity through a guiding regulation (Circular No. 9911/BCT-KH) and a number of official letters, including responses to the Ho Chi Minh City People’s Committee and the Vietnam Business Forum. At the same time, a few Japanese logistics companies have established 100% foreign-invested subsidiaries in Vietnam.

International treaties should supersede national law, and official comments from MOIT have restated that view. So, we initially refer to Vietnam’s WTO service sector commitments (WTOSSC) in most cases. Accordingly, some sectors are open to 100% foreign investment (e.g., warehousing and freight forwarding), while some still require Vietnamese equity participation (e.g., container handling).

Foreign Ownership Limitations in the Logistics Sector (WTOSSC)
CPC Service Description Max. Foreign Ownership
742 Storage and Warehouse 100%
748 Freight transport agency (incl. freight forwarding services) 100%
749 (partially) Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners 99%
7211 Maritime transport (Passengers; less cabotage) 49%
7212 Maritime transport (Freight; less cabotage) 51%
7221 Internal waterways transport (Passengers) 49%
7222 Internal waterways transport (Freight) 49%
7111 Rail transport (Passengers) Unbound
7112 Rail transport (Freight) 49%
7121 + 7122 Road transport (Passengers) 49%
7123 Road transport (Freight) 51%
No CPC Custom clearance 99%
No CPC Container station and depot 100%
7411 Container handling (except at airports) 50%
7512 Courier (express delivery) 100%
621, 61111, 6113, 6121, 622, 631 + 632 Distribution (import/export, commission agents, wholesale, retail) 100%

As a foreign buyer in an M&A case, besides the purchases price and other conditions, we recommend to consider and differentiate between absolutely essential and optional business lines as well as the best case and acceptable levels of ownership in the target.

Yamato Logistics and Sagawa Express have established 100% foreign-invested subsidiaries in Vietnam. This is possible through strategically limiting business lines to those that are open to 100% foreign investment.

For further information, please  contact Giles Cooper (gtcooper@duanemorris.com), Manfred Otto (motto@duanemorris.com) or any other lawyer you are regularly communicating with at Duane Morris.

Lawyer in Vietnam Oliver Massmann Public Merger and Acquisitions in Vietnam

There has been a steady growth in M&A activities in Vietnam since Vietnam officially became a member of the World Trade Organization (WTO) in 2007. The first M&A wave in Vietnam occurred during the period between 2008 and 2013, with a reported total value of US$15 billion. Japanese investors made about US$1.2 billion worth of deals in 2012. Japan is the leading country for M&A deals in Vietnam in terms of both quantity and value. This helped the M&A market in Vietnam to reach a peak of US$5.1 billion in 2012. Fast-moving consumer goods are considered to be the most attractive sector, with a total value of M&A transactions up to US$1 billion, accounting for 25% of the total M&A value in Vietnam. The retail and real property sectors are also very active, with high value M&A deals. Vietnam’s M&A market experienced a strong recovery in 2014, with six deals being reportedly made every week. There were a total of 313 M&A deals in 2014, with a value of US$2.5 billion, a 15% increase compared with the previous year.
How to obtain control of a public company
The most common means of obtaining control over a public company are as follows:
The acquisition of shares/charter capital through:
buying shares/charter capital from the existing shareholders of the company;
buying shares/charter capital of a listed company on the stock exchange; and
public share purchase offer.
Through a merger. The 2014 Law on Enterprises sets out the procedures for company mergers by way of a transfer of all lawful assets, rights, obligations and interests to the merged company, and for the simultaneous termination of the merging companies.
Through the acquisition of assets.
There are restrictions on the purchase of shares/charter capital of local companies by foreign investors. In addition, the law does not yet allow merger or assets acquisition transactions where a foreign investor is a party.
Securities of public companies must be registered and deposited at the Vietnam Securities Depository Centre before being traded.
Depending on the numbers of shares purchased, an investor can become a controlling shareholder. Under the Vietnam Law on Securities, a shareholder that directly or indirectly owns 5% or more of the voting shares of an issuing organisation is a major shareholder. Any transactions that result in more than 10% ownership of the paid-up charter capital of the securities company must seek approval of the State Securities Commission (SSC).
What a bidder generally questions before making a bid
Before officially contacting the potential target, the bidder conducts a preliminary assessment based on publicly available information. The bidder then contacts the target, expresses its intention of buying shares/subscribing for its shares and the parties sign a confidentiality agreement before the due diligence process. The confidentiality agreement basically includes confidentiality obligations in performing the transaction. The enforcement of confidentiality agreements by courts in Vietnam remains untested.
A bidder’s legal due diligence usually covers the following matters:
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.
Contractual agreements of the target.
Statutory approvals and permits regarding the business activities of the target.
Insurance, tax, intellectual property, debts, and land-related issues.
Anti-trust, corruption and other regulatory issues.
Restrictions on shares transfer of key shareholders
Founding shareholders can only transfer their shares to other founding shareholders of the company within three years from the issuance of the Enterprise Registration Certificate. After then, the shares can be transferred freely. An internal approval of the general meeting of shareholders is always required if:
The company increases its capital by issuing new shares.
There is any share transfer of the founding shareholders 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 of the approval plan to sell the shares. In addition, the selling price to foreign and domestic buyers must be the same.
When a tender offer is required
A tender offer is required in the following cases:
Purchase of a company’s circulating shares that results 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 State Securities Commission’s (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.
Making the bid public
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 board of the target must send its opinions regarding the offer to the SSC and the shareholders of the target within 14 days from 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 10 days of completion.
Companies operating in specific sectors (such as banking, insurance, and so on) can be subject to a different timetable.
Form of consideration and minimum level of consideration
Under Vietnamese law, 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.
In cases of full acquisition of state-owned enterprises, the first payment for the share purchase must not be less than 70% of the value of such shares, with the remaining amount being paid within 12 months.
In transactions involving auctions of shares by state-owned enterprises, the purchaser must make a deposit of 10% of the value of the shares registered for subscription based on the reserve price at least five working days before the auction date included in the target company’s rule. Additionally, the purchaser must transfer the entire consideration for the shares into the bank account of the body conducting the auction within ten working days of the announcement of the auction results.
In the case of a public tender offer, the payment and transfer of shares via a securities agent company appointed to act as an agent for the public tender offer must comply with Decree 58/2012/ND-CP.
Delisting 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 approval of de-listing of the stock;
the board of directors’ approval of de-listing of bonds; and
the shareholders’ general meeting approval of de-listing of convertible bonds.
The members’ council (for a multi-member limited liability company) or the company’s owner (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 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 Hanoi Stock Exchange or Ho Chi Minh Stock Exchange must consider the request for de-listing within ten and 15 days from the receipt of a valid application, respectively.
Transfer duties payable on the sale of shares in a company
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 such capital. Foreign companies and local corporate entities are subject to a corporate income tax of 22% (20% from 1 January 2016). 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 his 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, he is 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.
Restrictions on repatriation of profits and/ or foreign exchange rules for foreign companies
If the target company in Vietnam already has an investment 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 certificate, the foreign investor will need to open an indirect investment capital account for payment to the seller and remittance of profits.

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

What’s a Controlling Stake in a Vietnamese Company? Watch the New Voting Thresholds!

MA-Bridge-Banner

By Giles Cooper and Manfred Otto, Duane Morris Vietnam LLC

More for Less. A shareholder of Vietnamese joint stock company (JSC) will be able to generally control the company with a simple majority of 51%, unlike the statutory minimum of 65% currently.  This change, set out in the new Enterprise Law effective from July 2015, comes at the same time as other favorable M&A regulations for foreign investors who seek to buy stakes in Vietnamese companies (see Vietnam’s New Investment Law Paves the Way for More M&A – No More Investment Certificates!). The new regulations are expected to support the continued uptrend in M&A activity in Vietnam.

Voting thresholds in a shareholding company

Under the new Enterprise Law, the statutory voting thresholds for a JSC’s general meeting of shareholders (GMS) will be lower:

  • Quorum: 51% of voting shares (old law: 65%)
  • 65% of the votes for special resolutions (old law: 75%)
  • 51% of the votes for all other shareholder resolutions (old law: 65%)

Voting thresholds in a JSC in Vietnam

A foreign investor will be able to generally control a JSC with only a 51% stake. It was impossible to do so in the past, absent voting preference shares or other voting arrangements of limited enforceability.

On the other hand, investors who relied on minority stakes (e.g., 25% or 35%) to block GMS resolutions should be alerted. They risk losing their “veto right,” if the company amends their voting thresholds to 65% and 51%.

The current cap for foreign investment into publicly-listed companies still stands at 49% (lower for financial institutions etc.). Those caps have long been expected to change to spur the stock market. However, raising the cap to say 65% would theoretically open the door to hostile takeovers of publicly-listed companies by foreign investors under the new law.

Voting thresholds in a limited liability company

Unlike in a JSC, 51% does not constitute a majority required for decisions in a limited liability company with multiple members (MLLC) under the current and the new Enterprise Law.

Statutory voting thresholds for members’ council resolutions in an MLLC:

  • 75% for special resolutions
  • 65% for ordinary resolutions

Note that in single-member limited liabilities companies, the above thresholds don’t matter, because there is only one investor. So long as there is no members’ council, most decisions can be unanimously made by the owner or chairperson.

Time to amend charters

As under the current law, the voting thresholds must be reflected in the company’s charter to become effective.

Investors interested in applying the new lower voting thresholds will need to reach consensus with other shareholders according to the decision-making rules contained in the relevant existing charters.  In the vast majority of cases this means the GMS will still have to pass a special resolution with the current minimum required votes (at least 75%).

New investors should always check the target company’s constitutional documents with the help of competent legal counsel, before negotiating amendments and before closing deals.

Duane Morris Vietnam LLC is here to help you in your negotiations with business partners and structure your investments in Vietnam. We have been top-ranked in Corporate and M&A by Legal 500 again this year.

For more information please contact Giles T. Cooper or Manfred Otto.
日本語でのお問い合わせは japanese@duanemorris.com までお寄せください。

 Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. In addition, in Vietnam, the authorities enjoy broad discretion to interpret and administer the laws. Current laws are subject to revision and further details in guiding and implementing regulations. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

Vietnam’s New Investment Law Paves the Way for More M&A – No More Investment Certificates!

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By Giles T. Cooper, Manfred Otto, Nhan T. Le, Duane Morris Vietnam LLC

Good news for M&A in Vietnam! Effective 1 July 2015, foreign investors won’t need to undergo lengthy investment certificate procedures when buying stakes in Vietnamese target companies.  The change, introduced by the new Investment Law, will hopefully end years of uncertainty and frustration faced by foreign investors eyeing Vietnam market entry or expansion via M&A.

M&A activity in Vietnam saw a 15% uptick in 2014 and is expected to increase in 2015. We’ve seen a strong increase of interest from international investors, especially in the last months of 2014 continuing into 2015. The TPP (which includes the U.S. and Japan), the EU-Vietnam FTA as well as tariff reductions under the AFTA are all scheduled for this year.  These will increase market access for foreign investors in Vietnam and lower barriers to trade in goods and services.

Mergers & Acquisitions in Vietnam 1999-2014

 Source: Institute of Mergers, Acquisitions and Alliances

Why is the investment certificate question so important?

Put simply, it can take forever to get an investment certificate (IC) and without one investments are at high risk.  Under current law, Vietnam has different licensing procedures for foreign and domestic investors. The IC serves as business registration for foreign investors. In practice, despite a 45 day maximum statutory time limit, the lC process can take 4 to 6 months or longer, while domestic business can be registered within a day.

Under the new Investment Law, the IC is replaced by an “investment registration certificate” (IRC) and an enterprise registration certificate (ERC). Obtaining ERCs should be straightforward, as they only contain basic business info and also apply to domestic investors. We have high hopes that IRCs will be processed faster than current ICs, but wouldn’t it be nice to invest without an IRC? Continue reading Vietnam’s New Investment Law Paves the Way for More M&A – No More Investment Certificates!